Corporations question Forum

[LionelHutzJD]

An issue I have with Corporations questions is that i'm not sure when a Board vote is required and when a Shareholder vote is required. I understand that for the Board to act it must meet Quorom and majority requirements. And I understand the same for when Shareholders act.

for example: If the question asks "Will the votes of A and B be sufficient to approve the transaction". Well, what if A and B are both Directors AND Shareholders (which seems to usually be the case). Am I analyzing under Board meeting requirements or Shareholder meeting requirements?

Thank you and I hope I haven't confused anyone.

[k5220]

Fundamental corporate changes (merger*, dissolution, sale of substantially all assets) or any amendment of the articles of incorporation requires both board action and shareholder approval (by a majority of shareholders entitled to vote).
*exception for "short form" mergers which don't require SH approval

Other stuff (like distributions / issuance of stock) is within the board's discretion and doesn't need SH approval

If someone is a director and a shareholder, they count as both. Watch out for violations of duties and ethics stuff though (directors owe a duty of loyalty to the corp, and other stuff).

[ellewoods123]

Can someone explain to me how to tell whether I should apply the duty of care analysis or the duty of loyalty analysis? can they sometimes overlap?

for instance in MEE Corps Essay 1 - I went through a duty of loyalty analysis in my head in regards to the transaction between the director and the corporation where the director sold his personal property at inflated prices. This seems to me like a breach of the duty of loyalty because the director directly benefitted at the expense of the corporation? I get that not every interested transactions results in a DOL breach if there was full disclosure/approval - and I also get that the BJR doesn't apply to DOL.

So in that hypo if you say "the director would not be protected by the BJR because he didn't disclose material facts xyz.." are you essentially saying the same thing by saying "he is not protected by the BJR because he breached a duty of loyalty?"

i despised corps in law school.

[LockBox]

Fundamental corporate changes (merger*, dissolution, sale of substantially all assets) or any amendment of the articles of incorporation requires both board action and shareholder approval (by a majority of shareholders entitled to vote).
*exception for "short form" mergers which don't require SH approval

Other stuff (like distributions / issuance of stock) is within the board's discretion and doesn't need SH approval

If someone is a director and a shareholder, they count as both. Watch out for violations of duties and ethics stuff though (directors owe a duty of loyalty to the corp, and other stuff).

Just to go off of this, for a fundamental corporate change a BOD vote/approval is required in order to send it to the shareholders to vote. Otherwise, if the transaction is not a fundamental corporate change the BOD (who runs the corporation) votes on it.

Shareholders otherwise vote in order to elect/dismiss directors. This is my tenuous understanding of the law here.

[LurkerTurnedMember]

Can someone explain to me how to tell whether I should apply the duty of care analysis or the duty of loyalty analysis? can they sometimes overlap?

for instance in MEE Corps Essay 1 - I went through a duty of loyalty analysis in my head in regards to the transaction between the director and the corporation where the director sold his personal property at inflated prices. This seems to me like a breach of the duty of loyalty because the director directly benefitted at the expense of the corporation? I get that not every interested transactions results in a DOL breach if there was full disclosure/approval - and I also get that the BJR doesn't apply to DOL.

So in that hypo if you say "the director would not be protected by the BJR because he didn't disclose material facts xyz.." are you essentially saying the same thing by saying "he is not protected by the BJR because he breached a duty of loyalty?"

i despised corps in law school.

The BJR only applies to the duty of care, which takes the level of misconduct required for liability on directors and controlling shareholders from regular negligence to gross negligence. The corporation can further eliminate the duty of care if it does so in the Articles (under Del law, it's typically a waiver that turns further turns the gross negligence standard to pretty much intentional conduct, which is practically impossible to show and so practically serves as a waiver of duty of care).

The BJR and the waiver do not apply to the duty of loyalty. This makes sense because the duty of loyalty targets conflicts of interest, whether or not negligent/intentional or whatever it might be.

My suggestion to you (and my plan on the exam) is to just always throw in the duty of care analysis in there too if you're doing duty of loyalty. It can't hurt and it's not that long of an analysis. In your example, it seems like most of the analysis should've been in the duty of loyalty. So the guy/woman should've made sure (1) the deal with the corporation was fair and (2) disclosed the conflict to the corporation and got an approval of either the majority of disinterested shareholders or majority of disinterested directors.

