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
b.  exceptions:
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)
4.  distributions
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
oppression:
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