Vote and Voice
Shareholders' Right to Vote and Voice
Minority shareholders' voice in corporate affairs through their shareholder voting rights.
The Texas Business Organizations Code grants shareholders the right to vote on a variety of matters, but most important on the election of directors who “direct the management of the business and affairs of the corporation” without direct input by the shareholders. Tex. Bus. Orgs. Code § 21.401.
Scope of Right to Vote
Every owner of stock is entitled to a voice in owner-level decisions: who is to manage the property, what limitations or requirements are to be imposed on the managers, and whether to sell or make fundamental changes in the nature of the enterprise. Id. §§ 21.058 (amending bylaws); § 21.055(b), § 21.364(b) (amending certificates); § 1.002(32) (mergers); § 21.452(e) (sales of all or substantially all a corporation’s assets other than in the ordinary course of business); § 21.457(a); § 1.002(32), § 21.455(f), § 21.457(a) (voluntary winding ups), § 21.364(b), 21.503(b). Some owner-level decisions require unanimity, § 21.502 (winding up or decision to revoke winding up); § 21.715 (shareholders’ agreement); some a majority, § 21.409 (removal of director(s)); § 21.502(2) (winding up if business has not issued shares); § 21.454 (approval of exchange of shares); § 21.455(a) (approval of sale of all or substantially all of assets); and some a super-majority, § 21.364 (amend certificate of formation, reinstatement, increase or decrease total number of authorized shares, change par value of shares, change rights of shares, create a new class of shares, change already declared dividend); § 21.457 (approval of fundamental business transaction).
Shareholders also get a vote as to whether to remove directors. Id. §§ 21.405(a), 21.409(a). Texas courts have held that the remedy of shareholders if they disapprove of management decisions is to elect new directors in prescribed manner at regular time. As the Delaware Supreme Court noted, “If the stockholders are displeased with the action of their elected representatives, the powers of corporate democracy are at their disposal to turn the board out.”
Every stockholder is entitled to his proportional share of the vote on each such decision. Among the “rights, powers, and privileges that accrue to a stockholder in a corporation,” are “the right to attend stockholders’ meetings and vote on matters under consideration by shareholders; the right to hold official position of trust in the corporation.” The right to vote, in particular, has long been recognized as one of the “incidents” of stock ownership. “The corporation, though holding and owning the capital stock, cannot vote upon it. It is the right and duty of the shareholders to vote. They in this way give continuity to the life of the corporation, and may thus control and direct its management and operations.” Texas courts have recognized that every shareholder in a corporation has “the rights, pro tanto, to share in its management.” But the broader principle, critical for the minority shareholder in a closely-held corporation who will likely always be out-voted, is that those in control of the corporation remain accountable to and ultimately subject to the will of the owners (collectively)—all the owners—and minority shareholders have a voice and a right to participate in that process. Therefore, each stockholder has a fundamental right to meet periodically with the other shareholders, to have the opportunity to confront management, and to vote on the directors and other matters in a proceeding where the vote of every share of the same class will be counted the same. A minority shareholder's right to a voice in corporate affairs is more than the right to be outvoted--it is the right to be heard.
Texas provides that an annual meeting shall be held at such time as may be fixed in the corporate bylaws. If no annual meeting has been held within a thirteen month period, a shareholder may petition the court to order a meeting. It is not necessary that the requesting shareholder have registered his shares or have been able to vote at the meeting. Rowe v. Rowe held that the trial court has the discretion to deny a request for an annual meeting. It refused to find that a trial judge had committed an abuse of discretion by denying a request for an annual meeting where the corporation had not engaged in business for many years.
The Business Organizations Code requires that a written notice stating the date, place, and time of the meeting be delivered not less than 10 nor more than 60 days before the date of the meeting. Delivery of notice may be personally or by mail. Delivery may also be by fax or other electronic message if the shareholder consents. A shareholder may provide written notice that his consent to receive notice by electronic transmission has been revoked. Consent is deemed revoked if the corporation is unable to deliver two consecutive notices by electronic transmission and the corporation's secretary, assistant secretary, transfer agent, or other person responsible for delivering notices is aware of such inability. Inadvertent failure to treat the inability to deliver such notices as a revocation of consent does not affect the validity of the meeting or other action.