Shareholder Voting Rights Outline

Shareholder Voting Rights

1. In General

   1. Under corporate statutes, the shareholders elect directors and replace directors in certain circumstances.

   2. Shareholders vote on certain (but not all) fundamental transactions, such as mergers, the sale of all or substantially all of the corporation's assets, amendments of the articles/certificate of incorporation, and voluntary dissolution of the corporation.

   3. Shareholders also have the right to amend the bylaws.

   4. Shareholders also voting on matters where the board seeks their approval, such as appointment of auditors, the adoption of management compensation plans, or the ratification of decisions that the board has made during the last year.

   5. Shareholder voting is a matter of state law, but in public corporations, the voting process and the disclosures made to shareholders in that process are regulated by the SEC's proxy rules under the Securities Exchange Act of 1934 (1934 Act).

2. Procedures for Shareholder Meetings

   1. Calling the Meeting (By Shareholders)

      1. Regular Meetings

         • A corporation's bylaws generally fix the date of regular meetings.

      2. Special Meetings

         • JURIS SPLIT

           • Majority Rule (MBCA): Most corporate statutes provide that the board of directors, owners of 10 percent of the shares, or any person so authorized by the articles of incorporation or bylaws may call a special meeting of shareholders.

             • MBCA § 7.02(a) provides that "[a] corporation shall hold a special meeting of shareholders:

               • (1) on call of its board of directors or the person or persons so authorized to do so by the articles of incorporation or bylaws; or

               • (2) if the holders of at least 10 percent of all the votes entitled to be cast on an issue proposed to be considered at the proposed special meeting sign, date, and deliver to the corporation's secretary one or more written demands for the meeting describing the purpose of purposes for which it is to be held, provided that the articles of incorporation may fix a lower percentage or a higher percentage not exceeding 25 percent of all the votes entitled to be cast on any issue proposed to be considered."

           • Minority Rule (Delaware): In Delaware, a special meeting cannot be called by the stockholders. See DGCL § 211(d).

             • DGCL § 211(d) only provides that "[s]pecial meetings of the stockholders may be called by the board of directors or by such person or persons as may be authorized by the certificate of incorporation or by the bylaws."

   2. Notice

      1. MBCA

         • MBCA § 7.05(a) provides that "[a] corporation shall notify shareholders of the date, time, and place of each annual and special shareholders' meeting no fewer than 10 nor more than 60 days before the meeting date. The notice shall include the record date for determining the shareholders entitled to vote at the meeting, if such date is different than the record date for determining shareholders entitled to notice of the meeting."

         • MBCA § 7.05(b) provides that "[u]nless this Act or the articles of incorporation require otherwise, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called" BUT MBCA § 7.05(c) provides that "[n]otice of a special meeting must include a description of the purpose or purposes for which the meeting is called."

         • A shareholder can waive notice, either in writing, MBCA § 7.06(a), or by attending a meeting and not objecting to the absence of notice, MBCA § 7.06(b).

      2. Delaware

         • DGCL § 222(a) provides that "[w]henever stockholders are required or permitted to take action at a meeting, a written notice shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communication, if any, by which shareholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called."

         • DGCL § 222(b) provides that "[u]nless otherwise provided in this chapter, the written notice of any meeting shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting . . . ."

         • DGCL § 213(a) permits the board of directors to fix one record date for stockholders entitled to notice of the meeting (no more than 60 nor less than 10 days before the date of the meeting) and a separate record date for determining the stockholders entitled to vote at the meeting. If the board does not fix a separate record date, the default record date will be the same as the record date set for determining stockholders entitled to vote.

   3. Quorum

      1. A quorum must be represented at a shareholders meeting, either in person or by proxy, for an action taken at the meeting to be effective. See MBCA § 7.25(a); DGCL § 216.

      2. MBCA

         • MBCA § 7.25(a) provides that "[u]nless the articles of incorporation provides otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on the matter."

           • The MBCA sets no minimum or maximum quorum but requires an amendment changing the quorum requirement.

      3. Delaware

         • DGCL § 216(1) provides that "[a] majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of the stockholders."

           • DGCL § 216 allows a majority of shares to amend a corporation's certificate of incorporation or bylaws to increase the quorum requirement or to reduce it to as little as one-third of the shares entitled to vote.

   4. Action By Written Consent

      1. Both the MBCA and the DGCL allow shareholders to act by written consent rather than at a meeting.

         • JURIS SPLIT

           • MBCA

             • MBCA § 7.04(a) requires the consent in writing of all shareholders entitled to vote in order to act by written consent.

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