Previously on our blog, we described what information members of a corporation’s Board of Directors can rely on in discharging their duties and explained how they can use the Business Judgment Rule ("BJR") as a defense to liability imposed in the event of an alleged breach of their duty of care. The use of the BJR as a defense by directors creates an obstacle to shareholders attempting to hold directors personally liable for a...

Parties often wait until a dispute arises to exercise or learn about their rights.  However, it is often more prudent to know and exercise rights before a dispute arises.  The main shareholder or partnership rights include limited “economic” rights, voting rights, inspection rights, the right to bring a derivative action, and, in certain circumstances, the right to start the dissolution process. Business entities can dissolve or cancel their businesses at almost any time. In particular, California...

“Economic” Shareholder Rights Shareholders invest in corporations primarily for economic gain or profit.  The two main ways shareholders can profit from a corporation are by receiving distributions of the company’s profits and by selling all or part of their interest in the corporation. These correspond with the two main “economic” shareholder rights: the right to receive dividends and the right to sell shares. Notably, shareholders only have the right to receive dividends as they are declared...

In California, Close Corporations are creatures of statute. They are not judicially created as they can be in other states. Therefore, in order to benefit from the legal protections of a Close Corporation, it must be properly formed and meet all statutory requirements. A Close Corporation is designed to give its shareholders more control over the operations of the business and allow for a flexible management model. A California Close Corporation may not have more...