Then you could've just added in another subpart about duty of care, said person needed to act in good faith and in a manner she'd act with her own property or corporation, but that BJR applies. Then a sentence or two about how failing to disclose the conflict or get approval could be a breach of this duty, and move on if there are other pressing issues.

[apricot]

Who can amend the Articles of Incorporation and By-laws?

[SFSpartan]

Who can amend the Articles of Incorporation and By-laws?

Amending the COI/AOI requires a vote of both the Board and the Stockholders. Bylaws are amended by a Stockholder vote unless the AOI/COI entitles the Board to vote on amendments, in which case both the Board and Stockholders must approve changes to Bylaws.

[Rahviveh]

Who can amend the Articles of Incorporation and By-laws?

Amending the COI/AOI requires a vote of both the Board and the Stockholders. Bylaws are amended by a Stockholder vote unless the AOI/COI entitles the Board to vote on amendments, in which case both the Board and Stockholders must approve changes to Bylaws.

Only shareholders can amend the AOI. I don't think the board needs to vote.

[SFSpartan]

Who can amend the Articles of Incorporation and By-laws?

Amending the COI/AOI requires a vote of both the Board and the Stockholders. Bylaws are amended by a Stockholder vote unless the AOI/COI entitles the Board to vote on amendments, in which case both the Board and Stockholders must approve changes to Bylaws.

Only shareholders can amend the AOI. I don't think the board needs to vote.

It's a fundamental corporate change. The Board needs to approve and present a plan to the Stockholders either at their next annual meeting or a special meeting. See GCL § 242(b).

[WhiskeynCoke]

Who can amend the Articles of Incorporation and By-laws?

Amending the COI/AOI requires a vote of both the Board and the Stockholders. Bylaws are amended by a Stockholder vote unless the AOI/COI entitles the Board to vote on amendments, in which case both the Board and Stockholders must approve changes to Bylaws.

This is backwards. The board can amend the bylaws on its own unless the AOI state otherwise. This makes sense when you think about it. The AOI are like the Constitution, and the Bylaws are like statutes. If there's a conflict, AOI > bylaws. Congress (board here) can change statutes (bylaws) on its own, but not the Constitution (AOI).

[SFSpartan]

Who can amend the Articles of Incorporation and By-laws?

Amending the COI/AOI requires a vote of both the Board and the Stockholders. Bylaws are amended by a Stockholder vote unless the AOI/COI entitles the Board to vote on amendments, in which case both the Board and Stockholders must approve changes to Bylaws.

This is backwards. The board can amend the bylaws on its own unless the AOI state otherwise. This makes sense when you think about it. The AOI are like the Constitution, and the Bylaws are like statutes. If there's a conflict, AOI > bylaws. Congress (board here) can change statutes (bylaws) on its own, but not the Constitution (AOI).

That's not how GCL 109(a) reads, though it does make sense conceptually. The Board and the Incorporator can amend Bylaws before the corporation issues stock. Once the corporation issues stock, the Stockholders have the power to adopt, amend, or repeal Bylaws. The Stockholders can give the Board voting rights as well. However, unless the COI states otherwise, the Board doesn't have exclusive authority to amend the Bylaws.

[apricot]

Can I ask a family law question here? You have a great understanding of the material.

For spousal support orders, once made in State X, how is the continuing jurisdicition of that state revoked? How and when can another state get jurisdicition to amend?

(not child support - just spousal support)

Thank you

[ballouttacontrol]

Who can amend the Articles of Incorporation and By-laws?

Amending the COI/AOI requires a vote of both the Board and the Stockholders. Bylaws are amended by a Stockholder vote unless the AOI/COI entitles the Board to vote on amendments, in which case both the Board and Stockholders must approve changes to Bylaws.

This is backwards. The board can amend the bylaws on its own unless the AOI state otherwise. This makes sense when you think about it. The AOI are like the Constitution, and the Bylaws are like statutes. If there's a conflict, AOI > bylaws. Congress (board here) can change statutes (bylaws) on its own, but not the Constitution (AOI).

