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CHAPTER 5: CORPORATE DIRECTORS, OFFICERS, AND SHAREHOLDERS 11
whole or in part.
owners. Consequently, in the long run, public shareholders may earn lower returns if a public access rule is
put into place. As more public shareholders impose more costs on publicly held companies, more top
managers will suggest that the corporation “do without them.” That is to say, more publicly held companies
will make it known to private equity funds that they are for sale.
opinion and are much more likely to engage in a meaningful dialogue with the institutions that hold
their shares.” How important is such a dialogue? What might be some of the topics of such a
dialogue?
ENHANCING YOUR LECTURE—
MOVING COMPANY INFORMATION ONTO THE INTERNET
Internet, although they may still choose among several options—including paper documents sent by mail—for
actually delivering the materials to shareholders.a
Enter the possibility of a “shareholder access” rule. Such a rule would make it easier for shareholders to
use the proxy process to elect dissident candidates for a board of directors of a publicly held company. The
CHAPTER 5: CORPORATE DIRECTORS, OFFICERS, AND SHAREHOLDERS 13
delivery option. Under this model, the corporation posts the proxy materials on a Web site and notifies the
shareholders that the proxy materials are available online.
The notice and access model involves the following steps—
the meeting notice required by state law)..
• The notice must be written in plain English, and it must include a prominent statement of the
following: the date, time, and location of the shareholders’ meeting; the specific Web site at which
shareholders can access the proxy materials; an explanation of how they can obtain paper copies of
• If a shareholder requests paper proxy materials, the company must send them within three business
days.
• After receiving the initial paper notice, a shareholder can permanently elect to receive all future proxy
of these two options, as long as they also post the materials on a Web site. Many corporations choose one
option for certain shareholders and another option for other shareholders, depending on the number of shares
owned or whether the shareholders are domestic or foreign. The shareholder can always choose to receive
paper documents rather than accessing materials online.
Why might a company or other party choose to solicit proxies the old-fashioned way—by
providing paper documents instead of Internet access—despite the added costs?
ADDITIONAL BACKGROUND—
decisions that require shareholder approval, and other subjects. Shareholders can offer and respond to
proposals and resolutions. For example, shareholders concerned about social and political issues have used
shareholders meetings to propose changes in corporate activities that relate to the issues.
to its shareholders, the company must include whatever proposals will be considered at the meeting.
TITLE 17—COMMODITY AND SECURITIES EXCHANGES
CHAPTER II—SECURITIES AND EXCHANGE COMMISSION
PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934
a forthcoming meeting of the registrant’s security holders, the registrant shall set forth the proposal in its proxy
statement and identify it in its form of proxy and provide means by which security holders can make the
specification required by Rule 14a-4(b) [17 CFR 240.14a-4(b)]. Notwithstanding the foregoing, the registrant
shall not be required to include the proposal in its proxy statement or form of proxy unless the security holder
(hereinafter, the “proponent”) has complied with the requirements of this paragraph and paragraphs (b) and
beneficial owner of at least 1% or $1000 in market value of such voting securities of the registrant or that he
has been a beneficial owner of the securities for one or more years, the registrant shall make such request
within 14 calendar days after receiving the security holder proposal and the proponent shall furnish
appropriate documentation within 21 calendar days after receiving the request. Appropriate documentation of
the proponent’s claim of beneficial ownership shall include:
whole or in part.
(i) A written statement by a record owner or an independent third party, accompanied by the proponent’s
written statement that the proponent intends to continue ownership of such securities through the date on
which the meeting is held; or
(A) A copy of all subsequent amendments reporting a change in ownership level,
(B) The proponent’s affidavit, declaration, affirmation or other similar document provided for under applicable
state law attesting that the proponent continued to be the beneficial owner of at least 1% or $1000 in market
value of such voting securities of the registrant throughout the required one year period and as of the date of
proposals submitted by the proponent in its proxy material for any meeting held in the following two calendar
years.
(2) Notice and Attendance at the Meeting. At the time he submits a proposal, a proponent shall provide the
registrant in writing with his name, address, the number of the registrant’s voting securities that he holds of
(3) Timeliness. The proponent shall submit his proposal sufficiently far in advance of the meeting so that it is
received by the registrant within the following time periods:
(i) Annual Meetings. A proposal to be presented at an annual meeting shall be received at the registrant’s
(ii) Other Meetings. A proposal to be presented at any meeting other than an annual meeting specified in
paragraph (a)(3)(i) of this section shall be received a reasonable time before the solicitation is made.
16 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
Note.—In order to curtail controversy as to the date on which a proposal was received by the registrant, it is suggested
(4) Number of Proposals. The proponent may submit no more than one proposal and an accompanying
supporting statement for inclusion in the issuer’s proxy materials for a meeting of security holders. If the
proponent submits more than one proposal, or if he fails to comply with the 500 word limit mentioned in
paragraph (b)(1) of this section, he shall be provided the opportunity to reduce the items submitted by him to
and the registrant shall not be responsible for such statement and the proposal to which it relates.
