Legal Question in Business Law in California

First, as to the transmission of notice by e-mail, Corporations Code section 20 sets forth some limitations upon using electronic communication to notify shareholders of matters that they can vote upon. Generally, the shareholder must give prior written consent to be notified electronically. However, I'm less certain that the prior consent requirement would also apply to delivery of information about the outcome of a meeting where action was taken or a vote held. It would be more meaningful to examine how you were notified of the meeting where the vote took place. See also Corporations Code sections 600 and 601 regarding giving of notice including electronic means. Also, review the bylaws to see if they impose more stringent notice requirements than those imposed by the Code.

As to conversion of a corporation to an LLC, this is specifically permitted by the Corporations Code, subject to a majority vote on a proper plan of conversion, and to dissenters' rights. As to when and how a conversion may be done, see Corporations Code sections 1150-1160. A conversion is usually also a reorganization, so sections 1200-1203 regulating reorganizations will also apply. Finally, dissenters have a package of rights, set forth in the following chapter of the Code, sections 1300-1313. All of the aforesaid sections would be too cumbersome to quote accurately in a LawGuru answer, but I urge you to look up the Code on line and read them yourself. Most of the language is non-technical and readily understood by a businessperson who takes the time to read the entire chapters.

As to the dilution, here again you starting point should be the corporation's bylaws and any shareholder agreements. Then consider Corporations Code section 2251, declaring certain fraudulent stock-issue transactions to be misdemeanors. More likely, however, this situation is covered by case law. There are cases holding that corporations and their directors must not engage in dilutive tactics unless the result is ultimately fair to all shareholders, and/or that the corporation must receive fair value in exchange for newly-issued stock. I'll look up the cases and post again if and when I find them.

Follow-up answer:

For an exposition of the �inherent fairness� fiduciary duty of majority shareholders to the minority, see Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93 at pp. 108-112.

See also Corporations Code section 309 re the performance of a director's fiduciary duties to the corporation and its shareholders.