In a corporation, there is a division of power between the owners (shareholders) and the group of people who the shareholders authorize to run the company day-to-day and to set policy (board of directors or BOD).
One big question is, what are the limits of the power of the Board of Directors?
For example, does the BOD need approval from the corporation’s shareholders before selling, leasing, or otherwise disposing of company assets? This matters a good deal, because the shareholders, as investors, typically want to see their corporation follow the basic business plan which formed the basis of their decision to invest.
Thus, if the company’s business plan did not involve selling off or leasing out most or all of its assets, the shareholders would be understandably displeased if that was what the BOD did or wanted to do.
Until recently, the North Carolina Business Corporations Act was pretty fuzzy on this big point.
Until January 1, 2014, the law was that the BOD had to get shareholder approval to sell, lease, or otherwise dispose of “substantially all” of the corporation’s assets. But, there was no guidance in the statute on exactly what that key phrase meant.
One of the good points in the recent changes to NC’s Business Corporations Act is that shareholder approval is now specifically required when the BOD wants to sell, lease, or exchange the Corporation’s property to such a degree that its assets will drop to below 25% of the prior level.
What is that statute does not fit with what the shareholders want?
Suppose the shareholders want to set some other limit or structure the BOD’s power in some different way?
There is a good answer – the new statute specifically states that Articles of Incorporation or By Laws of the Corporation can spell out some different agreement.
This option provides a good example of the importance of good, personalized corporate bylaws and shareholder agreements.
Having frank discussions up front allows all shareholders to consider what they would want, and negotiate a deal that everyone can accept.
It’s much more expensive to fight a lengthy and complex lawsuit over such issues than to have these discussions with all shareholders and the company’s attorney today.
One big question is, what are the limits of the power of the Board of Directors?
For example, does the BOD need approval from the corporation’s shareholders before selling, leasing, or otherwise disposing of company assets? This matters a good deal, because the shareholders, as investors, typically want to see their corporation follow the basic business plan which formed the basis of their decision to invest.
Thus, if the company’s business plan did not involve selling off or leasing out most or all of its assets, the shareholders would be understandably displeased if that was what the BOD did or wanted to do.
Until recently, the North Carolina Business Corporations Act was pretty fuzzy on this big point.
Until January 1, 2014, the law was that the BOD had to get shareholder approval to sell, lease, or otherwise dispose of “substantially all” of the corporation’s assets. But, there was no guidance in the statute on exactly what that key phrase meant.
One of the good points in the recent changes to NC’s Business Corporations Act is that shareholder approval is now specifically required when the BOD wants to sell, lease, or exchange the Corporation’s property to such a degree that its assets will drop to below 25% of the prior level.
What is that statute does not fit with what the shareholders want?
Suppose the shareholders want to set some other limit or structure the BOD’s power in some different way?
There is a good answer – the new statute specifically states that Articles of Incorporation or By Laws of the Corporation can spell out some different agreement.
This option provides a good example of the importance of good, personalized corporate bylaws and shareholder agreements.
Having frank discussions up front allows all shareholders to consider what they would want, and negotiate a deal that everyone can accept.
It’s much more expensive to fight a lengthy and complex lawsuit over such issues than to have these discussions with all shareholders and the company’s attorney today.
RSS Feed
