Legal Question in Business Law in Pennsylvania

Re: Family Business

What do your company's by-laws say about voting? You have two classes of votes--shareholders and directors. Generally the shareholders only vote on major events, such as selecting the board of directors, whether to file bankruptcy and whether to dissolve the business. The Board of Directors, generally, votes on day-to-day issues, such as whether to lease a new building or whether to file the taxes as an S-corporation. Under the Pennsylvania Code, each director has one vote. However, your by-laws may have a different voting structure. If I assume that your corporation does not have by-laws or the by-laws do not discuss voting, then your corporation is governed by the Pennsylvania Corporation Code. Under the Code, each director has one vote. To authorize a business transaction, majority of your directors must be present at the meeting, and majority of the present directors must vote in favor of the transaction. You may notice that I did not list officers as a class of votes. Unless your by-laws or resolutions provide otherwise, officers do not have voting rights. The Pennsylvania Corporation Code does not give officers any voting rights. Officers are the President, Secretary, and Treasurer, (any other position your directors choose to create). Officers only do what the Directors instruct them to do. They do not have more powers than the Directors.

So I recommend the following:

First, read your by-laws. It should answer your question about whether the President has a super-majority vote.

Second, if your shareholders never adopted by-laws, then read the Pennsylvania Corporation Code. Based on the information you provided, the board legally voted to continue the restriction of viewing financial reports. Hopefully, the Secretary recorded the minutes, and the resolution was written, adopted, and signed. The President, as an officer, is bound by the resolutions passed by the board.

As a side note, the President is also a shareholder. He can call a special share-holder meeting. The shareholders may decide to appoint new board members.

Rest assured, your situation is common among small, closely-held corporation. It is something my office sees often, because most of our clients are small, closely-held corporation.

Good luck.

Sharmil McKee

Business Lawyer

Philadelphia, Pennsylvania