Shareholders Rights

Shareholders Rights

Requirements for Valid Action at a Shareholder Meeting * Read statute, bylaws and articles * 1. Authority for the meeting * 2. Proper notice (or waiver of notice) * 3. Quorum * 4. Required number of votes cast in favor 1. Authority for Meeting * The meeting must be authorized * Look to statute and bylaws for authorization * Annual meetings MBCA §7. 01 * Special meetings MBCA § 7. 02 * Court ordered meetings MBCA § 7. 03 * Who may call a special shareholders meeting? 2. Proper Notice * See MBCA § 7. 05; Del. § 222 * a) Must the meeting notice state the purpose of the meeting? Annual meeting MBCA § 7. 05(b) * Special meeting MBCA § 7. 05(c) * NOTE: A number of provisions in the applicable corporation statute will contain special notice provisions. See, e. g. , MBCA §10. 03(d) * b) Who is entitled to notice? * generally only shareholders entitled to vote MBCA § 7. 05(a) * only shareholders on record date MBCA § 7. 07; Del. § 213 * Note: In some cases shareholder who are not entitled to vote are entitled to notice. See, e. g. , MBCA §§ 10. 03(d) & 11. 04(d). * c) What about electronic notice? * See MBCA § 1. 1(c); Del. § 232 * d) Can notice be waived? * Notice (or a defect in a notice) may be waived expressly or by participation in the meeting. See MBCA § 7. 06; Del. § 229 * e) What notice is required in the case of an adjourned meeting? * See MBCA § 7. 05(e) 3. Quorum Requirement * See MBCA § 7. 25(a); Del. § 216 * a) Can a greater or lesser quorum be authorized? * See MBCA § 7. 27. The articles of incorporation may provide for a greater than majority quorum * See MBCA § 7. 25 Official Comment 5 (lesser quorum) * Compare Del. 216, which also permits the bylaws to vary the quorum requirement * Why would a corporation permit a lower than majority quorum? * b) Can shareholder, by withdrawing from a meeting, break a quorum? * See MBCA § 7. 25(b) (no) * Not all corporation statutes (e. g. , Del. ) address this issue * There is some case law contra to the position adopted by the MBCA 4. Required Number of Votes * Traditionally the required number of votes is a majority of those present in person or by proxy. See Del. § 216 * The Revised Model Act takes a different approach. See MBCA § 7. 5(c) * What is the difference between the Del. approach and the MBCA approach? * What about elections of directors? * The trend is to merely require a plurality of votes cast. See MBCA § 7. 28(a) and Del. § 216 * What is cumulative voting for directors? How does it compare with straight voting for directors? * See MBCA § 7. 28(c); Del. § 214 * What are the advantages of cumulative voting? * What are the possible disadvantages of cumulative voting? * Only a small minority of states require cumulative voting * Of those that permit cumulative voting, most (including the MBCA and Del. are “opt in” statutes * Why does the MBCA require notice before cumulative voting is permitted? * How valuable is cumulative voting? * a) Can the amount of votes required for shareholder action be increased? * See MBCA § 7. 27 and Del. § 216 * Del. allows supermajority voting requirements to be placed either in the certificate or bylaws * b) Some types of shareholder action have special voting requirements * Some types of action require a majority of the votes entitled to be cast. See, e. g. , MBCA § 10. 03(e) * Non-voting shareholders may have statutory right to vote on some things.

See Del. § 351 * IT IS IMPORTANT TO READ THE STATUTE What about meeting minutes? * Is a meeting valid without minutes? Supermajority Quorum or Voting Provisions * The ability to raise quorum and vote requirements provides a tool that may be used to protect minority shareholders * Use of this tool increases possibility of shareholder deadlock * Is deadlock necessarily bad? Determining Who is Entitled to Vote * How does a corporation determine who is entitled to vote (and to notice)? * See MBCA § 7. 07 * What about beneficial owners? * See MBCA § 1. 40(22) and Del. 219(c) * See also MBCA § 7. 23. There is no equivalent Del. provision Proxy Appointments * Does a shareholder have to be present in order to vote? * See MBCA § 7. 22 and Del. § 212 * Why is a proxy appointment generally only valid for a limited period of time? * MBCA (11 months); Del. (3 years) * When is a proxy appointment revocable? * Generally this is a question of agency law * The MBCA has a detailed provision on revocability * A number of problems can arise from the use of proxies. One is that of conflicting proxies * Is an e-mail, telegraphic or facsimile proxy valid? See MBCA § 7. 22(b); Del. § 212(c) & (d) * While the typical corporation statute does not impose significant requirements as to the form of a proxy, the SEC proxy rules do impose requirements for publicly held corporations * See SEC Rule 14a-4, suppl. p. 1671 Conduct of the Meeting * The Revised Model Act now includes some rules governing the conduct of a shareholder meeting. * See MBCA § 7. 08 * There is no comparable Del. provision * The bylaws of a Del. corporation may include provisions similar to the rules in the MBCA. Cf. sample bylaws, suppl. . 1117 Election Inspectors * The Revised Model Act and the Del. Act require some corporations to have election inspectors and set out the duties of such inspectors * See MBCA § 7. 29. See also Del. § 231 * In other corporations, the bylaws may provide for election inspectors Action by Written Consent Without a Meeting * Do you have to have a shareholder meeting? * Action may be taken by signed written consent without a meeting * See MBCA § 7. 04 and Del. § 228 * Notice may be required to nonvoting shareholders or, in Del. to non-consenting shareholders * Read the applicable statute! * Can the written consent procedure be used in publicly held corporations? * Why or why not? * Can a written consent be revoked? * See MBCA § 7. 04(b) Welcome to the 21st Century To what extent may electronic forms of communication or participation be used? * Can notice be given electronically? MBCA § 1. 41(c); Del. § 232 * Can a person participate in a meeting without being there? Del. § 211(a); MBCA § 7. 09. * Can a meeting occur completely in cyberspace? Del. § 211(a)