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Business Associations II
University of Kansas School of Law
Hecker Jr., Edwin W.

I.         Close Corporations: Agreements Restricting Shareholder Action
A.      Cumulative Voting: (necessary for minority shareholders to have a say in mgmt.)
1.        The COI must authorize
2.        ((# of directors client wants to elect / Total # of directors to be elected + 1) * total # of shares voting) + 1 = shares client needs
3.        Example: A 300 shares & director; B 300 shares & director; C 300 shares & director
(¼ * 900) + 1 = 226 votes necessary to elect one member
                                Quorum and Vote Necessary to pass a resolution:
BOD Quorum ——-2                                                (§ 141(b) of Delaware)
Vote if 3 present —-2
Vote if 2 present —-2
S/H Quorum ————–451                                (216(i) & (ii))
Vote if 900 present ——451
Vote if 451 present ——226
B.       Shareholder Voting Agreements and Voting Trusts (Agreements restricting shareholder action)
1.        Contract voting Agreements between shareholders
a.       Two Questions
i.         Is the Contract Valid? If so…
ii.        Is the Contract Effective?
b.       Validity of Voting Trust
i.         A contract is a voting trust in substance if it complies with the voting trust statute
1.        Voting Trust needs a trustee; Arbitrator is not a trustee b/c:
a.        Only involved if parties disagree on how to vote
b.       Cannot enforce his arbitration decision; he can be ignored by the parties
c.       Effectiveness
i.         Need to have an irrevocable proxy so that one party can vote all shares to be effective
d.       Relief:
i.         No specific enforcement
ii.        Throw out the breaching party’s votes
2.        Pooling Contract
a.       No proxies to vote others shares
b.       No specific enforcement
c.       If court’s only remedy is to throw out breaching parties shares
3.        Voting Trust: (A voting trust requires a separation between the voting and the beneficial ownership)
a.       Real live trust designed to sever the voting rights from beneficial ownership in stock
i.         A and B transfer stock to Voting Trustee
ii.        Stock held in the name of Trustee
iii.      A and B are beneficiaries
iv.      Corp. has new s/h à the Trustee
v.       Trustee gets authority / power from trust agreement
vi.      Trustee votes the stock per the agreement
vii.    Dividends flow through the Trustee to the beneficiaries (A & B)
viii.   Legal only when state statute authorizes
ix.       Provides for judicial enforcement
x.        Contains irrevocable proxies à Irrevocable Proxy DGCL § 212(e)
b.       Abercrombie: 4 critical Elements in voting trust:
i.         Combination of two or more s/h’s
ii.        To control the corp. (purpose of agreement)
iii.      For some extended time period (beyond just the next meeting)
iv.      Via unified block of voting stock (stock will be voted per the agreement no matter what—party’s cannot change it; i.e., = irrevocable proxies
c.       Pooling K contains 1-3 above
i.         Element 4 is the deciding factor
ii.        Will the stock always be voted as a block, no matter what (irrevocable)?
1.        Yes = Voting Trust (but must comply with statute to be valid)
2.        No = Pooling K
d.       Important Note:
i.         Can never have a valid and effective pooling K
1.        Valid but not effective = Ringling
2.        If valid & effective then voting trust in substance = Abricombie
a.        Must then comply with voting statute
4.        Irrevocable Proxy: DGCL §212

a.       Delaware
i.         §218(d): appear to leave door open for Abercrombie.
ii.        Oceanic cites Abercrombie for definition of voting trust
iii.      Obviously Delaware courts do NOT think 218(d) overrules Abercrombie
iv.      Still an open question in DE
8.        RMBCA
a.       §7.30- Voting Trusts
i.         One or more s/hs may create a voting trust, by signing the agreement and transferring their shares to the trustee
ii.        Effective on the date the shares are registered in the trustee’s name, but not valid for more than 10 years
iii.      To extent if for more than 10 years, an extension may be signed, and must obtain trustee’s written consent. Only bind the parties signing it.
b.       §7.31- Pooling Agreements
i.         s/h pooling K’s valid and not subject to provisions of the voting trust statute (7.30).
ii.        s/h voting contract is specifically enforceable
iii.      Does NOT follow Abercrombie
c.       §7.22(d)- Proxies
i.         A proxy is irrevocable if coupled with an interest.
9.        If Abercrombie is dead in your jurisdiction, how do you draft the pooling Contract to make the proxy irrevocable?
a.       Generally a Principle can terminate an Agent’s authority at will, even if the termination is in breach of K. (agency law)
Exception to general rule: Where agent holds a power coupled with an interest or given as a security. Rst. Of Agency § 138