When a company needs to make an important decision, it typically does so through a formal meeting of its shareholders. But setting up and going to a meeting can take time and may not be possible in some situations. In these situations, the company may use a written consent action, also called consent in lieu of a meeting, to get the approval it needs from its shareholders.
A written consent action is a document signed by the shareholders of a company, indicating their agreement to a specific action or decision that the company wants to take. This process lets the company get shareholder approval without holding a formal meeting. This can be helpful when time is of the essence or when it is hard to schedule a meeting for logistical or other reasons.
Process for Shareholders’ Written Consent
The process for obtaining written consent from shareholders typically involves the following steps:
- The company notifies shareholders: The company must provide notice to all shareholders about the proposed action and the opportunity to give written consent.
- Shareholders review proposal: The shareholders have the opportunity to review the proposal and ask questions if necessary.
- Shareholders provide written consent: The shareholders sign a document indicating their agreement to the proposed action.
- The company takes action: Once the necessary number of shareholders have signed the consent document, the company can take the proposed action.
Requirements for Shareholders’ Written Consent
Even though getting written permission from shareholders isn’t too hard, there are a few things that need to happen for the permission to be valid. These rules may be different depending on the state or country where the company is incorporated and the bylaws of the company itself. Some of the common requirements for shareholders’ written consent include:
- Notice: The company must provide notice to all shareholders about the proposed action and the opportunity to give written consent. The notice should include a description of the proposed action, the deadline for providing consent, and any other relevant information.
- A minimum number of shareholders: The written consent must be signed by the minimum number of shareholders required by the company’s bylaws or state law for the proposed action to be approved.
- Signature requirements: The written consent must be signed by each shareholder who approves the proposed action. Electronic signatures may be permitted in some states.
Examples of Shareholders’ Written Consent
Here are two examples of how a company might use written consent to make an important decision:
- Issuance of new shares: A company wants to issue new shares of stock to raise capital. Rather than waiting for a formal meeting to be scheduled, the company could send a notice to all shareholders about the proposed issuance of new shares, along with a consent document for shareholders to sign. Once the necessary number of shareholders have signed the consent document, the company can issue new shares.
- Appointment of a new director: A company needs to appoint a new director to its board. Rather than waiting for a formal meeting, the company could send a notice to all shareholders about the proposed appointment, along with a consent document for shareholders to sign. Once the necessary number of shareholders have signed the consent document, the company can appoint a new director.
Benefits of Shareholders’ Written Consent
Using written consent to make corporate decisions can offer several benefits, including:
- Efficiency: Written consent can be a faster and more efficient way to obtain shareholder approval than scheduling and holding a formal meeting.
- Flexibility: Written consent allows companies to obtain shareholder approval even when scheduling a formal meeting is not feasible.
- Cost savings: Written consent can save companies money on the costs associated with holding a formal meeting, such as venue rental, catering, and travel expenses for shareholders and directors.
- Increased participation: Written consent can encourage more shareholder participation, as it eliminates the need for shareholders to physically attend a meeting in person. This can be especially beneficial for companies with geographically dispersed shareholders.
- Record-keeping: Written consent provides a clear record of shareholder approval for a specific action or decision, which can be useful for legal and regulatory purposes.
In summary, shareholders’ written consent can be a valuable tool for companies to make important decisions efficiently and effectively. It offers benefits such as cost savings, increased participation, and clear record-keeping. As with any business decision-making process, it’s important for companies to make sure they follow all laws and rules and talk to legal and financial experts when they need to.
Example: XYZ Corporation is a publicly-traded company that is planning to acquire a smaller company in the same industry. The board of directors and a majority of shareholders would have to agree to the purchase. Due to scheduling conflicts and the urgency of the acquisition, the board of directors decides to seek written consent from shareholders.
The company sends a notice to all shareholders explaining the proposed acquisition and the opportunity to provide written consent. Within a week, the company gets written approval from shareholders who own more than 80% of the outstanding shares. This is more than the required majority of shares, so the majority approval threshold is met.
By getting written permission, the company was able to avoid the time and cost of setting up and holding a formal meeting of shareholders. Also, the acquisition went quickly and easily, without any delays or problems that could have happened if people had to wait for a formal meeting to be set up. This made it possible for the company to take advantage of the chance to buy the smaller company and get an edge in the market.