New York statutory law provides for the following types of for-profit entities:

• corporation;
• limited liability company (LLC);
• general partnership (GP); and
• limited partnership (LP).

Each type of entity is governed by a separate statute – ie:

• the New York Business Corporation Law (NYBCL, Sections 101 et seq.);
• the New York Limited Liability Company Law (NYLLCL, Sections 101 et seq);
• the New York Partnership Law (the “NY P’ship Law”, Section 1 et seq); and
• the Revised Limited Partnership Act (the “Revised Act”) (NY P’ship Law, Sections 121-101 et seq).

Similarly, Delaware statutory law provides for the following types:

• C-corporation;
• S-corporation;
• LLC;
• GP; and
• LP.

C-corporations are the most common and are typically publicly traded companies. S-corporations are more restrictive than C-corporations; an S-corporation entity requires shareholders who are US citizens or residents, 100 or fewer shareholders, and only one class of stock.

Each Delaware entity is also governed by a separate statute – ie:

• the Delaware General Corporation Law (DGCL) (8 Del C Sections 101 et seq);
• the Internal Revenue Code (IRC; 26 USCA Section 1361, IRC Sections 1361 et seq) (governing C-corporations and S-corporations);
• the Delaware Limited Liability Company Act (DLLCA) (6 Del C Sections 18-101 et seq);
• the Delaware Revised Uniform Partnership Act (6 Del C Sections 15-101 et seq); and
• the Delaware Revised Uniform Limited Partnership Act (DRULPA) (6 Del C Sections 17-101 et seq).

A foreign entity’s corporate form in New York will follow the corporate form of its home country; foreign corporations must register as corporations in New York, foreign LLCs must register as LLCs in New York, and so forth.

In order to do business in New York, a foreign corporation must file an Application for Authority with the New York State Department of State (NYSDOS), pursuant to Section 1304 of the NYBCL. A foreign corporation that is qualified to do business in New York may engage in any lawful business activity if it is authorised to conduct that business in its jurisdiction of incorporation (NYBCL Section 1301(a)).

The application should state the following.

• The name of the foreign corporation.
• The fictitious name the corporation agrees to use in New York (if any).
• The jurisdiction and date of its incorporation.
• The purpose or purposes for which it is formed.
• The county within New York where its office will be located (although the corporation is not required to have an actual physical office in New York).
• A designation of the New York Secretary of State as its agent for service of process, and the post office address within or outside New York, which the Secretary of State can use to forward any service of process to the corporation. If desired, the corporation can also include an email address that the Secretary of State can use to notify the corporation that process has been electronically served against it.
• The name and address of the registered agent (if any) in New York and a statement that the registered agent is to be its agent for service of process.
• A statement that the foreign corporation has not engaged in any unauthorised activity in this state.

The corporation must attach a certificate signed by an authorised officer of the jurisdiction of its incorporation certifying that the foreign corporation is an existing corporation.

Foreign business corporations must file a Biennial Statement using a form provided by the NYSDOS every two years with the NYSDOS during the calendar month that it filed its original application for authority (NYBCL Section 408(1)).

The NYBCL does not limit the classes or series of stock that can be issued, but the certificate of incorporation may impose limitations on classes or series of stock.

The certificate of incorporation must set out the designation of each class or series (as the case may be) and a statement of the relative rights, preferences and limitations of the shares of each class or series (NYBCL Section 402(a)(5)–(6)).

The NYBCL expressly permits the certificate of incorporation to limit or abrogate the voting rights of a particular class or series of shares.

Similarly, the NYLLCL does not limit the classes or series of stock that can be issued. LLCs are free to assign their membership interests; however, these interests can be restricted by an LLC’s operating agreement (NYLLCL Section 603). Membership interests include a share of profits and losses, distribution rights and voting rights. The operating agreement must contain the rights, powers, preferences, limitations or responsibilities of its members, managers, employees or agents (NYLLCL Section 417(a)).

Likewise, partnerships in New York are not limited by statute regarding classes or series of stock. GPs and LPs can contract or restrict classes or series of stock through their partnership agreements (NY P’ship Law Sections 121 101 et seq) (NY P’ship Law Sections 1 et seq).

With few exceptions, New York law permits corporations to vary shareholders’ rights through shareholder agreements as well as the corporation’s by-laws. There are certain changes to shareholder rights that require supermajority approval:

• merger or consolidation (NYBCL Section 903);
• disposition of all or substantially all of the assets (NYBCL Section 909);
• amendment or change to the certificate of incorporation (NYBCL Section 803); and
• dissolution (NYBCL Section 1001.)

