DE and MA Corporation Law Basics Compared (1) Shareholder Meeting

When forming a corporation, the first step is to decide which jurisdiction is the best fit for your corporation to be incorporated with. The jurisdiction consideration depends on a variety of factors, including the ease of the filing, the different taxes levied by each state, the business environment, place of primary business operation and management etc. and most importantly, the body of the corporation law of that state, as the corporations will be governed by the laws of the state where your corporation is incorporated. In the following and upcoming series of articles, we will discuss and compare some corporate law basics between Delaware (most popular incorporation state) and Massachusetts. This article looks at some of the basic rules regarding the shareholder meetings from the two jurisdictions.

DELAWARE GENERAL CORPORATION LAW (DGCL)

MASSACHUSETTS GENERAL CORPORATION LAW (MBCA)

Remote meeting is permitted under DGCL, and the Board of Directors may determine in its sole discretion that the shareholder meeting be held solely by means of remote communication instead of a physical place. See DGCL § 211(a). Remote meeting is also permitted under MBCA if authorized by the board of directors, however, MBCA does not allow a public corporation to hold a shareholder meeting solely by remote communications. See MBCA § 7.08
Special meeting can be called by Board of Directors, or other persons if such person or persons are authorized by the bylaws or certificate of incorporation. See DGCL § 211(d). DGCL does not indicate what other persons are, but usually they could be senior officers or shareholders holding a specified percentage of voting shares if authorized by the bylaws or certificate of incorporation. Special meeting can also be called by Board of Directors, or other persons (including senior officers) if authorized by the bylaws or articles of organization. Unlike DGCL, MBCA specifically allows shareholders holding more than 10 percent of voting shares if a private company or more than 40 percent of voting shares if a public company to call a special meeting. See MBCA § 7.02.
A prior written notice of meeting shall be given to shareholders no less than 10 days nor more than 60 days before the date of the meeting. DGCL § 222. Waiver of notice is equivalent to notice, if written and signed or electronically transmitted by the person entitled to notice, whether before or after the meeting and shareholder’s attendance at meeting also waives such notice unless for the purpose of objecting at the beginning of the meeting. See DGCL § 229. MBCA also requires a prior written notice of the shareholder meeting regardless annual or special meeting, and statutorily requires at least 7 days nor more than 60 days notice before the meeting. Waiver of notice is also permitted under MBCA if written and signed by the shareholder entitled to the notice, and the statute allows signature by facsimile or electronic signature. Shareholder’s attendance also waives the notice to the same extent as prescribed in DGCL. See MBCA §1.40(a) and 7.06.
List of shareholders entitled to vote shall be prepared by the corporation at least 10 days before the meeting. See DGCL § 219(a). Such list shall be open to be examined by the shareholders for a period of at least 10 days before the meeting. Id. The stock ledger is the only evidence of who is entitled to examine the list or to vote in person or by proxy. See DGCL § 219(c). Shareholder list for meeting shall be prepared for inspection by any shareholder beginning 2 business days after the notice of meeting is given and continuing through the meeting. See MBCA §7.20 (b). As to stock ledger, the statute requires that the corporation shall maintain a record of its shareholders with the list of names and addresses of all shareholders. See MBCA §16.01.
Quorum – if not otherwise provided in the bylaws or certificate of incorporation, the default quorum is a majority of the voting power of the outstanding shares, present in person or by proxy. In no event shall quorum requirement be reduced to be less than one third. See DGCL § 216. Quorum – a majority of the outstanding voting power is the statutory default rule, unless otherwise provided in the bylaws or articles of organization. Board of directors have the power to approve a greater quorum requirement (but not decrease) than required by the statute or bylaws or articles of organization. See MBCA § 7.27 (a).
Proxy voting is permitted as long as the appointment is in writing and signed, including by electronic transmission. Unless stated irrevocable or coupled with interest, the proxy can be revoked, duration of the proxy shall not exceed three years unless the proxy stated with a longer period. See DGCL § 212. A shareholder may also vote by proxy executed in writing by the shareholder either by manually signed, facsimile, conformed or electronic signatures.  See MBCA §1.40(a) and 7.22 (b). MBCA imposes a shorter valid duration for proxy appointment, which is 11 months from the date the shareholder signed or if undated, from the officer or agent’s receipt of it. See MBCA §7.22.
Voting requirements – unless otherwise provided in the bylaws or certificate of incorporation, the default rule is a majority of the voting power present in person or represented by proxy entitled to vote on the matter, provided that the quorum is present, except for the election of the directors. See DGCL § 216(2). Certain transactions, such as mergers, sale of assets, or dissolution may require an absolute majority of all the outstanding voting shares regardless of abstention or no-shows. Voting requirements – the statutory default rule is that a majority of the votes cast by the voting group, provided that the quorum is present, except for the election of the directors or otherwise provided in the articles of organization, bylaws or the statute. See MBCA §7.25, §7.27. Board of directors may require for a greater affirmative vote of the shareholders including more separate voting groups than that prescribed by the statute or the bylaws or articles of organization. See MBCA §7.27 (a).
Action by written consent is permitted unless otherwise provided in the certificate of incorporation. See DGCL § 228(a). Consent need not be unanimous, provided, however that consent represents the minimum number of shares that would be required to approve an action if the meeting were actually held, and prompt notice shall be given to those who have not consented in writing and would have been entitled to notice of the meeting. See DGCL § 228(a), (e). Action by written consent is effective if unanimous or to the extent permitted by the articles of organization, by less than unanimous written consent if it represents the minimum number of votes necessary to take the action at the meeting. See MBCA § 7.04 (a). At least 7 days prior notice shall be given to those unconsenting shareholders entitled to vote if less than unanimous and to those shareholders entitled to notice of the meeting even if they are not entitled to vote on the action. See MBCA § 7.04 (d)

© 2018 MT Law LLC. All Rights Reserved. Do not post without permission from the author.

Article drafted by Vincent Cheng, contact information: hmcheng@mtlawllc.com.

Disclaimer

This article is for informational purposes only. It does not constitute advertising, legal advice or legal opinion. It is not promised or guaranteed to be correct or complete and may or may not reflect the most current legal developments. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, an attorney–client relationship. MT Law LLC and the authors expressly disclaim all liability in respect to actions taken or not taken based on the contents of this article. Readers with legal questions should consult an attorney. The choice of a lawyer is an important decision and should not be based solely upon informational articles.

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