Amendments To The Corporate Charter

AuthorJames D. Cox/Thomas Lee Hazen
ProfessionProfessor of Law at Duke University/Professor of Law at the University of North Carolina, Chapel Hill
§ 25.1 Power to Authorize Fundamental Changes
Corporation statutes vest the ma nagement of corporate business in
the board of directors. The board’s authority extends to the making
of contracts of any kind, incurring indebtedness, and authorizing any
other act, unless other wise limited by the ar ticles of incorporation or
by a provision in the state corporation stat ute.1 Any statutory li mitation
on the board of directors’ authority to carry out corporate business
arises when the tra nsaction is of a type for which the statute requires
shareholder approval to be obtained. Shareholder approval is also
required in those instances where the transaction poses a fundamental
change in the corporat ion or the stockholders’ economic or voting
rights.2 Fundamental corporate transactions are those characterized by
their extr aordinary nat ure, as well as by the unusual changes they bring
either to the corporate business or to the rights of its shareholders. It is
because of their effect s on the business and t he shareholders that the
authority to undertake such transactions is not commended solely to
the discretion of the boa rd of directors, but must be authorized by some
specified vote or written consent of the shareholders. The shareholders’
competence to assess the merits of the proposed f undamental change
is found in their self-interest and in t he fact that the skills called into
practice are analogous to t hose exercised in investing generally. That
is, the type of structu ral decision for which stockholder approval is
required under most corporate statutes bea rs directly on t he risks and
returns associated with an ownership interest in the firm.
§ 25.2 The Amendment Process
In most instances, t he amendment of the articles of incorporation
requires the approval of both t he board of directors and the shareholders
entitled to vote. Many states follow the lead of the former Model
Business Corporation Act and the current Model Business Corporation
Act to permit certa in types of amendments solely on the authority of the
board of directors.3 In most instances, such authorization is conf ined to
certain “housekeeping” cha nges, such as deleting the names or addresses
of the initial directors, substituting the full expression “corporation” or
“incorporated” for the abbreviated version, or vice versa, or deleting the
name or address of the initia l registered agent. Some substantive changes
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