In the case of LLCs, equity-holder rights are varied through the LLC operating agreement, which is a matter of contractual agreement among the equity holders. There are a few default rules that require majority approval but they can be overridden by an operating agreement, such as:

• amending the operating agreement (NYLLCL Section 417);
• merger or consolidation (NYLLCL Section 1001); and
• dissolution (NYLLCL Section 701).

Likewise, in partnerships, the rights of the LPs are generally governed by the partnership agreement. While there are default rules, the rights and duties of partners are subject to any agreement between them. These default rules do provide for majority or unanimity in terms of amending the partnership agreement (NY P’ship Law Section 40, Section 121-110), admitting new partners (NY P’ship Law Section 40, Section 121-110) or dissolution (NY P’ship Law Section 62, Section 121-801.)

New York does not mandate minimum share capital requirements for any of the company types listed in 1.1 Types of Company.

C-corporations may be owned by one or more shareholders; there is no requirement that shareholders be resident in New York.

S-corporations may be owned by one to 100 shareholders; generally, only US individuals (citizens or residents) and certain trusts and tax-exempt organisations can be shareholders.

LLCs may be owned by one or more members; there is no requirement that shareholders be resident in New York. To be taxed as a partnership, however, two or more members are required (NYLLCL Section 203).

GPs can be owned by two or more partners; there is no requirement that shareholders be resident in New York (NY P’ship Law Section 10).

LPs require at least one general partner and at least one limited partner; there is no requirement that shareholders be resident in New York (NY P’ship Law Section 91).

Shareholders’ agreements, LLC operating agreements and LP agreements are commonly used for privately held companies. Each agreement has a different utilisation.

Joint venture agreements are less common and there are questions about their relevancy. These agreements can create their own entities and commonly cover things such as rights of first refusal, shareholders’ rights, tag-along rights and voting rights.

Common provisions in shareholders’ agreements include:

• board composition and shareholder representation on the board (including the right to designate directors);
• special voting rights;
• pre-emptive rights if the company issues additional equity securities;
• rights to or restrictions on the transfer of shares (such as rights of first refusal, tag-along rights and drag-along rights); and
• information rights.

As a general matter, New York law treats shareholders’ agreements like any other contract, and thus enforces them according to their terms, per the bedrock principle of “freedom of contract”. There are, however, numerous legal considerations that can affect the enforceability and effectiveness of shareholders’ agreements.

Shareholders’ agreements are generally not made publicly available. However, in the case of a public company, the federal securities laws may require the disclosure of shareholders’ agreements if the parties thereto exceed certain ownership thresholds or if the agreement is considered a material agreement of the public company itself.

Joint venture agreements form business collaboration between parties. Typically, joint venture agreements form a new entity – an LLC, corporation or partnership – with a defined business objective. Common provisions include:

• the purpose and scope of the joint venture;
• the structure and formation of the joint venture;
• contributions, profit and loss allocation; and
• ownership and equity rights.

Like shareholders’ agreements, joint venture agreements are treated as a contract. These agreements can lead to formation of a new entity, though these agreements are still valid without one. Joint venture agreements are usually private unless voluntarily disclosed or compelled by legal process. If the joint venture parties are public companies, they may need to file the agreement with the Securities and Exchange Commission (SEC) under federal securities law governing material contracts.

Section 602(c) of the NYBCL requires that a shareholder meeting “for the election of directors and the transaction of other business” be held annually, “on a date fixed by or under the by-laws” (NYBCL Section 602(c)).

Special meetings of the shareholders may be called by the board and by such person(s) so authorised by the certificate of incorporation or the by-laws. At any such special meeting, only such business may be transacted which is related to the purpose or purposes set forth in the notice required by Section 605.

The corporation must provide the notice at least ten days and not more than 60 days before the date of the annual meeting. However, if the corporation gives notice by third-class mail, it must give the notice at least 24 and not more than 60 days before the date of the meeting.

If mailed, the corporation is deemed to give notice when the notice is deposited in the US mail, postage prepaid, directed to the shareholder at the shareholder’s address as it appears on the record of shareholders (or, if requested by the shareholder, at another address).

