Business Associations II Spring 2003
§141(a) and (b) –Pg. 522 DGCL
(f)—statutory permission for BOD to act w/o a meeting by using written consent
(g)—can hold meetings outside the state
Formalities Required for Action by the Board–Text pg. 206-209
Level One Matters
1. Level one matters—the rules
a. Directors must act as a body: in person; electronic teleconference; or written consent
2. Notice requirements for special meetings
3. Quorum rules
4. Voting requirements: majority or super-majority
Level Two Matters: consequences of non-compliance
Probable consequences when lawyers allow BOD to act informally outside the rules.
1. Unanimous explicit, but informal approval
a. No clear rule, but most courts would hold that at least in the context of closely held corporations, explicit but informal approval by all the directors effective where a person who has contracted with a corporate officer has been led to regard his transaction with the corporation as valid, and all the s/hs either are directors or have acquiesced in the transaction or in a past informal board action.
2. Majority approval or acquiescence.
a. (iii. on pg. 209.)
So it is very important to have BOD act formally or by written consent
When rules have not been followed it is very difficult to determine the outcome b/c there is very little case law in this area.
Assignment # 29—Legal structure of management
Traditional Legal Model
The Board is not generally an agent of the shareholders and directors can usually only be removed for cause.
Modern corp. practice
Board has legal role, however, central management is located in the executives and central figure is CEO.
Boards meet about 8 times a year. And the average director spend about 15 days on board matters including meeting and travel time. Not much time and so they could never manage the company in this short time
Officers have much more info. than the board members do and therefore the officers shape many of the boards decisions.
Most of the board members are tied to the CEO and rely on him/her for their position.
The monitoring board
Board cannot manage company directly so they manage the senior executives and hire and fire when necessary.
Assingment #32—SHAREHOLDER MEETINGS AND VOTING
§222—Notice of meetings and Adjourned meetings
(a)—written notice of meeting, place, time and in special circumstances purpose is required
(b)—Unless otherwise provided in chapter, written notice must be given between 10 and 60 days before the meeting.
(c)—If meeting it adjourned to another time and place written notice of new place or time is not required.
§229 Waiver of notice
§213—Fixing date for determination of stockholders of record
Assignment #33—DIRECTORS CLASSIFICATION AND REMOVAL
Number of directors specified by by-laws
This is for continuity of management
Many times a company is set up so each class of stock have right to elect their own directors
General Rule: If majority of shares entitled to vote agree than directors can be removed w/ or w/o cause
1. If board is classified under 141(d) directors can only be removed w/ cause (unless COI specifically says w/o cause).
2. When there is cumulative voting there cannot be removal w/o cause of less than whole board. If less than whole board than you need cause.
§223—Vacancies and Newly Created Directorships
(a)(1)—there is a provision addressing the rules of vacancies and when they occur
Assignment #35—CLOSE CORPORATIONS: AGREEMENTS RESTRICTING SHAREHOLDERS
Advantage of s/h agreements w/ proxy is that iti s secret until you use it. But it might not be invalid.
In KS a voting trust only lasts for a ten year term.
Assignment # 36: CLOSE CORPORATIONS: AGREEMENTS RESTRICTING DIRECTOR ACTION
§ 141(a)—important for this, look at except clause.
Peck v. Horse
Corp had two s/h and they entered in
t, Loos takes shares and gives them to the corporation and corp. cancels the shares and gives Loos shares in “Loos-voting trustee”. He is on the certificate and a copy of the agreement would have to be open for shareholders to inspect. In this case, it was not open. The agreement between the parties did not do 218.
They also did not do a proxy coupled with an interest (a proxy that is irrevocable), so Haley’s say agreement is invalid and can vote anyway they want, not with Ringling.
Supreme Court says agreement is valid, but unenforceable b/c missing lang., but if lang. was there it would have been too much like a Voting Trust and therefore invalid b/c didn’t meet stat. req’ments. Court says voting/pooling agreements are valid and binding, parties can agree how they will vote in advance. Voting/pooling agreements are not the same as statutory voting trusts, if it was a voting trust it would be invalid due to failure to comply with statute’s requirements. Consideration for the shareholder agreement was mutual promises. Therefore, plain voting agreements without provisions on how to vote their shares are lawful, that is without proxies in the agreement.
Trial Court says agreement is valid. Haley’s violated the agreement by not doing what Loos said. Relief granted was Ringling could vote Haley shares way Loos wanted, ordered new election. Ringling was an implied agent and could vote the violators shares. However, court made this up, gave specific performance, and said Ringlings are agents and could vote Haley’s shares.
Supreme Ct.: There was no language in the contract that someone else votes another person’s shares, everyone votes their own shares. Court says no words that made Loos an implied agent to vote