Financial Matters & the Closely Held Corporation
1. characteristics of equity securities and debt financing
a. equity securities: vote not tax-deductible
b. debt financing: don’t vote interest on debt is tax-deductible
2. pre-emptive rights: (default rule)
a. right to keep your % shares so your control is not dilluted
1. employee stock option plan
2. shares sold for something besides cash
3. shares! classes of stock
a. voting, non-voting
b. dividend preferences:
i. cumulative: gets dividends before anyone else can
ii. part cumulative: cumulates for one year
iii. non-cumulative: duh.
iv. participating: gets special dividends, but also get the same dividends everyone else gets (non-particip. is opposite)
c. treasury shares: issued but not outstanding (don’t count for quorum)
a. distributions are authorized to be issued by BOD so long as distributions are not more than the surplus [directors voting for unauthorized distribs are liable for amt that shouln’t have been distrb’d (unless relying in GF); cured when surplus reached]:
assets – liabilites = N.A.
Equity = S.C. = par value * issues shares [not T-shares]
Surplus = NA – SC
b. suppression of dividends, selective repurchase of shares
i. Texas: SH’s do not owe each other a FD (only to corporation)
ii. Ct’s will only compel dividends if P shows malice.
iii. if the SH is also a director, there may be a FD breached b/c the BOD owes a FD to the corporation (incl. SHs)
iv. majority SH duty to minority SHs?
1. there may be a FD based on other grounds (e.g. confidential relationship); Q for jury
2. one Tex. App. Ct found oppression and ordered maj. to buy minority SHs shares at fair value
A) conduct that substantially defeats the expectations that, objectively viewed, were rzbl under the cirx & central to min SH’s decision to joing the corp. or
B) burdensome, harsh & wrongful conduct; lack of fair dealing to the prejudice of some SHs; a visible departure from GFFD
C) note: firing could be oppressive, but never so held.; follows close to bsns jj rule
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