Topics in Corporation
I. RESOLUTIONS FOR GENERAL MEETINGS
(A class of members (shareholders))
This comment provides basic aspect about the sorts of resolutions a company may propose.
A company works by complying with a set of rules as set out in the Companies Acts. They cover two categories of activity. In the first place, they provide the basic "framework" within which all companies must operate. Those rules cannot be changed. They include for example, requirements as to appointment of directors and secretary; filing of accounts; matters to be recorded at Companies House; and many more. In order for everyone involved to understand the Rules, you will have to hold company meetings, which also require company meetings notices.
The Companies Acts (Commercial Act) provide for many areas where you could say "suggestions" are made as to how the shareholders, a class of members and directors run the company. The mass of day-to-day work is regulated only by broad principles. Certain specific matters are regarded as more important and the company must make choices and record them at Companies House. These include for example:
- Who shall be directors?
- Who shall be a class of members?
- What will be the company's rule, resolutions and business year end?
- And what shares have in fact been issued.
This second set of categories is regulated by the company's own "rules" too, as set out in any number of minutes of meetings. Minutes start life as "resolutions, as the following text explains.
Many companies manage quite well with no formal resolutions at all. They leave it to the lawyer or solicitor to sort such formalities. As long as there are no disputes among the shareholders or directors, it works. However, there is no reason why far more detail about what the shareholders, a class of members, and directors have agreed should not be properly recorded in minutes of meetings, if only so that everyone is working towards the same goal.
II. ABOUT SHAREHOLDERS:
Investors who purchase corporate stock enjoy a number of rights pertaining to their ownership. Unlike partnership law, where the owners of businesses are also the primary managers of the businesses, owners of a corporation generally do not run the company. Shareholders in a corporation are shielded from personal liability for the debts and obligations of the corporation. However, shareholders can lose their investments should the corporation fail.
The rights of shareholders depend largely on provisions in a corporation's charter and by-laws. These are the first documents which a shareholder should consult when determining his or her rights in a corporation. Shareholders also generally enjoy the following types of rights:
- Voting rights on issues that affect the corporation as a whole
- Rights related to the assets of the corporation
- Rights related to the transfer of stock
- Rights to receive dividends as declared by the board of directors of the corporation
- Rights to inspect the records and books of the corporation
- Rights to bring suit against the corporation for wrongful acts by the directors and officers of the corporation
- Rights to share in the proceeds recovered when the corporation liquidates its assets
Shareholder Meetings and Voting Rights
Shareholders hold general meetings on an annual basis or at fixed times according to the by-laws of the corporation. The primary purpose of these meetings is for shareholders to elect the directors of the corporation, though shareholders may also vote on a number of additional issues. Persons with authority to do so may also call special meetings on matters that require immediate attention, though only those issues set forth in the notice of the special meeting may be the subject of the vote.
A quorum must be present at the shareholder meeting for a decision to be binding. The typical quorum consists of more than half of the outstanding shares of the corporation. This percentage may be increased or decreased in the by-laws of the corporation. Prior to each shareholder meeting, a list of shareholders eligible to vote must be prepared. Shareholders have the right to inspect the voting list at any time.
Shareholders may appoint proxies to vote their shares, which is common in publicly-held corporations. Most states prescribe few specific rules with respect to the proxy appointment, other than the issue of whether this appointment may be revoked. Proxy appointments must be in writing, and the proxy does not need to be a fellow shareholder. Since the relationship between the shareholder and the proxy is one of principal and agent, the proxy must abide by the instructions of the shareholder.
Shareholders by unanimous consent may conduct business without holding a shareholder meeting. Such actions are more common in closely held corporations, where shareholder actions are typically unanimous. In a larger, publicly held corporation, such actions are much less practical, especially because decisions of the shareholders affect a larger number of people.
Matters, upon which shareholders vote, in addition to the election of the directors, depend on the issues affecting the corporation. The following are the most significant of these matters.
- Approval or disapproval of changes in the articles of incorporation
- Approval or disapproval of a merger with another corporation
- Approval or disapproval of the sale of substantially all of the corporation's assets that is not in the ordinary course of the corporation's business
- Approval or disapproval of the voluntary DISSOLUTION of the corporation
- Approval or disapproval of corporate transactions where some directors have a conflict of interest
- Approval or disapproval of amendments to BYLAWS or articles of incorporation
- Make nonbinding recommendations about the governance and management of the corporation to the board of directors
State Laws Governing Shareholder Rights
Since the majority of states have adopted the Model Business Corporation Act, shareholder rights are generally consistent from one state to the next. State statutes should be consulted to determine whether an individual state has granted any specific rights to shareholders of businesses incorporated in that state.
