Providence and Worcester Co. v. Baker

Supreme Court of Delaware · 1977 · Corporations

CorporationsVoting rightsCertificate of incorporationQuorumDelaware corporation law8 Del. C. § 151(a)8 Del. C. § 212(a)8 Del. C. § 216

Facts

P & W's certificate of incorporation contained long-standing provisions requiring 2,500 shares for a quorum and limiting how many votes a stockholder could cast based on the size of that stockholder's holdings. Penn Central's trustees in bankruptcy challenged those charter provisions. The dispute centered on whether the voting restrictions were invalid under 8 Del. C. § 151(a) and whether the quorum provision was invalid under 8 Del. C. § 216. The same issues were also raised as to proposed charter amendments retaining the same voting ratios, but the court referred only to the charter provisions.

Issue

Does 8 Del. C. § 151(a) invalidate charter provisions that restrict a stockholder's voting rights based on the size of the stockholder's holdings, and does 8 Del. C. § 216 invalidate a charter quorum provision tied to shares having voting power under that system? More specifically, are these provisions permissible under §§ 212(a), 216, and 102(b)(1)?

Rule

When charter provisions limit the voting rights of stockholders rather than create class-based variations in the voting powers of stock itself, their validity is determined primarily under 8 Del. C. § 212(a), not § 151(a). In the absence of an express statutory prohibition, § 212(a) permits a certificate of incorporation to vary the default one-share-one-vote rule, and § 216 permissively allows the certificate or bylaws to specify the shares having voting power necessary for a quorum.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakefront Milling, Inc., a Delaware corporation headquartered in Milwaukee, has a single class of common stock. Its certificate provides that each stockholder may cast one vote per share on the first 200 shares registered in that stockholder's name, but only one vote per 15 shares above 200. Nora Kim, who owns 8,000 shares, sues to invalidate the provision.

How should a Delaware court most likely rule on Nora's challenge?

Explanation. The majority treated this kind of provision as a limitation on the stockholder's personal voting rights, not as a variation in the voting power of the stock per se. Because § 151(a) did not expressly prohibit such a restriction, validity is determined primarily under § 212(a), which allows the certificate to vary the default one-share-one-vote rule, and § 102(b)(1), so the provision is likely valid.