Shareholder Action by Written Consent
Shareholder action by written consent refers to corporate shareholders' right to act by written consent instead of a meeting.3 min read
Shareholder action by written consent refers to corporate shareholders' right to act by written consent instead of a meeting. This type of consent avoids some of the negative characteristics of shareholder meetings. A consent resolution, formally called a Shareholders' Consent to Action Without Meeting, is a written document that details and validates the procedures taken by shareholders within a corporation without requiring that a meeting occur between shareholders and/or directors.
In general, written shareholder consents require the same number of approval votes as would be required if the shareholder meeting actually occurred. Keep in mind that it's not necessary for a meeting to actually be in person these days either, as telephone and video meetings are common and may be included as acceptable methods of holding meetings according to a corporation's bylaws.
Shareholder action by written consent is also known as:
- Shareholders' Consent to Action Without Meeting.
- Notice of Action by Written Consent.
- Shareholders' Written Consent to Action.
- Action by Unanimous Written Consent.
"Unanimous Written Consent" is used most often in corporate contexts, but may also be used by limited liability companies (LLCs) and other kinds of legal entities.
Meetings Versus Consent
In public companies, shareholder business is typically conducted at formal shareholder meetings. These are often once a year, although it may be necessary to meet more often than annually. At annual general meetings, participants review and amend bylaws, elect directors and other important figures, approve auditors, and vote on various proposals and resolutions.
Meetings are usually comprised of action by corporate entities — the shareholders and Board of Directors. In a face-to-face or digital meeting, the secretary prepares the meeting minutes and files any approved measures. Minutes are then filed in the corporate minute book.
There are some negative aspects to meetings that make them less desirable than written consent. To participate in a meeting, people must be available at a certain time. Meetings might drag on far longer than is necessary to complete the tasks at hand.
Perhaps the corporation or its shareholders intend to take on particular actions but aren't interested in waiting for the next annual meeting. They could request a special meeting, but that may be difficult for people to attend.
The answer is action by written consent. Written consent is like a remote meeting, except in writing. During a regular meeting, meeting minutes record the actions taken during the meeting. With written consent, the same actions can be taken as long as written consent is completed by the required number of voting shareholders. There's no difference between meeting minutes and Consent to Action Without Meeting except that with the latter, a formal meeting has not taken place. It can save time for small companies or minor matters.
How Does Shareholder Action by Written Consent Work?
Oftentimes, major decisions that are to be made at meetings include purchasing or selling another business, mergers, issuing stock, and settling lawsuits. Shareholders at shareholders' meetings and board members at directors' meetings make decisions called corporate resolutions.
If all participants understand the subject contents and are completely in agreement, the secretary prepares a Unanimous Written Consent document that expresses the issue and decision in detail. The consent resolution form is then signed by all board members or shareholders and the actions are recorded in the corporate minute book.
For shareholders to act by written consent instead of a shareholder meeting, the written consent document must include:
- The state where the company is incorporated (relative jurisdiction).
- Corporation name.
- Chairperson name (typically the chairperson of the board, president, or secretary).
- Shareholder names.
- Resolution (decision).
- Effective date of resolution (typically upon signing).
- Certified resolutions, if applicable (in cases where resolutions must be verified).
Written Consent Proposals
After a several year hiatus, shareholder proposals advocating for the right to act by written consent reemerged on ballots this proxy season and have gained average shareholder support of more than 54 percent. Although in 2010, the amount of businesses with written consent proposals on the bill was small, the increasing level of shareholder support was significant and likely influenced proponents to keep advancing proposals at more companies every year. Whether or not a public company receives a written consent proposal, they should all understand the pros, cons, and procedures involved with written consent in case a proposal occurs on future ballots.
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