(2) Identification of Proponent. The proxy statement shall also include either the name and address of the
proponent and the number of shares of the voting security held by the proponent or a statement that such
information will be furnished by the registrant to any person, orally or in writing as requested, promptly upon
holders.
Note.—Whether a proposal is a proper subject for action by security holders will depend on the applicable
state law. Under certain states’ laws, a proposal that mandates certain action by the registrant’s board of di-
rectors may not be a proper subject matter for shareholder action, while a proposal recommending or request-
(3) If the proposal or the supporting statement is contrary to any of the Commission’s proxy rules and
regulations, including Rule 14a-9 [s 240.14a-9 of this chapter], which prohibits false or misleading statements
in proxy soliciting materials;
most recent fiscal year, and is not otherwise significantly related to the issuer’s business;
(6) If the proposal deals with a matter beyond the registrant’s power to effectuate;
CHAPTER 5: CORPORATE DIRECTORS, OFFICERS, AND SHAREHOLDERS 17
(8) If the proposal relates to an election to office;
(9) If the proposal is counter to a proposal to be submitted by the registrant at the meeting;
holders in the registrant’s proxy statement and form of proxy relating to any annual or special meeting of
security holders held within the preceding five calendar years, it may be omitted from the registrant’s proxy
materials relating to any meeting of security holders held within three calendar years after the latest such
previous submission: Provided, That
(iii) If the prior proposal was submitted at three or more meetings during such preceding period, it received at
the time of its latest submission less than 10 percent of the total number of votes cast in regard thereto; or
(13) If the proposal relates to specific amounts of cash or stock dividends.
(1) The proposal;
(2) Any statement in support thereof as received from the proponent;
registrant deems the omission of the proposal to be proper and a copy of such supporting opinion of counsel.
18 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
proposal, promptly forward to the proponent a copy of the statement in opposition to the proposal. In the event
the proponent believes that the statement in opposition contains materially false or misleading statements
within the meaning of Rule 14a-9 and the proponent wishes to bring this matter to the attention of the
Commission, the proponent promptly should provide the staff with a letter setting forth the reasons for this
view and a copy of the statement in opposition and at the same time promptly provide the registrant with a
C. SHAREHOLDER VOTING
1. Quorum Requirements
A shareholder quorum is generally more than 50 percent. (Unanimous written, shareholder consent
is, in some states, a permissible alternative to a shareholders’ meeting.) A majority vote of the
Case 5.2: Case v. Sink & Rise, Inc.
During a shareholder meeting of Sink & Rise, Inc., James Case was the only shareholder present. He
elected himself and another shareholder to be directors, replacing his estranged wife, Shirley Case, as the
person or by proxy, and the shares were represented in person by husband.”
..................................................................................................................................................
Notes and Questions
CHAPTER 5: CORPORATE DIRECTORS, OFFICERS, AND SHAREHOLDERS 19
whole or in part.
ANSWERS TO LEGAL REASONING
QUESTIONS AT THE END OF CASE 5.2
1. How many shareholders were present at the shareholders’ meeting that gave rise to the dispute in
At the meeting, Cale concluded that a quorum existed and voted on and passed several resolutions. He
also elected himself and another shareholder to be directors, replacing Shirley, with whom Cale was
estranged, as the corporation's secretary. Shirley filed a complaint in a Wyoming state district court against
Sink & Rise and Cale to set aside these actions.
The state supreme court agreed with the lower court’s interpretation, explaining that “in an estate of the
entirety, the husband and the wife during their joint lives each owns, not a part, or a separate or a separable
interest, but the whole.” Thus, for example, the death of one spouse would leave the survivor still holding title
to the whole sixteen shares as before, but of course with no one to share it.
by proxy, shall constitute a quorum at a meeting of Shareholders. If a quorum is present, the affirmative vote
of the majority of shares entitled to vote at the meeting shall be the act of the Shareholders.” In other words,
according to the bylaws, for the shares to count in determining a quorum, they must be (1) entitled to vote,
and (2) represented in person or by proxy.
whole or in part.
at the center of this case. This number constituted a majority and hence a quorum. And a majority vote of
those shares could take action “with requisite authority.”
to the actions that were voted on during the shareholders’ meeting at the center of this case.
But this lack of agreement did not affect the business that could be conducted. Of the eighty-four
outstanding shares of Sink & Rise stock, fifty-two were represented at the meeting. Under the corporation’s
bylaws, this constituted a majority and hence a quorum. And a majority vote of those shares could take action
2. Voting Lists
Persons whose names appear on the corporation’s records as owners, as of a record date, are en-
titled to vote.
elected multiplied by the number of voting shares the shareholder owns. The shareholder
casts all votes for one candidate or splits them among nominees.
b. How Cumulative Voting Works
The text provides an example.
shareholder assigns the right to vote his or her shares to a trustee, usually for a specified period of
time).
IV. Rights of Shareholders
A. STOCK CERTIFICATES
In jurisdictions that require the issuance of stock certificates, shareholders can demand a certificate and
demand that their names and addresses be recorded in the corporate record books. In most states,
