Why Your Shareholder Meeting Waivers Of Notice May Not Be Up To Snuff
Like other states, California generally requires that whenever shareholders are required or permitted to take action at a meeting, notice of that meeting must be given to the shareholders entitled to vote. Cal. Corp. Code § 601(a) However, if notice isn’t given as required, all may not be lost. Section 601(e) of the Corporations Code provides that the transactions of any meeting shareholders, however, called and notice are as valid as though had at a meeting duly held after regular call and notice if (1) a quorum is present; and (2) either before or after the meeting, each of the persons entitled to vote provide a waiver of notice or consent to the holding the meeting or an approval of the minutes in writing. The statute further provides that attendance at the meeting constitutes waiver of notice, unless the person objects at the beginning of the meeting to the transaction of business because the meeting was not lawfully called or convened. Sometimes, however, obtaining a simple waiver may not be sufficient.
The drafters of the General Corporation Law believed that certain matters presented for action to shareholders are of such fundamental importance that specific notice of their proposed consideration at any meeting should be required. Thus, they included Section 601(f) which provides that shareholder action at a meeting on the following actions are valid “only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice”:
- Section 310 (approval of transactions involving interested or common directors);
- Section 902 (amendments of the articles of incorporation);
- 1152 (conversion transactions);
- 1201 (reorganizations);
- 1900 (voluntary dissolution); or
- 2007 (plan of distribution).
In these cases, shareholder action will not be valid if the requisite general statement is not included in the waiver. See, e.g., Ovadia v. Abdullah, 24 Cal. App. 4th 1100 (1994) (reversing a judgment confirming the voluntary dissolution of a family-owned corporation because of the failure to comply with the statutory notice or waiver requirements).
In some cases, a corporation may rely on the fact that the shareholders were present at the meeting. However, Section 601(e) specifically provides that “attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this division [i.e, the General Corporation Law] to be included in the notice but not so included, if the objection is expressly made at the meeting.”
The Securities And Exchange Commission In Film
If you haven’t seen Being There, you should try to track down a dvd of the film and watch it. Peter Sellers’ portrayal of Chauncy Gardner earned him a second Oscar nomination. Although the film isn’t a jeremiad on the Securities and Exchange Commission, it does include this memorable line by Melvyn Douglas (who did win an Oscar for best supporting actor for his portrayal of the dying businessman Benjamin Rand):
Today the businessman is at the mercy of kid-lawyers from the SEC. All they want to do is regulate our natural growth!