III. ABOUT RESOLUTIONS:
What is a resolution?
A resolution is an agreement or decision made by the directors or members (or a class of members) of a company. When a resolution is passed, the company is bound by it. A proposed resolution is a motion. If the necessary majority is not obtained, then the motion fails.
How is a vote taken?
The vote on a resolution in a general meeting (or in a meeting of a class of members) is taken according to the rules in the company's articles of association. Generally it is by a show of hands. Any member may demand a poll unless the company's articles say otherwise. A declaration by the chairman that the resolution is carried on a show of hands is all that is required for a resolution to be passed. The number of votes for or against need not be counted.
Who must receive copies of a resolution before and after approval?
Notice of the intention to propose a resolution must be sent to company members. If a company has auditors, they must also be sent copies - or otherwise notified of the contents - of all proposed statutory written resolutions. Companies House must be sent a copy of any resolution listed in the list below. The resolution must be: a)In printed form (or in another form approved by Companies House), and; b)Delivered to Companies House within 15 days of the date it was made or passed by the company.
What resolutions need to be sent to Companies House?
A copy of every resolution or agreement listed below must reach Companies House within 15 days after it has been passed, including
Special and extraordinary resolutions:
- Elective resolutions. Some of the resolutions are described more fully below;
- Class resolutions passed by unanimous agreement of all the members of a class of shareholders but which would otherwise have needed to be passed by a specific majority or in another manner must also be sent;
- All resolutions or agreements that effectively bind all the members of any class of shareholders though all those members have not agreed them;
- Directors' resolutions as listed just below;
- Ordinary resolutions as listed just below;
- Resolutions for voluntary winding-up.
A special resolution requires a majority. It is required for important matters such as alterations to the memorandum or articles of association, a change of name, or a reduction of capital to be approved by the court. Korean Commercial Act, when special resolution of company is passed as a written resolution it must state that it is proposed as a special resolution.
A general meeting of a company must be called by notice of at least 2 weeks (21 days in the case of annual general meeting of public company /in US/). The company’s articles may require a longer period of notice. A meeting at which a special resolution (or an ordinary or extraordinary resolution) is to be proposed may be held at shorter notice with the agreement of the members entitled to attend and vote at the meeting. Agreement to short notice of the meeting must be by a majority in number of the member having a right to attend and vote at the meeting, being a majority who:
- Together held not less than the requisite percentage in nominal value of the shares giving voting rights(excluding any shares in the company held as treasury shares), or;
- In the case of a company without share capital, together represent not less than the requisite percentage of the total voting rights at that meeting of all the members
Companies may pass an elective resolution to reduce the majority required to authorize short notice of a meeting and notice of a resolution, to not less than 90%.
When a resolution alters the memorandum, ordinance or articles of association of a company, a copy of the amended document must also be filed at Companies House.
These may be passed by private companies only and for five specific purposes. 'Elective resolutions' must be passed by unanimous agreement in general meeting of the company by all the members entitled to attend and vote at the meeting in person or by proxy. A period of minimum 3 weeks' notice of the resolution(s) must be given unless all members entitled to attend and vote at the meeting agree to a shorter period.
Elective resolutions may be used for the following purposes only:
- To amend the duration of the authority of directors to allot securities;
- To dispense with the holding of annual general meetings;
- To dispense with the laying of accounts and reports before the members in general meeting;
- To allow the majority required to authorize short notice of a meeting and notice of a resolution to be reduced from 95% to a lower figure but not less than 90%;
- To dispense with the annual appointment of auditors
A written resolution or a resolution of any class of members may be passed by a company to resolve anything which could have been passed by the company in general meeting. However, this power cannot be used to remove a director or auditor before the end of their term of office.
A meeting is not required and no prior notice is necessary. A resolution may be proposed as a written resolution by the directors or by the members. The private company must send written resolution to every eligible member in hard copy form, in electronic form or by means of a website.
Eligible members are those who, at the circulation date of the resolution, would be entitled to attend and vote at a meeting that would otherwise have been held to pass it. Circulation date of written resolution is the date on which first copy or copies of resolution are sent to the members. The copy of the resolution must be accompanied by a statement informing the member how to signify agreement to the resolution and as to the date by which the resolution must be passed if it is not to lapse. When a resolution of a company is to be passed as a special resolution, it must be stated that it was proposed as a special resolution. In case of written resolution, every member has one vote and if the company has share capital, every member has one vote in respect to each share of stock held by him.
