September 25, 2020

Volume X, Number 269

September 25, 2020

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September 23, 2020

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Another Quorum Quirk

Yesterday's post considered the anomalous workings of California Corporations Code Section 112 with respect to the determination of a quorum when some shares are disqualified from voting with respect to a matter.  Section 315(g) presents another oddity. 

With certain exceptions not covered in today's post, Section 315 generally prohibits loans of money or property to directors and officers of a corporation unless the  loan is approved by a "majority of the shareholders entitled to act thereon." Subdivision (g)(2) provides that this phrase means "the affirmative vote of a majority of the shares present and voting at a duly held meeting at which a quorum is otherwise present, without counting as either present or voting any shares owned by any officer or director eligible to participate in the plan or transaction that is subject to the approval."

If a corporation is seeking approval of a loan to an officer who owns 90% of the outstanding shares, the effect of this provision is that the officer's shares could not be counted as present for purposes of establishing a quorum.  In this situation, shareholders could not approve a loan to the officer because the statute requires that a quorum be "otherwise present" but does not allow the officer's shares to be counted as present.  

There is a possible solution to this conundrum, but that is the subject of a future post.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 224

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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