If transmitted electronically, the corporation is deemed to give notice when directed to the shareholder’s email address as supplied by the shareholder to the secretary of the corporation (or as otherwise directed per the shareholder’s instructions).

LLCs and partnerships do not have such requirements, and any requirement to conduct an annual meeting will be set forth under the LLC operating agreement or partnership agreement.

Section 605(a) of the NYBCL requires that a corporation provide written or electronic notice of the annual shareholders’ meeting. The notice must state the place, date, time and, if available, the means of electronic communications by which shareholders may participate in the proceedings and vote or grant proxies at the meeting (NYBCL Section 605(a)).

The corporation must provide the notice at least ten days and not more than 60 days before the date of the annual meeting. However, if the corporation gives notice by third-class mail, it must give the notice at least 24 and not more than 60 days before the date of the meeting.

If mailed, the corporation is deemed to give notice when the notice is deposited in the US mail, postage prepaid, directed to the shareholder at the shareholder’s address as it appears on the record of shareholders (or, if requested by the shareholder, at another address).

If transmitted electronically, the corporation is deemed to give notice when directed to the shareholder’s email address as supplied by the shareholder to the secretary of the corporation, or as otherwise directed per the shareholder’s instructions.

Section 405 of the NYLLCL establishes a default rule regarding notice. Notice should be given no less than ten days and no more than 60 days before the date of the meeting. An LLC’s operating agreement can set forth notice requirements that override the default rule. Partnership agreements govern matters of notice where New York statutes are silent.

Under the NYBCL, special meetings of the shareholders may be called by the board or directors, or by any other person(s) authorised by the certificate of incorporation or the by-laws to call special meetings (NYBCL Section 602(d)). Thus, shareholders do not have the right to call for a shareholder meeting unless it is granted to them in the certificate of incorporation or by-laws.

New York LLC and partnership law does not set forth who can call a general meeting. However, the operating agreement and partnership agreement typically govern and establish meeting criteria.

All shareholders are entitled to receive notice of a general meeting, and that notice must state the place, date and hour of the meeting, indicate that it is being issued by or at the direction of the person(s) calling the meeting, and state the purpose or purposes for which the meeting is called. Notice of any meeting of shareholders may be written or electronic (NYBCL Section 605(a)).

Under Section 624 of the NYBCL, shareholders have the right to inspect the corporations “minutes of the proceedings of its shareholders and record of shareholders and to make extracts therefrom for any purpose reasonably related to such person’s interest as a shareholder”. If the records are not desired for a purpose related to business interests, a corporation can refuse the inspection. Further, shareholders can make a written request of the corporation’s balance sheet and profit and loss statements for the previous fiscal year (NYBCL Section 624).

LLCs and partnerships also have a right to inspect and copy records for any purpose reasonably related to the member’s or partner’s interest. These records include:

• a current list of managers/partners and last known mailing address;
• the share of profits and losses of each member/partner;
• a copy of the articles of organisation;
• a copy of the operating agreement; and
• a copy of the entity’s income tax or information returns and reports for the previous three fiscal years.

(See NYLLCL Section 1102; NY P’ship Law Section 121-106, Section 41.)

Comparatively, Delaware statutory law requires notice of a general meeting, which should be given at least ten days and no more than 60 days before the meeting. Notice must include:

• the place, date and hour of the meeting;
• means of remote communication; and
• the record date for determining the stockholders entitled to vote.

(See 8 Del C Section 222.)

Delaware law gives stockholders of a corporation the right to inspect and copy books and records. The shareholder’s request must be made in good faith and for a proper purpose, with “reasonable particularity” detailing the purpose of the request, and the records requested must be related to that purpose (8 Del C Section 220).

Members of LLCs and partnerships have the right to obtain records and books if the purpose is reasonably related to the member’s interest. These records include:

• information regarding the state of the business;
• the entity’s tax returns for each year;
• copies of operating agreements and amendments; and
• information about contributions of each member.

(See 6 Del C Section 18-305, Section 17-305.)

Shareholders’ meetings may be held virtually. In November 2021, New York State passed legislation permanently amending provisions of the NYBCL to allow companies to use electronic means to document action by written consent by boards and to hold virtual shareholders’ meetings, unless such action is prohibited by the entity’s articles of association or by-laws (NYBCL Section 602).

A quorum consists of a majority of the votes of shares entitled to vote at a meeting of shareholders for the transaction of any business. If, however, a specified item of business is required to be voted on by a particular class or series of shares, voting as a class, the holders of a majority of the votes of shares of such class or series shall constitute a quorum for the transaction of such specified item of business (NYBCL Section 608).

