September 20, 2020

Volume X, Number 264

September 18, 2020

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More Quorum Mysteries

Six years ago, I kvetched "Why Does Determining A Quorum Have To Be So Complicated?"  That particular post concerned the fine points of determining quorums for board meetings. The determination of a quorum for a meeting of shareholders can be equally exasperating.

California Corporations Code Section 602(a) establishes both a default rule and minimum quorum requirement:

"Unless otherwise provided in the articles, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders, but in no event shall a quorum consist of less than one-third (or, in the case of a mutual water company, 20 percent) of the shares entitled to vote at the meeting or, except in the case of a close corporation, of more than a majority of the shares entitled to vote at the meeting."

 Section 112 adds to this by providing

"Whenever in this division shares are disqualified from voting on any matter, they shall not be considered outstanding for the determination of a quorum at any meeting to act upon, or the required vote to approve action upon, that matter under any other provision of this division or the articles or bylaws."

Section 310(a)(1), which provides how shareholder may approve a transaction between the corporation and an interested director, is one example in which the General Corporation Law disqualifies shares from voting.  Thus, if a meeting of shareholders is held to approve such a transaction and a director owns 90% of the outstanding shares, only a majority of the 10% would need to be represented at the meeting to constitute a quorum (assuming that the articles did not impose a different quorum requirement).  What if that was not the only matter to be considered at the meeting and the director's shares are not represented at the meeting?  Ordinarily, the absence of the director's shares would preclude a quorum.  It would seem quirky that one agenda item could reduce the quorum requirement to 5% of the outstanding shares + 1 share.  

Why not quora?

"Quorum" is a Latin, plural, masculine pronoun in the genitive case.  It can be translated as "of whose".  Because "quorum" ends in "um", it is sometimes mistaken as a second declension, neuter noun, such as "dictum" and "erratum".  The plural of these second declension, neuter nouns is formed by substituting "a" for "um", as in "dicta" and "errata".  

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 223

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About this Author

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