The expenses of the company in circulating the resolution must be paid by the member who requested the circulation unless the company resolves otherwise. A company is not required to circulate a members’ statement if, on an application by the company or another person who claims to be aggrieved, the court is satisfied that the right is conferred by law are being abused.
A provision of the articles of a company is void in so far as it would have the effect that a resolution that is required by or otherwise provided for in an enactment could not be proposed as a written resolution
The resolution may be circulated at the expense of the members making the request, unless the company resolves otherwise.
Shareholder resolutions are voted on at a company's annual general meeting in the same way as other resolutions.
IV. Simplified Procedures related to General meeting of Shareholders under
Commercial Act of Korea
In response to the recent developments of IT technologies, the Commercial Act of Korea was recently revised to allow the procedures for convening the general meeting of shareholders and voting by shareholders to be more simplified, depending on the level of equity of the relevant company. We briefly set forth below more simplified procedures for shareholders meeting notices and shareholders voting as provided for in the current Commercial Act.
Shareholders meeting notification
The convocation of a meeting of shareholders requires notifying each shareholder no later than two weeks prior to date of meeting. In addition to notification by mail, the current Commercial Act stipulates that share holders may be notified using electronic documents if each of\f such shareholders agree thereto, allowing for notification for shareholders meeting by email.
Furthermore, small-or medium-size companies of which total equity capital is less than 1 billon Korean won may omit meeting notification requirements in convening a shareholders’ meeting if all shareholders consent thereto. Specifically, the Commercial Act as emended in 2009 provides for an exception where a small company with shareholders’ equity of less than 1 billon Korean may omit the procedures for convening and holding the meeting may impose a significant burden to the businesses with fewer resources available.
Electronic voting in shareholders meeting
Before the 209 amendment, the Commercial Act recognized a shareholder’s voting by physically attending the meeting or using a proxy in addition to the vote exercise by way of a written means. However, the Commercial Act as amended in 2009 provides for another means; electronic voting. Although the company may determine whether to use mail and/or electronic voting, mail voting requires a provision in the articles of incorporation, whereas electronic voting may be used by the resolution of the board of directors without any provision in the articles of incorporation. Electronic voting still does not allow the general meeting of shareholders itself to be omitted.
b. How to notify
Any company adopting electronic voting is required to state in the notices of the general meeting of shareholders that votes may be cast using electronic votes may be cast, the period in which votes may be cast, and other technical details of the electronic voting.
c. How to cast votes
Any shareholder intending to cast an electronic vote is required to be authenticated as a shareholder through a publicly recognized electronic signature (a public certificate) as set forth under the Electronic Signature Act, an cast a vote in such manner as provided for by the company as such Internet address as designated be the company. The period in which votes may be cast is prescribed by the company, but must and no later than the day immediately preceding the date of the shareholders meeting. As the disclosure of the results of electronic voting – which is being completed prior to the meeting – may undermine the fairness of the voting at the meeting, the company and person involved in the operation of electronic voting are required to j\keep confidential such results until ballots are counted at the meeting.
d. Mail voting and electronic voting
If a company allows both mail voting and electronic voting, a shareholders is requied to choose only one option in casting the relevant votes.
Written resolution at a small company
The Commercial Act as amended in 2009 stipulates that any small business of which total equity capital is less than 1 billon Korean won may adopt a resolution by a written means in lieu of a resolution of the general meeting of shareholders to make their decisions, the 2009 amended Commercial Act allows any small business of which total equity capital of less than 1 billon Korean won, as is the case with limited liability companies, to adopt a resolution by a written means. “Resolution by written means” in this context refers to the mode where a physical meeting of shareholders is omitted and all shareholders are asked to present their decisions through writing.
Such resolution by written means has the same effect as a resolution adopted at a shareholders meeting.
Very truly yours,
· 김학민, CEO를 위한 회사법 이야기 / 김학민 저. 서울: 진원사, 2011
· 나승성, 회사법 개설 / 나승성 지음. 파주: 한국학술정보, 2010
· 7인 공저회사법. 서울대 2011
· Company law and commercial reality / by L.S. Sealy Sweet & Maxwell ; Centre for Commercial Law Studies, 1984
· International Convention for the Settlement of Investment Disputes between States and the National of Other States, 1965, (ICSID Convention)
· Lew, J., et al., Comparative International Commercial Arbitration (The Hague: Kluwer Law International, 2003)