An Unexpected Impasse Revisited

Last week, I wrote about how a shareholder who owns 60% of the voting power could find herself in a deadlock situation under cumulative voting.  A former colleague on the Corporations Committee of the Business Law Section of the California State Bar, David Marion, wrote with a suggestion: the shareholder could simply vote to amend the Bylaws to change the number of directors to five.  Under Corporations Code Section 211, Bylaws may be amended by approval of the outstanding shares, as defined In Section 152.  The 60% shareholder, moreover, wouldn’t need to wait until the next annual meeting because Section 600(d) would permit her to call a special meeting.

My hypothetical was intended to make the point that one shouldn’t assume that a person holding more than 50% of the voting power would necessarily be able to elect a majority of the board.  It was an incomplete hypothetical. Dave’s idea for breaking the impasse could work, but I’ll add a couple of additional facts to my hypothetical – the number of directors is specified in the articles of incorporation and the board is already evenly divided.  In that case, the 60% shareholder couldn’t act unilaterally because Section 902(a) requires approval of both the Board and the outstanding shares to amend the articles of incorporation.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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