I came across a recent preliminary proxy filing that described the vote required for approval of a new equity compensation plan as "the affirmative vote of a majority of the shares of common stock present and voting on the matter, provided that the affirmative vote cast constitutes a majority of a quorum". That doesn't seem unusual but is it an accurate statement?
The corporation in question is a California corporation. Accordingly, Corporations Code Section 602(a) provides the default rule for shareholder action:
"Except as provided in subdivision (b) [loss of a quorum], the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by this division or the articles.
I checked the articles of incorporation and they do not, as is common, impose a different voting requirement (Corp. Code § 204(a)(5) permits the articles to include a provision requiring the vote of a larger (but not smaller) proportion or of all the shares of any class or series than is otherwise required). The California General Corporation Law does not impose a specific voting requirement for shareholder approval of equity compensation plans. Although the bylaws may not prescribe a different voting requirement, I checked the corporation's bylaws which provide:
"If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by California General Corporation Law or by the articles of incorporation."
So what's my cavil? These statements all appear to be saying the same thing, and yet they impose different voting requirements. The first (as stated in the proxy statement) requires a majority vote of those voting on the matter; the second (Section 602) requires a majority vote of the shares voting at the meeting; and the third (bylaws) requires a majority vote of the shares represented and entitled to vote (as opposed to voting) at the meeting.