Biz Org Chapter 9: Corporate Governance

Proxies

a proxy is an agent appointed by the shareholder to whom the shareholder gives express actual authority to vote the shareholders shares at a shareholders meeting.

Terms

1) Default rule: directors term is generally one year or till the next election. 2) corporation can stagger or change the length of the terms so that different positions are up for election at different times.

Voting Requirements

1) Default MBCA: shareholder voting requirement for matters other than the election of directors, its a more votes than against requirement. **articles may change requirement. 2) Default DGCL: is a majority of a quorum requirement. Affirmative vote of majority of shares present. *** same states maintain majority of a quorum rule. 3) different classes of shares have different levity of votes.

Elections

1) Default under MBCA and DGCL is that shareholders elect directors using straight voting. 2) Straight voting: each shareholder cast the number of votes they have per share.

Removal

1) Default: shareholders have the righto remove directors with or without cause. 2) MBCA requires more votes for than against removal. 3) DGCL is a majority of outstanding votes in favor of removal.

Charter amendment Process

1) Examine Article and Bylaws on charter amendment process, then test against governing corporate law. 2) MBCA: process is adopted by the board and the board must submit the amendment to the shareholders for their approval (with exceptions).

Written Consent

1) a corporation can secure shareholder approval by having its shareholders sign a piece of paper indicating their approval. 2) MBCA requires unanimity, but allows it to be reduces through charter provision that is the minimum amount of votes. 3) DGCL has the same minimum number of votes opposed to unanimity.

Shareholder Meetings

1) annual meeting are regularly scheduled meeting held by a corporation each year to vote on directors. 2) special meetings are held between annual meeting to have shareholders vote on matters that cannot wait till the annual meeting. 3) a vote for shareholders special meetings to be valid the must be a) notice of the meeting AND b)a quorum of votes must be present at the meeting.

Committees

1) corporate law statute allow the board to delegate power to committees compromised of one or more directors. 2) action of property formed committee is deemed to be action of the entire board. 3) MBCA and DGCL prohibit committees from taking certain actions such as amending corporate bylaws or approving a matter that requires shareholder approval. 4) Standing committees are permanent, ad hoc are temporary and are formed for a particular transaction. 5) Same rules of quorum, notice and vote apply to committee meetings.

Officers

1) corporations specify the titles and duties of its officers in its bylaws or through the board resolution as laws do not dictate this. 2) MBCA and DGCL the corporation must delegate an officer to prepare and maintain board and shareholder meeting minutes and authenticate the corporate records (title secretary).

Directors

1) default rule is that ultimate managerial authority resides in the board of directors. The elect officers to make day to day decisions.

Number and Qualifications of the board

1) in corporations by laws 2) MBCA and DGCL allow for a single director and neither dictate qualifications. 3) Most corporations do not ad qualifications to by laws unless in a regulated industry like banking.

Corporate Governance Structure

1) involves shareholders, directors, and officers. 2) shareholders elect board of directors, directors elect the officer,officers manage the day to day affairs of the corporation.

LITIGATION RELATED BYLAWS--Delaware courts uphold bylaws passed unilaterally by the board that:

1) mandate the forum in which such litigation must proceed and 2) require plaintiffs that such suits to pay the D's legal fees.

Shareholders

1) technically owners of the corporation, but have limited rights. 2) They may vote on: election and removal of directors, amendments to the corporations charter,shareholder initiated amendments to the corporations bylaws, dissolution of the corporation, a merger of the corporation, and a sale of all of the corporations assets. ** board can give shareholders rights to vote on additional matter... rare

Quorum

1)is the minimum number of votes that must be present at a shareholders meeting. ** in corporate law it is tied to shares not head count. 2) MBCA allows for greater but cannot lower requirements. 3) DGCL allows both greater and lower requirements.

By Laws

Amendments: 1) Default MBCA: both board and shareholders have the power to unilaterally amend or repeal the bylaws. 2) these rights can be limited or repealed for the directors but not the shareholders. 3) Default DGCL: shareholders have the power to unilaterally amend the corporations bylaws but the board does not. **can give the power to the board through charter provisions... board can do this through voting.

Notice

MBCA and DGCL requires a corporation to notify its shareholders of date, time, and place of meeting at least 10 but not more than 60 days prior to the meeting. ** must include description of the purpose for which the meeting is called.

Board Action

two types of meetings 1) Regular meetings: have specified dates in the corporations bylaws. 2) Special meetings are between regular meeting. **MBCA Default is that director need 2 days notice, but can be reduces by bylaws. DGCL does not have a default. 3) there must be a quorum at the meeting for a board to act. **Default: majority constitutes a quorum. MBCA and DGCL allow lower requirements in bylaws to as low as 1/3. 4) can also make decisions through written consent with unanimous approval.

Filling Vacancies

vacancies of the board can be filled by directors or by shareholders. Usually don't by directors as meetings are easier and quicker to hold.