The 411 On Stockholder Communications: Stockholder Consent & 228 Notices

For a company, some actions require stockholder approval—by Delaware law—before they can go into effect. Here are a few of the corporate actions for which you are legally obligated to request and document either written or in-person stockholder consent (later, we’ll also touch on some situations where you might choose to get consent, even when it’s not required).   

Legal Requirements 

Delaware requires that Stockholder Consent be obtained and documented for several different corporate actions. To give you an idea of what decisions will require explicit stockholder consent, we have compiled a list of examples below: 

• Amendment(s) to the Certificate of Incorporation
• Election, Removal, or Change in Number of Directors 
• Adoption, Amendment, or Repeal of Company Bylaws
• Indemnification of Directors, Officers, Employees, or Other Agents
• Establishment of Stock Incentive Plans (SIPs) and their Amendment(s)
• Major Corporate Reorganizations
• Dissolution of the Corporation
• Interested Director Transactions (transactions wherein a member of the Board has a direct financial interest)
• Major Corporate Transactions (merger, acquisition, or sale of a large portion of company assets)
• Any Changes to Stockholder Rights

Please note that this list is not an all-encompassing list of every possible action which will need stockholder approval. If you are unsure of whether or not your action may require stockholder consent, it is best if you consult with your lawyer before taking any action. 

Situations When You Don’t Usually Obtain Stockholder Consent

In some cases, obtaining a stockholder consent document is not necessary. These include individual grants under, or minor changes to, the Stock Incentive Plan or certain Indemnification Agreement matters. In the aforementioned cases, the stockholder consent does not need to be collected. Companies usually decide not to obtain these consents when they are making small changes to their corporate proceedings, or entering into agreements with individuals using a form agreement previously approved and do not wish to consume the valuable time of their shareholders by requesting that they review these individual transactions before carrying out these actions.  

Stockholder Consent Requirements

If your company has decided to act in a way that requires shareholder approval and chooses to obtain that approval with a written consent, you are typically required to get signatures on the consent from stockholders that represent a majority ownership. More specifically, these stockholders will represent a majority of the total common stock and preferred stock holdings as converted to common stock. If your company has a mix of large and small stockholders, this may mean that not every single stockholder is required to pass an approval via stockholder consent—just the majority, which may be represented by a relatively small number of individuals or entities. 

However, because not every stockholder participates in a stockholder consent approval doesn’t mean that you’re free of obligations to the entirety of your stockholders. Whenever a stockholder consent is approved without the participation of all stockholders eligible to vote on those matters if it was taken at a meeting, the company must comply with Delaware General Corporation Law Section 228 by providing non-participating stockholders with notice of the actions undertaken.  

Section 228 requires that a Stockholder Communication (a "228 Notice") disclosing the corporate actions approved via Stockholder Consent be sent to all stockholders who would have been entitled to participate in the vote if it was taken at a meeting. This written notice should be sent promptly after a consent is approved, and typically consists of two parts: 

1. A “Notice to Stockholder of Actions Taken by Written Consent of the Stockholders in Lieu of Special Meetings”; followed by
2. An exhibit listing the actions that were consented to in writing by the participating stockholders. 

Some companies may also choose to include a cover letter providing additional context to their stockholders, although this is not a requirement. Once you send your Stockholder Communications out, no further action is needed. 

Fidelity makes your correspondence with shareholders really smooth; all notices can be sent from the platform in compliance with Delaware law allowing for electronic communications. By using our platform, your stockholders can easily be updated, and you will be practicing good corporate governance!   

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation. 

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