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Volume XI, Number 268

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When A Majority Vote May Not Suffice

The California General Corporation Law imposes an intricate set of rules with respect to shareholder approval of reorganizations (defined in Section 181).  In general, the GCL requires that the principal terms of a reorganization be "approved by the outstanding shares" (as defined in Section 152) of each class of each corporation the approval of whose board is required under Corporations Code Section 1200.  Cal. Corp. Code § 1201(a).  However, GCL includes numerous exceptions to this general rule.  Space does not permit a discussion of all of these exceptions.   However, three of these exceptions are worth noting because they impose supermajority approval requirements.  Two of these exceptions require a two-thirds vote and one requires unanimous approval. 

A two-thirds vote of each class (or a greater vote if required by the articles) of the outstanding shares of a close corporation (defined in Section 158) is required if the reorganization would result in their receiving shares of a corporation that is not a close corporation.   Cal. Corp. Code § 1201(e).   However, the articles may provide for a lesser vote, but that vote may not be less than a majority of the outstanding shares of each class.

A two-thirds vote of each class (or a greater vote if required by the articles) of a corporation that is a party to a merger reorganization (defined in Section 181(a)) is also required if the holders receive shares of a surviving social purposes corporation in the merger.   Cal. Corp. Code § 1201(f).   A social purpose corporation is a corporation formed under California's Social Purpose Corporations Act.  Cal. Corp. Code § 2509.   The Social Purpose Corporations Act is not part of the General Corporation Law.

Approval of all the shareholders of any class or series is required if, as a result of the reorganization, the holders of that class or series become personally liable for any obligations of a party to the reorganization.   Cal. Corp. Code § 1201(h).   No such proposal is required if all holders of that class or series have dissenters' rights provided in Chapter 13 of the GCL.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 214
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About this Author

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

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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