15 U.S.C. § 80a–16 — Board of directors

submitted 86 years ago by ch. 686 to r/title-15-COMMERCE-AND-TRADE · 1,065 words · no verdicts yet

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Directors of a fund must be elected by shareholders, though a board can fill a vacancy itself as long as enough directors stay shareholder-elected. Special rules protect independent directors, and common-law trust shareholders can vote out a trustee. Groups of shareholders can also demand a mailing list, or a mailing, to organize other shareholders.

(a) Election of directors. Nobody may serve as a director of a registered investment company unless the company's shareholders elected them at an annual or special meeting called for that purpose. Exception: a vacancy between meetings may be filled another lawful way, as long as at least two-thirds of the sitting directors were still shareholder-elected right after the vacancy is filled. If fewer than a majority of sitting directors were ever shareholder-elected, the board, or a proper officer, must call a shareholder meeting within sixty days to fill the vacancies — unless the Commission extends that deadline. This rule does not apply to advisory-board members. A company may divide its directors into classes if its governing documents allow it, as long as no class serves less than one year or more than five years, and at least one class's term ends each year. (b) Term vacancies. A board vacancy that arises under the independent-director requirement in section 80a–15(f)(1)(A), and that must be filled by someone who is not an interested person of either party to that kind of transaction, can only be filled by someone (1) chosen and proposed by a majority of the non-interested directors, and (2) then elected by shareholders — except that if a director elected this way dies, becomes disqualified, or resigns in good faith, the resulting vacancy may be filled the normal way under subsection (a). (c) Trustees of common-law trusts. This section's election rules do not apply to a common-law trust that existed on August 22, 1940, under a trust document that does not provide for shareholders to elect trustees. A natural person may not keep serving as trustee of such a registered trust once holders of at least two-thirds of its outstanding shares vote — in writing to the custodian, or in person or by proxy at a meeting — to remove him. Asking for that written vote counts as a proxy solicitation under section 80a–20(a). The trustees must promptly call a shareholder meeting to vote on removing a trustee whenever holders of at least 10 percent of outstanding shares request it in writing. Whenever at least ten shareholders — each holding shares for at least six months and together holding either $25,000 or more in net asset value, or at least 1 percent of outstanding shares, whichever is less — apply in writing to the trustees to communicate with other shareholders about requesting a meeting, and attach the material they want to send, the trustees must, within five business days, either (1) give the applicants access to the list of shareholders' names and addresses, or (2) tell the applicants roughly how many shareholders there are and roughly what it would cost to mail them the material. If the trustees choose option (2), then once the applicants request it in writing and provide the material plus the mailing expenses, the trustees must mail it to all shareholders promptly — unless, within five business days, a majority of the trustees mail the applicants, and file with the Commission, a signed statement saying the material contains untrue statements, leaves out necessary facts, or would violate the law, and explaining why. After a hearing on those objections, the Commission will — and must, if either side asks — issue an order either upholding one or more objections or rejecting all of them. If the Commission rejects all the objections, or later finds, after notice and a hearing, that the objections have been fixed, the trustees must promptly mail the material to all shareholders.

the actual law source: uscode.house.gov ↗public domain

(a) Election of directors

No person shall serve as a director of a registered investment company unless elected to that office by the holders of the outstanding voting securities of such company, at an annual or a special meeting duly called for that purpose; except that vacancies occurring between such meetings may be filled in any otherwise legal manner if immediately after filling any such vacancy at least two-thirds of the directors then holding office shall have been elected to such office by the holders of the outstanding voting securities of the company at such an annual or special meeting. In the event that at any time less than a majority of the directors of such company holding office at that time were so elected by the holders of the outstanding voting securities, the board of directors or proper officer of such company shall forthwith cause to be held as promptly as possible and in any event within sixty days a meeting of such holders for the purpose of electing directors to fill any existing vacancies in the board of directors unless the Commission shall by order extend such period. The foregoing provisions of this subsection shall not apply to members of an advisory board.

Nothing herein shall, however, preclude a registered investment company from dividing its directors into classes if its charter, certificate of incorporation, articles of association, by-laws, trust indenture, or other instrument or the law under which it is organized, so provides and prescribes the tenure of office of the several classes: Provided, That no class shall be elected for a shorter period than one year or for a longer period than five years and the term of office of at least one class shall expire each year.

(b) Term vacancies

Any vacancy on the board of directors of a registered investment company which occurs in connection with compliance with section 80a–15(f)(1)(A) of this title and which must be filled by a person who is not an interested person of either party to a transaction subject to section 80a–15(f)(1)(A) of this title shall be filled only by a person (1) who has been selected and proposed for election by a majority of the directors of such company who are not such interested persons, and (2) who has been elected by the holders of the outstanding voting securities of such company, except that in the case of the death, disqualification, or bona fide resignation of a director selected and elected pursuant to clauses (1) and (2) of this subsection (b), the vacancy created thereby may be filled as provided in subsection (a).

The foregoing provisions of this section shall not apply to a common-law trust existing on August 22, 1940, under an indenture of trust which does not provide for the election of trustees by the shareholders. No natural person shall serve as trustee of such a trust, which is registered as an investment company, after the holders of record of not less than two-thirds of the outstanding shares of beneficial interests in such trust have declared that he be removed from that office either by declaration in writing filed with the custodian of the securities of the trust or by votes cast in person or by proxy at a meeting called for the purpose. Solicitation of such a declaration shall be deemed a solicitation of a proxy within the meaning of section 80a–20(a) of this title.

The trustees of such a trust shall promptly call a meeting of shareholders for the purpose of voting upon the question of removal of any such trustee or trustees when requested in writing so to do by the record holders of not less than 10 per centum of the outstanding shares.

Whenever ten or more shareholders of record who have been such for at least six months preceding the date of application, and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least 1 per centum of the outstanding shares, whichever is less, shall apply to the trustees in writing, stating that they wish to communicate with other shareholders with a view to obtaining signatures to a request for a meeting pursuant to this subsection and accompanied by a form of communication and request which they wish to transmit, the trustees shall within five business days after receipt of such application either—

(1) afford to such applicants access to a list of the names and addresses of all shareholders as recorded on the books of the trust; or

(2) inform such applicants as to the approximate number of shareholders of record, and the approximate cost of mailing to them the proposed communication and form of request.

If the trustees elect to follow the course specified in paragraph (2) of this subsection the trustees, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all shareholders of record at their addresses as recorded on the books, unless within five business days after such tender the trustees shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement signed by at least a majority of the trustees to the effect that in their opinion either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion.

After opportunity for hearing upon the objections specified in the written statement so filed, the Commission may, and if demanded by the trustees or by such applicants shall, enter an order either sustaining one or more of such objections or refusing to sustain any of them. If the Commission shall enter an order refusing to sustain any of such objections, or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an order so declaring, the trustees shall mail copies of such material to all shareholders with reasonable promptness after the entry of such order and the renewal of such tender.

Source credit: (Aug. 22, 1940, ch. 686, title I, § 16, 54 Stat. 813; Pub. L. 94–29, § 28(3), June 4, 1975, 89 Stat. 165.)

history & why it existsrecord from the source credit

1940Enacted · Act of Aug. 22, 1940, ch. 686 · 54 Stat. 813
1975Amended · Pub. L. 94-29 · 89 Stat. 165

A history note hasn’t been published yet. The record shows enactment by ch. 686 on 1940-08-22.

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