That's not how GCL 109(a) reads, though it does make sense conceptually. The Board and the Incorporator can amend Bylaws before the corporation issues stock. Once the corporation issues stock, the Stockholders have the power to adopt, amend, or repeal Bylaws. The Stockholders can give the Board voting rights as well. However, unless the COI states otherwise, the Board doesn't have exclusive authority to amend the Bylaws.

Unless you're taking the DE bar idk why you're talking about the dgcl.

Bylaws are adopted by the shareholders, but can be modified or repealed by either the directors or the shareholders, unless the articles or a particular bylaw restricts it to only the shareholders. RMBCA s 10.20, Barbri outline P.7

[SFSpartan]

Who can amend the Articles of Incorporation and By-laws?

Amending the COI/AOI requires a vote of both the Board and the Stockholders. Bylaws are amended by a Stockholder vote unless the AOI/COI entitles the Board to vote on amendments, in which case both the Board and Stockholders must approve changes to Bylaws.

This is backwards. The board can amend the bylaws on its own unless the AOI state otherwise. This makes sense when you think about it. The AOI are like the Constitution, and the Bylaws are like statutes. If there's a conflict, AOI > bylaws. Congress (board here) can change statutes (bylaws) on its own, but not the Constitution (AOI).

That's not how GCL 109(a) reads, though it does make sense conceptually. The Board and the Incorporator can amend Bylaws before the corporation issues stock. Once the corporation issues stock, the Stockholders have the power to adopt, amend, or repeal Bylaws. The Stockholders can give the Board voting rights as well. However, unless the COI states otherwise, the Board doesn't have exclusive authority to amend the Bylaws.

Unless you're taking the DE bar idk why you're talking about the dgcl.

Bylaws are adopted by the shareholders, but can be modified or repealed by either the directors or the shareholders, unless the articles or a particular bylaw restricts it to only the shareholders. RMBCA s 10.20, Barbri outline P.7

By bad, OP and Whiskey. Thanks for pointing out my mistake. TBH, I'm going on prior knowledge - I've worked in a corporate practice since my 1L summer, know the GCL like the back of my hand, and haven't really looked at Barbri's stuff. Apparently I should, though.

[WhiskeynCoke]

Who can amend the Articles of Incorporation and By-laws?

Amending the COI/AOI requires a vote of both the Board and the Stockholders. Bylaws are amended by a Stockholder vote unless the AOI/COI entitles the Board to vote on amendments, in which case both the Board and Stockholders must approve changes to Bylaws.

This is backwards. The board can amend the bylaws on its own unless the AOI state otherwise. This makes sense when you think about it. The AOI are like the Constitution, and the Bylaws are like statutes. If there's a conflict, AOI > bylaws. Congress (board here) can change statutes (bylaws) on its own, but not the Constitution (AOI).

That's not how GCL 109(a) reads, though it does make sense conceptually. The Board and the Incorporator can amend Bylaws before the corporation issues stock. Once the corporation issues stock, the Stockholders have the power to adopt, amend, or repeal Bylaws. The Stockholders can give the Board voting rights as well. However, unless the COI states otherwise, the Board doesn't have exclusive authority to amend the Bylaws.

Unless you're taking the DE bar idk why you're talking about the dgcl.

Bylaws are adopted by the shareholders, but can be modified or repealed by either the directors or the shareholders, unless the articles or a particular bylaw restricts it to only the shareholders. RMBCA s 10.20, Barbri outline P.7

By bad, OP and Whiskey. Thanks for pointing out my mistake. TBH, I'm going on prior knowledge - I've worked in a corporate practice since my 1L summer, know the GCL like the back of my hand, and haven't really looked at Barbri's stuff. Apparently I should, though.

Actually, I think we're in agreement here. I never said the board has the "exclusive" right to amend the bylaws--just that they didn't need shareholder permission to do so unless the Articles state otherwise (check out my post again). Obviously the shareholders can amend the bylaws by majority vote. They can pretty much do anything, including firing the board and dissolving the company.

Edit: I meant in agreement regarding your second post, not your first (which I corrected). Your first post incorrectly states the law (including DE's GCL). Delaware's default rule does not require a shareholder vote for changes to the bylaws.