Management and control

Who Holds the Levers: The Control Floor and the Power Map

Management and control concerns internal decision-making after a corporation or LLC exists: who may decide, vote, appoint, remove, or implement a business choice. The governing sources are RUPA (1997), MBCA (2016), and ULLCA (2013), with Delaware law only when the governing facts or supplied materials make it applicable.

In a corporation, the board holds residual management power. Shareholders normally elect directors, remove directors as permitted by the governing law and organizational documents, and vote on specified fundamental transactions. Officers implement the corporation’s business through offices created by the bylaws or board action. A shareholder’s ownership does not ordinarily confer power to direct each daily business decision.

Recognition triggers include a disputed board resolution, a shareholder claiming that directors need owner permission, a challenge to an officer’s appointment or removal, missing meeting notice, an alleged lack of quorum, a written-consent question, or a transaction described as a merger, dissolution, asset sale, or articles amendment.

In an LLC, first identify whether it is member-managed or manager-managed. That choice determines whether ordinary business decisions belong to the members or managers. Then ask whether the operating agreement changes the default allocation and whether the act is ordinary or outside the ordinary course.

This topic is not starred: legal resources may be supplied when it is tested, and where they are not, you need only demonstrate recognition that the topic is at issue. You are not required to hold this topic cold because resources may be supplied; the floor you must hold in memory is the vocabulary, power map, decision sequence, and names of the approval mechanisms, not exact element wording, exception lists, or numbered subsections.

Run a fact pattern in this order:

1. Identify the entity and governing statute.

2. Identify the decision: ordinary business, officer administration, director action, owner election, or fundamental transaction.

3. Identify the default decision-maker and check the articles, bylaws, or operating agreement for a different allocation.

4. Check procedure: notice, record date, quorum, voting threshold, consent, or required approval.

5. Only then determine whether the authorized actor has completed the required internal action.

Votes, Meetings, and Consent: Turning Ownership into a Valid Corporate Vote

A shareholder vote begins with notice. The corporation gives written notice of a meeting to shareholders entitled to vote, stating the meeting’s time, place or remote method, and purpose when required. A vote on a fundamental transaction generally requires notice that allows shareholders to understand the proposed action; a notice describing only routine business will not ordinarily support an unannounced fundamental vote.

The record date identifies which shareholders may receive notice, vote, or receive other shareholder rights. A person who buys shares after the record date may own the shares but ordinarily does not become the voting shareholder for that meeting. Check the record date before counting votes.

A quorum is the required voting power present, in person or by proxy, not merely the number of shareholders in the room. Under the MBCA default, a majority of the votes entitled to be cast constitutes a quorum, subject to a permitted articles or bylaws variation. Once a quorum exists, it generally remains for the meeting unless the governing rule provides otherwise.

For ordinary matters, the default approval rule is usually a majority of votes cast, so abstentions are not affirmative or opposing votes. Director elections generally use plurality voting: the candidates receiving the most votes are elected. Fundamental matters, such as a merger, dissolution, certain major asset sales, or an articles amendment, may require approval by a specified fraction of all votes entitled to be cast rather than merely a majority of votes actually cast. Read the particular provision.

A proxy authorizes another person to vote the shareholder’s shares. It may be revoked unless coupled with an interest, and it normally lasts for the statutory period unless the proxy states a longer permitted period. A proxy affects participation and voting; it does not change the record date.

Shareholders may act without a meeting by written consent. The MBCA default is consent by all shareholders entitled to vote, although the articles may authorize less-than-unanimous consent subject to statutory safeguards, including notice to shareholders who did not consent. Do not assume that silence is consent.

Cumulative voting applies to director elections only when the governing corporate documents provide for it. It lets a shareholder concentrate votes on fewer candidates rather than casting the same number for each seat. First determine whether cumulative voting exists; then determine the number of seats and shares entitled to vote.

Boardroom Decisions: Meetings, Committees, and the Director’s Chair

Directors act as a board, not individually, unless a valid delegation gives an individual director a specific role. At a regular meeting, the board follows the applicable notice and quorum rules. A special meeting requires the notice specified by the governing law or bylaws. With a quorum present, the default board vote is approval by a majority of directors present, unless a greater vote is required.

The board may act without a meeting by unanimous written consent. A consent must be documented and delivered as required; a majority of directors cannot ordinarily replace unanimous consent with an informal email vote when the statute requires all directors’ consent.

The board may create committees of directors and delegate many management functions. The committee’s authority is still limited by the statute, the organizational documents, and the board’s delegation. A committee generally cannot take over matters reserved to the full board, such as filling board vacancies, adopting or changing bylaws where the statute reserves the action, approving a fundamental transaction, or other specially protected actions.

The board ordinarily appoints officers and may remove them. The articles, bylaws, or a valid board delegation may alter who appoints or removes a particular officer. The board also defines offices, assigns duties, and receives reports. An officer’s title alone does not transfer the board’s residual management power.

Shareholder approval is required when the statute or organizational documents reserve the matter to shareholders. Typical examples are electing directors, approving a merger, approving a sale of all or substantially all assets outside the ordinary course, approving dissolution, and adopting certain articles amendments. For every proposed transaction, ask whether the board must first authorize it and whether an additional shareholder vote is required; one approval does not automatically substitute for the other.

Officers and the LLC Operating Choice: Matching the Actor to the Act

An officer is an internal corporate functionary. The board or a valid delegate appoints the officer, sets the reporting line, assigns implementation duties, and may remove the officer. The officer should carry out board-approved policy and report back when the bylaws, board resolution, or office duties require it. The key question here is internal allocation: whether the officer was the proper corporate actor and whether the board properly delegated the task.

ULLCA begins with the operating agreement. If it does not choose manager management, the LLC is generally member-managed. In a member-managed LLC, members ordinarily have equal management rights, ordinary-course matters are decided by a majority of members, and acts outside the ordinary course or amendments to the operating agreement require consent of all members, subject to valid agreement modifications.

In a manager-managed LLC, managers handle ordinary management. Managers ordinarily have equal management rights, and a majority of managers decides an ordinary-course matter. All members generally must consent to an act outside the ordinary course or an operating-agreement amendment. Members ordinarily appoint or remove managers by the statutory member vote unless the operating agreement validly changes the default.

Use this decision tree when a transaction’s approval path is disputed:

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For this question, use the following supplied provision:

In a manager-managed company:

1. A matter relating to the company’s activities and affairs is decided exclusively by the manager, except as provided below.

2. A difference arising among managers concerning a matter in the ordinary course of the company’s activities and affairs is decided by a majority of the managers.

3. The consent of all members is required to undertake an act outside the ordinary course of the company’s activities and affairs or to amend the operating agreement.

4. A manager may be appointed or removed at any time by the consent of a majority of the members.

An LLC has five members and two managers. Its operating agreement is silent about approval thresholds. The LLC has operated a small retail store for three years. Manager Lee proposes purchasing land to build a manufacturing facility for an entirely new line of business. Manager Patel opposes the purchase. Three members vote for it and two members vote against it.

High-Yield Points - ⚡ Biggest Takeaways

Directors hold residual corporate management power. Shareholder voting requires the right record date, quorum, and threshold. Unanimous director consent replaces a board meeting only when all directors consent. Identify member-managed or manager-managed status before applying LLC approval rules. Outside-ordinary-course LLC acts generally require all-member consent.