The Advisors' Blog

– Liz Dunshee

This Semler Brossy memo (pg. 10) highlights how rare it is for equity plan proposals to fail – since 2011, only 0.5% have that distinction. But in some states, you’d be well-served to aim higher than the “majority of shares present & voting” standard that often applies to this type of proposal. This Keith Bishop blog examines two benefits of a high vote for California corporations:

If the equity plan is approved by a majority of the outstanding shares entitled to vote, then if it later turns out that the corporation has insufficient authorized but unissued shares to to satisfy exercise of outstanding options, Corporations Code Section 405(b) allows the board, without further shareholder approval, to amend the articles to increase the number of authorized shares to meet the need.

The second reason to obtain approval of the outstanding shares is to meet the requirements of the Commissioner of Business Oversight’s stock option rule. 10 CCR § 260.140.41(g). That rule requires that a stock option plan be approved by a majority of the outstanding securities entitled to vote within a specified time period.

This rule comes into play in two situations. First, it is the standard applied by the Commissioner when reviewing an application for qualification to sell securities under a plan. Second, it is a condition to the exemption for option plans pursuant to Corporations Code Section 25102(o).