Determining whether shareholder approval of a proposal has been obtained can be tricky. This is all the more difficult in California because the Corporations Code includes a variety of voting rules. One of these is Section 153 which defines "approval by (or approval of) the shareholders" in part as follows:
approved or ratified by 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) . . .
Assume that a corporation has 10,000,000 shares outstanding and 8,000,000 shares are represented at a meeting at which two proposals are to be considered. The first proposal receives the following votes:
FOR: 5,000,000
AGAINST: 3,000,000
ABSTAIN/BROKER NON-VOTES: 0
This proposal has been approved by the shareholders because it has received a majority of the shares represented and voting at the meeting (i.e., at least 4,000,001). The 5,000,000 votes cast for the proposal also constitute at least a majority of the required quorum (i.e., 2,500,001).
If the second proposal receives the following votes, does it pass?
FOR: 3,000,000
AGAINST: 1,000,000
ABSTAIN/BROKER NON-VOTES: 4,000,000
The answer depends on how you read Section 153. The number of votes cast for the proposal is less than a majority of the votes represented and voting at the meeting on all matters (i.e., less than 4,000,001). However the number of votes cast for the second proposal constitutes a majority voting on that proposal (i.e., 2,000,001) and it does constitute at least a majority of the required quorum.
Delaware is much clearer on this question. Section 216 provides that unless otherwise provided in the certificate of incorporation or bylaws, "the affirmative vote of a majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders".
Thus, approval of a proposal turns on whether Section 153 refers to a majority of the shares represented and voting on all matters or the specific matter.
