Many are familiar with the advantages of having a formal entity for business. Limited liability companies, or LLCs, in particular, have gained popularity in recent years and seem to be the entity of choice for small business owners not only because of the liability shield and favorable tax treatment, but also because of the simplicity and flexibility. Mind you, certain formalities, such as meetings and records, are still necessary for LLCs (if required by your LLC Agreement or similar governing document), and LLC members and managers are not free to ignore them if they want to maintain the liability shield. But when it comes to corporations, more of the formalities are statutory requirements, unless otherwise provided in the governing documents. In Delaware, for example, the statute sets forth default rules on meetings, elections, voting, and notices. We find similar requirements for corporations incorporated in other states, too. While it may sound silly that the statute dictates, for example, how many days of advance notice is to be given for a stockholders meeting and how to calculate such date, failure to meet such requirements may be cause for intervention of the Court of Chancery, the state’s specialized business court, upon the application of any stockholder or director. And usually this is the stockholder you don’t want to deal with. In other words, corporate formalities are not just formalities.
In Hill Int’l, Inc. v. Opportunity Partners, L.P., Hill International, Inc. (“Hill”) was a publicly-traded Delaware corporation and Opportunity Partners, L.P. (“Opportunity”) was an Ohio limited partnership that owned shares of Hill’s common stock.[1][2] On April 30 2014, Hill publicly announced in its definitive proxy statement filed with the Securities and Exchange Commission (“SEC”) that it anticipated holding its 2015 annual meeting of stockholders “on or about June 10, 2015” and that stockholders who wished to submit a proposal for the meeting “must submit [their] proposal no earlier than March 15, 2015 and no later than April 15, 2015.”[3] The time frame for stockholder proposals was based on Hill’s bylaws, which required stockholder proposals to be given not less than 60 days nor more than 90 days prior to the meeting (the “30-day window”), or in the event that less than 70 days’ prior public disclosure of the date of the annual meeting was given to stockholders, no later than the 10th day following such disclosure.[4] Subsequently, the following events occurred:
- April 13, 2015: Opportunity submitted its notice with proposals for the annual meeting and two nominees for election to the board;
- April 30, 2015: Hill filed its 2015 proxy statement and announced that the 2015 annual meeting would be held at 9:00 a.m. on June 9, 2015;
- May 5, 2015: Hill asserted that Opportunity’s notice dated April 13th was deficient because it did not contain required information about the director nominees; and
- May 7, 2015: Opportunity delivered another notice with its proposals and nominations.
- May 11, 2015: Hill notified Opportunity that the May 7th notice was untimely.[5]
Opportunity promptly filed suit in the Court of Chancery, seeking to enjoin Hill from interfering with its presentation of director nominees and stockholder proposals at the annual meeting. You can already see a lot of cost and discomfort between the parties. Find out what the Court of Chancery, and ultimately the Delaware Supreme Court, had to say about the date of Hill’s annual meeting in our next post.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
About the Author
Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. R. Shawn can be contacted at: 407-517-0064; [email protected], or www.mcbrideattorneys.com.
[1] See generally Hill Int’l, Inc. v. Opportunity Partners L.P., No. 305,2015 (Del. July 2, 2015).
[2] Although we focus on a Delaware case in this blog, please note that the same basic principles apply in many other states.
[3] Id. at 3.
[4] Id. at 4.
[5] Id. at 3–4.