$ 365. Stockholders' Meetings

The annual meeting is usually the only regular meeting of stockholders. It must be held in the state in which the company is incorporated, unless the laws of such state expressly provide otherwise, and it is usually required that this annual meeting be held in the principal office of the corporation.

At the annual meeting the directors for the ensuing year are elected, the reports of the officers are presented, any amendments to the by-laws may be submitted and acted upon, and any affairs of the company requiring the action or attention of the stockholders may be presented for consideration. If any sweeping change in the business or policy of the company is desirable, it is usually authorized by action of the stockholders at this meeting.

If action by the stockholders is necessary in the interim between the annual meetings, a special meeting may be called by resolution of the directors, or in any other way that the by-laws may prescribe or permit. This call is followed by a notice to the stockholders, giving the necessary details of the meeting which is to be held. In the case of a special meeting, both call and notice should state the purpose of the meeting.

§ 366. Quorum

The quorum at stockholders' meetings should be prescribed in the by-laws. The usual provision requires the presence of a majority of the outstanding stock in order to transact business. When a quorum is present, a majority of this quorum has power to decide any question that is brought before the meeting, unless it should be a special matter requiring a twothirds or other larger vote to pass. Where it is not otherwise prescribed the common law rule is that those in attendance will constitute a quorum.

§ 367. Voting

Only stockholders of record are entitled to vote at annual and special meetings of the stockholders. Each stockholder of record is entitled to one vote for each share of stock held in his name. That is, if five directors are to be elected, the holder of one share may cast one vote for each of these. The holder of ten shares may cast ten for each and so on.

Under the cumulative system of voting, which is designed to secure for the minority a representation on the board, the holder of one share still casts one vote for each director to be elected, but he may cast all five votes-if five directors are to be elected-for any one candidate or may distribute them among the five as he sees fit.

Voting at elections of directors is usually by ballot.

§ 368. Voting Trusts

It is frequently necessary or important that the agreed management of a corporation be preserved consecutively for a term of years. This may be for the protection of minority or special interests or other valid reasons. In such a case a voting trust-sometimes called a "stock pool"—is the usual means by which this is secured.

This arrangement provides that sufficient stock to insure the desired end be placed in the hands of trustees for a certain period of time with definite instructions as to the way in which this stock shall be voted. A voting trust applies only to the stock of a single corporation, and must be distinguished from the attempts which were made to combine a number of corporations under one trust management. This latter system was used to form combinations in restraint of trade, and on that account has been prohibited.

New York and Maryland are the only states in the Union in which the voting trust is expressly sanctioned by statute, although in New Jersey, Massachusetts, California, Alabama,

and some other states the courts have rendered decisions favoring arrangements of this kind and intimating that where the trust was for a proper purpose and for a reasonable time, and did not contemplate any advantage from which other stockholders of the same corporation were excluded, it was not contrary to any principle of law or equity.

Any voting trust formed to promote a monopoly, or to dominate the corporation in the interests of another corporation, or to deprive other stockholders of their rightful powers, would undoubtedly be held illegal.

Any stockholder entitled to vote at a stockholders' meeting may usually give a proxy (a power of attorney) empowering some other party to attend stockholders' meetings as his representative and vote his stock in his stead. (See Chapter CII, Forms 31, 33.) In New York a proxy is good for any definite period not exceeding eleven months. In Pennsylvania a proxy is not good after two months. A proxy-holder need not be a shareholder. The inspectors of election have power to determine the genuineness of any proxy.

I.

REVIEW QUESTIONS

What constitutes a man a stockholder? What rights have stockholders?

2. If a stockholder were denied access to the books what could he do? Could the holder of a single share enforce inspection of the books?

3. What is the managing authority of a corporation? What power has a stockholder? What power have the stockholders? 4. What right, if any, in your state, has a stockholder to demand a financial statement? Are stockholders in your state liable for wages of employees if the corporation becomes insolvent?

5. If a stockholder owned more than one-half of the stock, could he bind the corporation by a contract?

6. What are the liabilities of a stockholder? What is the liability of a stockholder in a national bank?

7. Where should the annual stockholders' meeting be held? What is the usual rule as to quorum?

9.

8. Explain the operation and advantage of cumulative voting? What is a voting trust? What can voting trusts do legally? Must a proxy-holder be a stockholder?

IO.

II.

When does a proxy which does not specify period, become in your state invalid?

12. Who has authority to determine the genuineness of proxies?

CHAPTER LIV

DIRECTORS AND OFFICERS1

$370. Status and Functions of Directors

The board of directors, elected by the stockholders, has the entire management of the corporate affairs.

The directors of a corporation are held to be its agents, and, in a measure, trustees for the stockholders. They are responsible for its proper management.

§ 371. Number and Authority

In most of the states there must be at least three directors. The maximum number is not usually designated. For all ordinary corporations a small board is most convenient, and as a rule most effective.

When the board is unwieldy or difficult to assemble, the actual administration of the corporate affairs is usually delegated to an executive committee composed of from three to five members of the board.

The board elects the corporate officers, appoints such other agents as may be necessary, and has entire charge of the property, interests, business, and transactions of the company. The board of directors is the embodied corporate authority.

The directors can only act collectively and in a regular meeting or in a duly assembled special meeting. A single director, unless authorized thereto by resolution of the board, or specially empowered in some other way, has no standing in corporate matters above that of any other stockholder.

1 For forms of calls, notices, minutes, etc., of directors' meetings, see Chapter CVII, Forms 58, 60, 62, 65.