Shareholder Quorum: Everything You Need to Know
A shareholder quorum is necessary for a corporate meeting to be valid. Without a quorum, the meeting and its proceedings would have no effect.3 min read
A shareholder quorum is necessary for a corporate meeting to be valid. Without a quorum, the meeting and its proceedings would have no effect.
Basics of Shareholder Quorum
When holding corporate shareholder meetings, there are several rules that must be followed. One of the most important of these rules is having the acceptable minimum number of vested shareholders in attendance, which is known as a shareholders quorum.
The purpose of the shareholders quorum requirement is to make sure that a corporation's shareholders are adequately represented at a meeting where changes will be made to the company. In general, the size of the shareholders quorum would be based on how many shareholders can be relied on to attend every corporate meeting. No strict rules exist for how many shareholders must be in attendance to represent a quorum. Most corporations consider a simple majority to be a quorum. If you wish, you can define a set number that establishes a quorum in your corporate bylaws.
You must be very careful when deciding what number of shareholders represents a shareholder quorum. If you choose a small number, then your shareholders will not be accurately represented at meetings. If you choose too large a number, it may be difficult to gather a quorum and hold a valid meeting.
Make sure that the number you choose to establish a quorum represents the number of company members that have the ability to make decisions. For instance, if there are ten board members in your corporation, you could decide that six board members represents a quorum. Gathering a simple majority of board members is much easier than doing the same with shareholders.
If a majority of shareholders with voting power attends a meeting, this would be considered a quorum. While a corporation can lower the number of shareholders necessary for a quorum in its Articles of Incorporation, it's important to remember that a quorum can never be less than a third of shares with voting rights. Statutory close corporations are the only type of corporation that is allowed to require more than a majority for a quorum to exist.
Business at a shareholders meeting cannot take place unless a quorum is present. If there is no quorum, the only business that can be transacted is adjourning the meeting. If there is initially a quorum, and then some shareholders leave the meeting, business can continue as long as this business receives approval from the shares necessary to count as a quorum.
The presence of a minimum number of shareholders with voting rights is required to elect a Board of Directors. Corporations can use either their bylaws or their Articles of Incorporation to define the minimum number of shareholders necessary to elect board members. Before holding a shareholders meeting, make sure a shareholder quorum will be present. Otherwise, you would have to adjourn and reschedule your meeting, which can be very costly.
What Happens Without a Quorum?
Robert's Rules of Order outlined the guidelines for a quorum. The purpose of these rules was to protect companies from being harmed by the poor decisions of a small number of people. Unfortunately, if a company meeting is held and there is no quorum, those in attendance are limited in the actions they can perform. Without a quorum, there are four actions that can be taken:
- The attendees can alter the planned time of adjournment, which allows the meeting to be rescheduled for a later time.
- The attendees can adjourn the meeting and attempt to gather again at a future scheduled meeting.
- The attendees can hold a recess to give the other members time to arrive in the hopes that a quorum will be established.
- The attendees can pass a privileged motion that allows a quorum to be established through other means.
When choosing the fourth available action, there are several ways that those in attendance could attempt to establish a quorum. For example, the attendees could decide to form a committee for the purpose of contacting absent members to try and get them to attend the meeting. Absent members may also be able to appoint a proxy to attend the meeting and vote in their stead.
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