Corporations Practice Exams #18.

The directors of Motive, a corporation, mailed a notice of the annual shareholders' meeting specifying the order of business as '(1) Election of directors, and (2) such further business as may come before the meeting' together with proxy materials soliciting authorization for Scripps, the corporation's Secretary, to act as proxy at the meeting.

Motive manufactures combustion engines for power equipment. Its stock is not listed on any stock exchange. Its ' million outstanding shares are held by about 300 shareholders. A quorum of shareholders consists of a majority of the outstanding shares, present by proxy or in person.

Only Char, the chairperson of the board of directors, owning 10,000 shares, Scripps owning 5,000 shares, Mr. Gad owning 1,000 shares, and Mrs. Gad owning 1 share, were present in person at the meeting. Scripps held sufficient proxies, however, to establish a quorum. Gad had signed and mailed a proxy to Scripps covering his 1,000 shares; however, he announced at the meeting that he intended to vote his 1,000 shares in person.

At the meeting, after the election of directors was completed, Char, the duly elected chairperson of the meeting, asked if there was any further business to come before the meeting. Gad then made the following motion, duly seconded by Mrs. Gad:

'Resolved, that one-half of the firm's profits for the next year be devoted to research and development of pollution-free engines.'

After the motion was made and seconded, and before any vote upon it, Scripps left the meeting. Immediately after Scripps left, Char unilaterally adjourned the meeting and left. Nevertheless, Mr. and Mrs. Gad remained, and both voted in favor of the motion.

Applicable state statutes allow the voting of shares by proxy and provide that at annual meetings directors may be elected and 'any other business may be transacted which is within the powers of the shareholders.' There are no other relevant statutory, charter, or bylaw provisions.

Is the board of directors required to follow the Gad resolution. What result? Discuss.

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