USA Law and Practice Contributed by: Kai Liekefett, Derek Zaba, Ram Sachs and Evan Grosch, Sidley Austin
er, but are given preferential treatment over common stockholders when distributing corporate profits like dividends. Preferred stockholders are also given prior- ity repayment rights over common stockholders when a company is dissolved. The rights of stockholders are set out in the govern- ing documents of the corporation. While by-laws vary across corporations, standard by-laws for public cor- porations in Delaware outline the rights of stockhold- ers related to stockholder meetings, voting, notice for certain corporate actions, and stockholder nomina- tions of directors and other proposals of business, among other items. 1.4 Variation of Shareholders’ Rights Shareholder rights can vary based on the governing documents of a corporation or the terms of the issued shares. Some examples include dual-class shares, non-voting shares and preferred shares. With dual-class shares, one class is typically provided to company insiders, while another class is offered to other investors. The shares offered to investors usually have much more limited voting rights in comparison to the class of shares retained by company insiders. This structure is particularly attractive to the founders of a company as it permits the sale of equity but limits the loss of control. As discussed previously, preferred shares often pro- vide shareholders with priority over common shares for company dividends and distributions, but fre- quently have no or limited voting rights. 1.5 Minimum Share Capital Requirements This requirement varies by the state of incorporation; in Delaware, there is no minimum capital requirement for forming a corporation. 1.6 Minimum Number of Shareholders Under the Delaware General Corporation Law (DGCL), a corporation may issue one or more classes of shares and one or more series of shares within any such classes (DGCL § 151). LLCs in Delaware may also be formed with as few as one member.
S Corps require shareholders to be US citizens, per- manent residents, certain trusts, estates and exempt organisations. However, foreign investors may be shareholders or members of other entity types. Stock exchanges have separate requirements for the minimum number of shares. For example, a company seeking to list on the New York Stock Exchange in connection with its initial public offering must typi- cally have at least 400 holders of 100 shares or more and at least 1.1 million publicly held shares with a market value of at least USD40 million. Nasdaq gen- erally requires that companies seeking to list on the Nasdaq have: • a minimum of 1,250,000 unrestricted publicly traded shares outstanding upon listing; and • 450 shareholders of 100 shares or more, 2,200 total shareholders, or 550 total shareholders with an average trading volume of 1.1. million over the preceding 12 months. 1.7 Shareholders’ Agreements/Joint Venture Agreements Shareholders’ agreements and joint venture agree- ments are commonly used in the context of private companies to delineate and clarify the economic and control rights of the respective parties. In 2024, the DGCL was amended to expressly approve of stockholder agreements. Under DGCL § 122 (18), corporations have the power to enter into contracts with one or more current or prospective stockholders. Without limiting what may be included in such agree- ments, the statute specifically permits a corporation to: • “restrict or prohibit itself from taking actions speci- fied in the contract”; • “require the approval or consent of one or more persons or bodies before the corporation may take actions specified in the contract (which persons or bodies may include the board of directors or 1 or more current or future directors, stockholders or beneficial owners of stock of the corporation)”; and • “covenant that the corporation or one or more persons or bodies will take, or refrain from taking, actions specified in the contract (which persons or
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