Directors’ Voting Rights Can Be Limited
This post about limiting directors’ voting rights is based on my answer to a Quora question. (See Can a business owner draw up bylaws/articles of an organization that limit voting rights of directors?)
The incorporator or shareholders may approve a certificate of incorporation or bylaws that limit directors’ voting rights. (more…)
Harvard Business Services Joins Hall of Shame
Harvard Business Services, Inc. has joined this blog’s Hall of Shame.
Prior to retaining me, one of my international clients used Harvard Business Services to form a Delaware corporation. During that process, HBS made two significant mistakes that I had to fix.
Enforcing Inspection Rights – “Absolute” Does not Mean “Absolute” in California
In Directors’ Inspection Rights Include (Almost) Anything in California, I discussed corporate directors’ inspection rights. Quoting California Corporations Code Section 1602, I noted that directors have an “absolute right” to inspect corporate records and physical properties. This post explains that in enforcing inspection rights, “absolute” is not really “absolute”.
The fundamental limitation, established in case law, is that a director may not use inspection rights to harm the corporation. (more…)
Directors’ Inspection Rights Include (Almost) Anything in California
I have written about shareholders’ rights to inspect corporate financial records and shareholder lists. This post discusses directors’ inspection rights, which are far greater.
California Corporations Code Section 1602 states:
Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. This section applies to a director of any foreign corporation having its principal executive office in this state or customarily holding meetings of its board in this state. (more…)
The Definition of Director May Depend on the Context
While working with one of my international clients several months ago, I re-learned a lesson that I already knew: The meaning of a word (in this case, the definition of Director) may depend on the context.
The client is located in Vietnam and wanted to open a branch office in the Bay Area. It would be “doing business” in California, so it needed to qualify as a foreign corporation.
I duly prepared a Statement and Designation by Foreign Corporation and had it signed by the client’s most senior officer. That officer’s title, translated as “Director,” was entered onto the form.
Class F Shares: A Good Idea?
A client told me that she wants to include Class F shares in the Certificate of Incorporation for her Delaware corporation. This post describes how we concluded that – for this client, at any rate – this was not a good idea.
Class F Shares – History
Class F shares were invented by the Founder Institute several years ago to protect founders largely against investors, especially VCs. (See If You Accept Venture Capital, You will Lose Control of Your Company.) Class F shares provide 2:1 board votes per founder versus normal board members, and 10:1 share votes as compared to normal common shares. (more…)
Corporate Officers in California Need to Be More Careful than Directors
In California, the so-called Business Judgment Rule (“BJR“) protects corporate directors. They are not responsible for honest mistakes of business judgment. A recent case revealed that the BJR does not protect corporate officers in California.
During 2007, Indymac Bank bought more than $10 billion in risky residential loans. These loans ultimately generating losses of more than $600 million. Indymac closed. The Federal Deposit Insurance Corporation was appointed receiver.
Directors’ Fiduciary Obligations: Delaware vs. California
In Why are So Many Corporations Formed in Delaware?, I stated that Delaware law minimizes directors’ responsibility for decisions that have made. This post explains my point by comparing Delaware and California law regarding directors’ fiduciary obligations. (more…)
Can a Corporation Enter into a Business Transaction with One of its Directors?
From time to time, a client corporation wants to enter into a business transaction with one of its directors. An astute CEO, recognizing the potential for a conflict of interest, will ask whether and how such a transaction can take place without violating any laws or any fiduciary obligations to the corporation.
California Corporations Code Section 310 provides that, generally, a transaction between a corporation and one of its directors is permitted if, following disclosure of all material facts and the director’s interest in the transaction, it is approved either by a disinterested majority of the board of directors (usually the easier approach) or by the shareholders. (more…)