4 Questions You Should Be Asking About An Annual Shareholders Meeting
Annual Shareholders Meetings
Most corporations must hold an annual meeting of shareholders. The exception is an election to be a “statutory close corporation.” A previous blog post discusses requirements for close corporations in Sacramento; however, briefly stated in California Corporations Code Section 300(e):
The failure of a close corporation to observe corporate formalities relating to meetings of directors or shareholders in
connection with the management of its affairs, pursuant to an agreement authorized by subdivision (b), shall not be considered a factor tending to establish that the shareholders have personal liability for corporate obligations.
What are annual shareholders meetings?
An annual shareholders meetings are meetings of shareholders that is held annually…but seriously, the meeting is held once a year for the primary purpose of electing a new board of directors. California Corporations Code Section 600(b) states:
An annual meeting of shareholders shall be held for the election of directors on a date and at a time stated in or fixed in accordance with the bylaws.
However, the annual shareholders meetings are not limited to elections. Other business may be conducted at the annual meeting.
What are the consequences for failing to hold the annual shareholders meetings?
Failure to hold annual shareholders meetings could result in a court action from another shareholder demanding that the meeting take place. California Corporations Code Section 600(c) states:
If there is a failure to hold the annual meeting for a period of 60 days after the date designated therefor or, if no date has been designated, for a period of 15 months after the organization of the corporation or after its last annual meeting, the superior court of the proper county may summarily order a meeting to be held upon the application of any shareholder after notice to the corporation giving it an opportunity to be heard.
One of the benefits of a legal entity, such as a corporation, is the personal liability protection. Failure to hold an annual meeting of shareholders could also result in the potential piercing of the corporate veil. A previous blog post discusses piercing the corporate veil in Sacramento; but generally speaking, failure to maintain corporate meetings is considered one of the factors leading towards successful piercings which means potential personal liability for the individuals operating the corporation.
What are the requirements to holding an annual shareholders meeting?
Written Notice of Meeting. Shareholders must be provided with written notice that a meeting will take place not less than 10 nor more than 60 days before the date of each shareholder meeting. California Corporations Code Section 601(a) further describes the required contents of the notice:
That notice shall state the place, date and hour of the meeting, the means of electronic transmission by and to the corporation or electronic video screen communication, if any, by which shareholders may participate in that meeting, and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters that the board, at the time of the mailing of the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the board for election.
When can the shareholders vote at the annual shareholders meetings?
Quorum. A quorum is the minimum number of shareholders that must be present at the annual shareholder meetings to make the proceedings valid. The articles of incorporation or bylaws of the corporation will dictate the quorum required; but, if those documents are silent, we turn back to the California Corporations Code. Section 602 states that a majority of the shares entitled to vote shall constitute a quorum at a meeting of the shareholders. This means that at least 51% of the shares entitled to vote must be present at the annual shareholders meetings.
Approval of Action. If the bylaws and articles of incorporation are silent on the votes needed for approval of an action, Section 602 provides that the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present shall be the act of the shareholders.
Sacramento Business Attorney
Trevor Carson is an energetic business attorney. In 2015, he was named by Sacramento Magazine as a top lawyer in Sacramento and was named a Rising Star by Super Lawyers Magazine. Business attorney Trevor Carson focuses on consistency, clarity, precision, and simplicity. Please contact our Sacramento business attorney if you have any questions or want to learn more about the annual shareholders meetings. Our business lawyers work with corporations on maintaining the corporate governance and conducting proper annual shareholders meetings.
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