Business Associations Keyed to Hamilton
Brown v. McLanahan
In 1935, debentures and preferred stock of the corporation were issued to lenders during the corporation’s bankruptcy. Only the preferred and common stock had voting power during this reorganization. These shares were then placed in a 10 year voting trust and the trustees (D) given the right to vote on amendments to the articles of incorporation and just about, “every other right of an absolute owner of said shares”. At the time of the reorganization, debenture holders and preferred stockholders were the same, later transfers of the preferred stock made them into two separate classes. The trustees (D) held substantial amounts of debentures and were also a majority of the corporation’s directors after having voted themselves in. Afraid of losing power with the termination of the trust, the trustees (D) voted to amend the corporate charter. The amendment granted debentures voting power and diverted control from the preferred shareholders. A holder (P) representing 500 preferred shares brought forth a class action to dismiss the amendment. The district court dismissed the holder’s (P) action. An appeal followed.
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