978-1285770178 Lecture Note BL ComLaw 1e IM-Ch05 Part 2

CHAPTER 5: CORPORATE DIRECTORS, OFFICERS, AND SHAREHOLDERS 11

whole or in part.

much more power than individual shareholders.

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

(C) The proponent’s written statement that the proponent intends to continue ownership of such securities

through the date on which the meeting is held. In the event the registrant includes the proponent’s proposal in

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 address of the proponent. A proposal and its supporting statement in the aggregate shall not exceed 500

words. The supporting statement shall be furnished to the registrant at the time that the proposal is furnished,

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

the receipt of any oral or written request therefore.

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–

(2) If the proposal, if implemented, would require the registrant to violate any state law or federal law of the

(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;

(10) If the proposal has been rendered moot;

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

The Wyoming Supreme Court affirmed. “Shares of stock owned by husband and wife with rights of

survivorship were properly counted to establish a quorum at shareholder meeting, * * * where corporate

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.

Thus, lower quorum requirements are arguably supported by policies to facilitate business, encourage

corporate enterprise, and enable the participation of all corporate shareholders (because with lower

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,