Also known as: qualified share
Written by attorneys · grounded in primary & secondary sources — see below
Shares entitled to vote on a director's conflicting interest transaction except those held by the interested director or a related person of the director. The corporation determines the pool of qualified shares after receiving required written notice from the director identifying nonqualified holdings. A majority of votes cast by holders of qualified shares can render the transaction effective for purposes of statutory safe-harbor provisions.
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Skyline Towers Inc. proposed selling its flagship building to a company owned by director Dana Trent. Dana delivered a written list of her and her family's shares to the tabulation agent before the meeting. The agent excluded those holdings and tallied a majority of the remaining votes in favor. The approval satisfied the statutory requirements and protected the transaction from later challenge by minority shareholders.
Thunder City FC sought approval of a concessions contract with a firm secretly owned by director Laura King. Before the vote Laura supplied the corporate secretary a written statement listing every share she knew was held by herself or her relatives. The secretary used that information to exclude the listed shares from the qualified pool. The resulting tally produced a majority among the remaining qualified shares.
Qualified shares include every share entitled to vote on the transaction except those the tabulator knows or has been notified are held by the interested director or a related person. The definition covers record, beneficial, and unrestricted voting-trust owners. Shares held by the director or related persons are excluded from both the quorum calculation and the decisive majority.
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The director must deliver written notice to the secretary or other vote-tabulating agent identifying the number and holders of every share the director knows is not qualified. The notice must be given before the shareholders vote. Failure to provide complete notice can prevent the corporation from accurately determining the qualified pool.
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No. Shareholder action that otherwise complies with the section is not affected by the presence or voting of shares that are not qualified. A majority of the votes entitled to be cast by holders of qualified shares still constitutes a quorum.
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Shareholders must receive notice describing the action to be taken respecting the transaction. They must also receive the material facts about the conflict and the transaction to the extent those facts are not already known. The vote is effective only after these disclosures occur.
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