Curing Defects in Stock Issuances - American Bar Association

1134 The Business Lawyer; Vol. 63, August 2008
the slate of directors elected by the defendants in 1999 was on the board; otherwise,
the plaintiff was the sole stockholder and, arguably, the sole director. 140
Under section 141 of the DGCL, board action may be taken either by a vote at
a meeting or without a meeting by unanimous consent of the board in writing so
long as the writing is fi led with the board’s minutes. 141 Here the sixty-one shares
held by the defendants were issued absent any vote of the board, and although a
unanimous written consent document had been prepared by VKI’s attorney, it was
never signed, nor was it fi led with the corporation’s minutes. 142 Nevertheless, the
certifi cates for the shares were signed by the corporation’s president and secretary
and issued in conformity with the unsigned unanimous written consent. 143 For
the following eight years, those shares were voted and “no one ever questioned
the[ir] validity.” 144 By 1998, the plaintiff was on actual notice that the unanimous
written consent had not been signed. 145 In 1999, the defendants, voting their
sixty-one shares, elected a slate of fi ve directors (one of whom was the plaintiff );
these were the same fi ve directors who had been elected in 1998. 146 In 1999, the
plaintiff only voted his thirty-nine shares to elect himself, although in 1998 those
same thirty-nine shares were voted in support of the entire slate of fi ve directors,
the same directors ostensibly reelected in 1999. 147 Following the 1999 election, the
plaintiff took no action to remove any of his four co-directors. 148 Immediately after
the 1999 election, the defendant-stockholders passed resolutions ratifying the
1991 stock issuance, and the defendant-directors passed similar resolutions. 149
The plaintiff voted against both sets of resolutions. 150
The Court of Chancery never reached the question of whether the shares
were validly issued ab initio. In dicta, the court noted that compliance with the
formalities of board authorization has “important functional signifi cance” and
140. Id. at 536 –37.
141. See, e.g., DEL. CODE ANN. tit. 8, § 141(b) (2001 & Supp. 2006) (“The vote of the majority of
the directors present at a meeting at which a quorum is present shall be the act of the board of directors
unless the certifi cate of incorporation or the bylaws shall require a vote of a greater number.”);
id. § 141(f ) (2001) (“[A]ny action required or permitted to be taken at any meeting of the board of
directors or of any committee thereof may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing . . . and the writing or writings . . . are fi led
with the minutes of proceedings of the board, or committee.”). Although a valid board decision was
required to issue the shares in Kalageorgi, there was no need for the board to amend the charter or fi le
any certifi cate of designations. Only one class of shares was part of the corporation’s capital structure
and 100 shares were already authorized at the time the contested shares were distributed to the defendants.
Kalageorgi, 750 A.2d at 532–34. The only action the board had to take was to issue the shares;
it had authority under the charter to do so if it complied with the procedural formalities.
142. See id. at 537 (noting that the VKI board had blank check authority, granted in the charter,
to issue stock absent stockholder consent).
143. Id. at 535.
144. Id.
145. Id. at 535–36.
146. Id.
147. Id. at 536.
148. Id.
149. Id.
150. Id.