USA Law and Practice Contributed by: Matt Hurd, Melissa Sawyer and Scott Crofton, Sullivan & Cromwell LLP
5. Shareholders 5.1 Relationship Between Companies and Shareholders Stockholders are the owners of a corporation. This ownership relationship is governed by state law. If the corporation is public and listed on a stock exchange, this relationship will also be governed by stock exchange rules and the fed - eral securities laws. Some corporations (but few public companies) may also have stockholder agreements in place that impose additional rights or restrictions on stockholders. 5.2 Role of Shareholders in Company Management Under state law, stockholders have no involve - ment in the management of a corporation, which is vested in a board of directors and often del - egated to executive officers by the board. State law generally enumerates certain actions that require stockholder approval, which is further discussed in 3.1 Bodies or Functions Involved in Governance and Management . 5.3 Shareholder Meetings Annual meetings of stockholders of a corpora - tion are generally required under state law for the election of directors. For example, in Delaware, if a corporation fails to hold its annual meeting 30 days after the date designated for the annual meeting or 13 months after its last annual meet - ing, the Delaware Court of Chancery may order a stockholder meeting upon the application of any stockholder or director. Special meetings of stockholders may be called by the board of directors or any other person authorised by a corporation’s organisational documents, such as stockholders. Corporations may explicitly prohibit the ability of stockholders to call special meetings in their organisational
documents as a defence against stockholder activism. Most corporations that permit stock - holders to call special meetings impose certain procedural requirements in their organisational documents that restrict such a right (such as ownership thresholds, informational require - ments and blackout periods). Such restrictions must be contained in the corporation’s certifi - cate of incorporation or by-laws. State law governs the mechanics of holding a stockholder meeting. In Delaware, the location and time of annual meetings may be established in a corporation’s organisational documents or by the board. Such meetings can also be held virtually (by means of remote communication) if permitted by the corporation’s organisational documents. Written notice of a meeting must be given to stockholders entitled to vote no later than ten days and no earlier than 60 days before the date of the meeting. The board is required to fix a record date for the purpose of establish - ing which stockholders are entitled to notice and the right to vote at a stockholder meeting, which must be no later than ten days and no earlier than 60 days before the date of the meeting. Quorum requirements may be set in a corpora - tion’s organisational documents but may not be less than one third of the shares entitled to vote at the meeting. Delaware law generally does not govern the type of business to be conducted at a stockholder meeting, but corporations may include rules in their organisational documents or publish rules and/or agendas that impose restrictions on the proposals that can be acted on at a meeting. For example, it is common for public corporations to adopt advance notice by-laws, which require stockholders wishing to nominate a director or make a stockholder proposal to satisfy rigorous procedural and sub - stantive requirements in order for their nomina-
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