1. Day-to Day Operations. The private corporations statute (ORS Chapter 60) vests day-to-day management in the board of directors and appointed officers with little direct shareholder control. Director action is governed by statutory provisions and bylaws, which may be adopted by directors upon incorporation without shareholder involvement. Thus, the statute provides certain shareholder protections such as reserving certain actions for shareholder votes and allowing shareholders to override director amendments to bylaws.

  2. Important Corporate Actions. The statute reserves some important corporate actions to shareholders, such as:

    1. Electing directors;

    2. Amending articles of incorporation;

    3. Amending bylaw provisions expressly reserved for shareholders;

    4. Voluntary dissolution; or

    5. Approving fundamental changes in corporate structure. For example: approving certain types of mergers and the transfer of assets not within the ordinary course of business requires shareholder approval.

  3. Controlling Power. There are a number of ways set forth in the statute for shareholders to control and shift power between and among shareholders and directors.

    1. Articles of Incorporation (Reserving Power). Directors can only amend certain housekeeping items in the articles of incorporation. Thus, shareholders can prevent director involvement with certain actions by placing them in the articles of incorporation.

      Example: Reserving corporate valuation or the issuance of a certain class of shares for shareholder action.

    2. Shareholder Agreements (Modifying Power). Shareholder agreements allow shareholders to agree to shift or allocate certain powers among or between directors and shareholders in ways otherwise inconsistent with the statute.

      Example: Shareholders may desire governance based upon one shareholder one vote, rather than the default of one share one vote. This can be accomplished by a shareholder agreement.

    3. Voting Agreements (Predetermined Power). Shareholders can agree to exercise their powers in a predetermined manner under voting agreements. Both agreements are valid under Oregon law provided they meet certain established criteria. Voting trusts are one way to address the restrictions on irrevocable proxies under the statute.

      Example: Shareholders agree to elect X and Y as directors for the next five years. Each shareholder who signs the voting agreement is contractually obligated to vote for X and Y for the next five years.

  4. Practical Considerations. The ability of the corporation to act may be compromised with a larger number of directors and shareholders. Following are some practical approaches to managing these larger forums.

    1. Quorums. The default is a majority for both shareholders and directors. Corporations with a large number of directors or shareholders often have a difficult time meeting quorum requirements. If the ability to make decisions is more important than broad consensus, limit the requirement. The quorum requirement can be as low as one-third under the statute.

    2. Actions Without a Meeting. Chapter 60 allows actions without a meeting upon the written evidence of consent from each director or shareholder, as the case may be. This often overlooked right is an important tool in providing the ability for the corporation to act if there is a problem meeting the quorum requirement. Consent minutes or records of action can be drafted and, upon receiving the requisite signatures, the action is effective.

    3. Amendments.

      1. Bylaws require a majority vote of directors or shareholders, as the case may be, unless a higher or lower requirement is set forth in bylaws or articles of incorporation. Again, consider the number of shareholders and directors to determine if a greater or lesser requirement makes sense.

      2. Shareholder agreements require unanimous approval to amend, UNLESS the agreement provides otherwise. Anytime unanimous consent is required, consider lowering the requirement to prevent the inability to act because one shareholder or director is not available or is unwilling to agree.

    4. Executive Committee. The board may create any number of committees upon a majority vote of the directors. A committee may exercise the authority of the board and must consist of no less than two directors appointed by the board. The committee approach is a useful management tool for the board. For example, a board consisting of 15 directors can set up an executive committee to which it will delegate its day-to-day activities. The executive committee could be made up of a much smaller number, such as five or seven directors. However, there are some restrictions on the power conferred to board committees, such as:

      1. Authorizing distributions;

      2. Presenting resolutions to shareholders for actions requiring shareholder approval;

      3. Amending bylaws; or

      4. Adopting a plan of merger that does not otherwise require shareholder approval.

    5. Preferred Interests. There may be reasons for a corporation to issue a preferred class of stock which confers preferred rights or interests to the holders of the stock. One common reason is some shareholders are only interested in the economic investment while others are more interested in the operation and governance of the corporation. Corporations can facilitate these divergent interests by issuing different classes of stock. Stock which confers investment type interests is usually called preferred stock, although many different names are used. Stock which confers governance or the right to vote is generally called voting common stock. Accordingly, preferred stock rights are designed to protect a shareholder’s investment. Although there is not a defined list of rights accompanying preferred stock, some typical rights are:

      1. Dividends. A priority to a dividend distribution before common stock;

      2. Liquidation. A priority to the distribution of capital assets in the event of dissolution;

      3. Convertibility. The ability to convert the shares into another class of stock;

      4. Directors. The ability to elect the corporation’s directors; and

      5. Right to Retain Preferences. A preferred shareholder has the right to retain the preferences attached to his or her preferred stock and cannot lose such rights without the shareholder’s consent. Holders of preferred stock are also entitled to certain rights shared by all shareholders, such as the inspection of corporate records and derivative actions.