A Shareholder Consent In Its Dotage May Or May Not Be Valid

California Corporations Code Section 603(a) broadly authorizes shareholder action by written consent:

Unless otherwise provided in the articles, any action that may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, as specified in [Corporations Code] Section 195, setting forth the action so taken, shall be provided by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote thereon were present and voted.

Notably, Section 603 does not impose any dating requirement analogous to Section 228(c) of the Delaware General Corporation Law, which presently provides: "no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this section to the corporation, written consents signed by a sufficient number of holders or members to take action are delivered to the corporation . . .".   Does this mean that a consent solicitation begun in January can continue indefinitely?

The answer to the question is that it depends on how the record date for the action by written consent is established.  Section 701 authorizes the board of directors to fix a record date and provides certain default rules if the board fails to do so.  When the board fixes a record date, Section 701(a) imposes two timing constraints.  First, the board must fix the record date in advance, meaning that it can't pick a date before the date of the board action.  Second, the record date must not be more than 60 days before the shareholder action by written consent.  Thus, when the board fixes a record date for shareholder action by written consent, it effectively starts a 60 day clock for obtaining consents.  Note that this clock is entirely independent of the date of the consents.  What matters is that the shareholder action occur 60 days or less after the record date.

Matters are different when the board does not fix a record date.  Section 701(b) provides two default rules.  If the board has not taken any prior action, then Section 701(b)(2) fixes the record date as the day on which the first written consent is "given".  Unlike Section 701(a), the record date and the date of shareholder action by written consent are untethered.  Once the first written consent is given, it is possible to continue to collect consents indefinitely, months or even years after the record date.  However, it is unclear what is meant by "given".   There are several possibilities.  Some might claim that a consent may be "given" when it is signed, others when it is dated, and still others when the consent is delivered to the corporation.  Each of these is plausible, but focusing on when a consent is signed or dated may be misplaced because California, unlike current Delaware law, does not explicitly require that written consents be signed or dated.

Section 701(b)(3) provides that the record date for determining shareholders for any other purpose is the close of business on the day on which the board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later.  This seems to create the potential for multiple record dates.  Suppose, for example, that on January 1 the board takes action to approve an amendment to the articles of incorporation but fails to fix a record date.  The record date for action by written consent will be January 1.  However, consents are not given until March 3, the record date would be January 2 (i.e., 60 days prior to the date of the shareholder action by written consent).

Delaware's statute governing stockholder action by consent may soon change.  On May 5, 2017, Senate Bill 69 was introduced in the Delaware General Assembly.  See How The Proposed Fix To Delaware’s Stockholder Consent Statute Can Be Fixed.