Amendments To The Corporate Charter

• Author: James D. Cox/Thomas Lee Hazen
• Profession: Professor of Law at Duke University/Professor of Law at the University of North Carolina, Chapel Hill
• Pages: 588-591

§ 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

588 | C  C G: C  L

cox85509_25_c25_p587-592.indd 588cox85509_25_c25_p587-592.indd 588 6/28/12 9:01 AM6/28/12 9:01 AM