The shareholders of a corporation exercise their limited powers of control at shareholder meetings. There are two kinds of shareholder meetings: annual meetings, which usually happen once a year, and special meetings, which are called for particular purposes. In larger corporations, shareholders usually don't attend the meetings: instead, they get a form in the mail which authorizes a proxy to vote on their behalf.
Procedures for a shareholder meeting
The board of directors has a lot of control over shareholder meetings. For example, the actual date for the annual meeting is fixed in the bylaws of the corporation. Since the bylaws are written by the board, the board picks when and where the meeting takes place. In big companies, the board is also responsible for sending out the proxy paperwork.
There are some legal restrictions on the board in this respect. Under the Model Act, if the board does not call an annual meeting within 15 months of the last one, any shareholder can force the company to call a meeting. The board also has to send written notice of each shareholder meeting to every shareholder, usually between 10 and 60 days before the meeting.
Special meetings can be called by the board, or by any other party named in the articles of incorporation or bylaws. Many statutes also allow shareholders to call special meetings, but they have to have a certain percentage of the stock in order to do so: 3 percent under the Japanese Commercial Code, 10 percent under the Model Act. Other statutes, like Delaware's, do not allow shareholders to call a meeting unless authorized by the articles. (Delaware makes up for this by making it comparatively easy for shareholders to vote in writing without a meeting: see below.)
There has to be a quorum at the meeting for its actions to be effective. The quorum is usually a majority unless the articles of incorporation state otherwise. Some corporations might have a quorum of one-third or two-thirds.
The actual voting can be very complicated. In corporations with more than one class of stock, each class votes separately, and the approval of every class might be required to pass a measure. Many states practice a further convolution: cumulative voting, where a holder of more than one share can "spread their votes" across multiple choices.
What is discussed at the meeting
The only thing that has to be discussed at an annual meeting is the election of directors. However, there are a number of other matters that are likely to come up at annual and special meetings, including:
- Approval of fundamental transactions—statutory merger, dissolution, and sale of substantially all of the corporation's assets. Shareholders have to approve such transactions before they are deemed valid.
- Approval of "gifts" from corporate funds (in many states).
- Approval of amendments to the articles of incorporation.
- Removal of directors. Shareholders always have the power to remove directors for cause. If the articles of incorporation don't state otherwise, shareholders can also remove directors without cause.
- Recommendations to the board. The board is not bound by shareholder recommendations, but will likely pay some attention if they want to keep their jobs after the next annual meeting.
- Some states have allowed shareholders to pass new bylaws at shareholder meetings. The legality of this is still not settled in many places, though.
And many shareholders just like to go to the meetings to raise hell—think of the "greed is good" speech from the movie Wall Street.
In Japan, there was a major problem of yakuza gangsters called sokaiya, who would demand protection money from corporations, and disturb their shareholder meetings if they didn't comply. The sokaiya would also "intervene" on behalf of disgruntled shareholders. Many Japanese corporations have coordinated their meeting dates and times to make it impossible for the gangsters to show up at each one.
Shareholder action outside meetings
Most states allow shareholders to act by "written consent" without calling a meeting. The exact rule varies. Under the Model Act, every shareholder entitled to vote must give their consent. The Delaware rule is more liberal: a simple majority of shareholders entitled to vote can give their written consent.
- Bauman et al., Corporations: Law and Policy (5th ed., West 2003)
- Emerson, Business Law (4th ed., Barron's 2004)
- Ramseyer and Nakazato, Japanese Law (Chicago 1999)