Procedures for Running the Corp.
I) Action by the Board
Directors may take official actions at a Meeting or by Written Consent (Written Consent must be UNANIMOUS under MBCA §8.21)
Meeting
1) Notice: MBCA §8.22
a) by default, notice is not required for regular meetings
b) by default, 2 days notice is required for special meetings
c) director may waive notice, thereby curing any defect in the notice given, by merely showing up
2) Quorum: MBCA §8.24 – by default it is a majority of the directors, but it may be reduced by the articles or bylaws to no less than 1/3 of the directors
3) Proper Vote: no proxies (but conference call okay)
* Board may unilaterally amend the bylaws unless that power is specifically reserved to the shareholders by the Articles (MBCA §10.20)
Statutory Exceptions to Director Approval Rules:
Emergency Rule: quick decision necessary to prevent great harm or take advantage of a great opportunity
Unanimous approval of D’s (without following proper meeting rules)
Unanimous SH approval
Majority SH/D approval, where majority of D’s also own a majority of stock
II) Action by Shareholders
Meetings
1) Annual and Special
2) Notice (Record Date: someone other than holder on meeting day CAN get the notice)
3) Quorum: majority or reduced by articles to HOW MANY MINIMUM??
4) Vote (Record date: someone other than current holder on voting day can have right to vote, in this case can buy proxy right with stock)
Written consent
*The type of approval necessary for an action will be specified in articles or statute:
Plurality: top % getter
Majority: Over 50% of SH present or proxied
Absolute Majority: Over 50% of ALL SH
Supermajority: Pre-agreed #, i.e. 65%
Piercing the Corp. Veil
SH liable for debts of corp only by reason of OWN CONDUCT (MBCA §6.22) 3 ways:
1) Personal Guarantee of corp. debt by owners
2) Improperly formed Corporations: owners will be held liable as partners unless corp de jure, de facto, or by estoppel is found to exist, agents acting on behalf of a nonexistent principal are liable.
3) If it is equitable to “pierce the corporate veil”
-Unity of interest:
Ignoring corp formailites CASE
“Mere instrumentality”
“Alter Ego” Westin case (tort)
-Fraud or injustice: Corp undercapitalized, fraudulent activity.
*If PCV fails, may get at assets under an enterprise liability theory if it applies.
Other noncorporate
urts have 2 approaches:
DE FACTO merger doctorine: If transaction was structured a certain way for the purpose of circumventing SH interest, court can hold reg. merger rules applicable.
Independent Legal Significance Rule: As long as statutory and articles were followed by letter, transaction is fine.
III. Power to initiate actions (Derivative or Direct suits)
IV. Right of inspection/Appraisal
Inspection rights generally limited to those with proper (voting) stock ownership, for “proper” (i.e., financial) purpose. Gen. only financial statements can be accessed. CASE where guy wanted to inspect ties to defense b/c he opposed the Vietnam war.
Who votes? General Rule is that only those SH that hold voting stock can vote.
Exception: Non-voting stock may vote on issues that directly affect them (decision to take away rights from non-voters)
Class Voting: If issue has direct effect on a class of stock, need majority of ALL SH AND majority of class being affected