The corporation’s certificate of incorporation or by-laws may provide for a greater or lesser quorum, provided that the quorum specified cannot be less than one third of the votes of shares entitled to vote (NYBCL Section 608).

While partnership law is generally silent on the issue of quorum requirements, the NYLLCL establishes a default quorum requirement. Unless the LLC operating agreement states otherwise, a quorum consists of at least a majority of members entitled to vote (NYLLCL Section 407).

Unless otherwise required under the NYBCL or the by-laws or certificate of incorporation, a plurality of shareholder votes is required to elect directors, and a majority is required for all other corporate actions (NYBCL Section 614).

In New York, LLCs can establish voting guidelines in their operating agreement. In the absence of an operating agreement, a majority in interest of the members entitled to vote is the default rule (NYLLCL Section 402). Partnership voting guidelines are a matter of contract under the partnership agreement.

New York law requires shareholder approval of the following corporate actions.

• Issuance of rights or options to acquire shares to officers, directors and employees (NYBCL Section 505(d)).
• Election of directors (NYBCL Section 602(c)).
• Amendment to the certificate of incorporation and by-laws. When specifically provided for in the certificate of incorporation or a by-law adopted by the shareholders, by-laws may also be adopted, amended or repealed by the directors. Any by-law adopted by the directors may be amended or repealed by the shareholders entitled to vote on the issue (NYBCL Sections 601(a) and 803).
• Certain mergers and consolidations (NYBCL Section 903).
• The sale of all or substantially all the assets of a corporation, if not made in the usual or regular course of the business actually conducted by the corporation (NYBCL Section 909).
• Share exchanges (NYBCL Section 913).
• Non-judicial dissolution (NYBCL Section 1001).
• Guarantees of the corporation not in furtherance of its corporate purposes (NYBCL Section 908).

The certificate of incorporation or by-laws may also require shareholder consent for additional specific actions.

As stated previously, unless otherwise required under the NYBCL or the by-laws or certificate of incorporation, a plurality of shareholder votes is required to elect directors, while a majority of shareholder votes is required for all other corporate actions (NYBCL Section 614).

Class Voting Rights

If any proposed amendment would adversely affect the rights of holders of shares of one series of a class, but not the entire class, then only the holders of the affected series will be entitled to vote as a separate class. Approval by a particular class of shareholders is required to authorise an amendment that would:

• exclude or limit the class’s right to vote on any matter, except as such right may be limited by voting rights given to new shares then being authorised of any existing or new class or series;
• change the shares of the class:
• reduce their par value;
• divide into a different number of shares of the same class or into the same or a different number of shares of any one or more classes or series;
• alter the designation of the class or any of the relative rights, preferences or limitations of the class;
• provide that the shares may be converted into shares of any other class or other series of the same class;
• alter the terms or conditions on which the shares are convertible or the shares issuable on conversion of the shares, if the action would adversely affect the holders; or
• subordinate the class’s rights by authorising shares with preferences superior to those rights.

(See NYBCL Section 804(b).)

Shareholder Approval of Mergers

New York law requires shareholder approval of mergers. In particular, following board approval of the merger agreement, the board must submit the merger agreement to a vote of shareholders, a majority of which must approve the merger (NYBCL Section 903(a)(2)).

Shareholder approval of a merger can be done through action by written consent without a meeting (NYBCL Section 615).

In advance of the shareholder vote, the board must provide every shareholder of record with:

• notice of the shareholder meeting to vote on the merger agreement; and
• a copy or outline of the merger agreement

(See NYBCL Section 903(a).)

If the corporation’s by-laws do not provide the record date for voting purposes, the board of directors may fix the record date, which may not be less than ten days or more than 60 days before the date of the meeting, or more than 60 days before any other action (NYBCL Section 604).

The NYBCL also grants appraisal rights to dissenting shareholders who are entitled to vote on the proposed merger. A dissenting shareholder of the subsidiary corporation has appraisal rights in a parent-subsidiary merger; shareholders to the parent corporation do not have appraisal rights (NYBCL Section 910).

LLC member approval can be codified in the LLC’s operating agreement. Although LLC law is silent regarding the details of approval and voting, the default rule of LLC voting requires at least a majority in interest of the members (NYLLCL Section 1002(c)). Similarly, a partnership’s approval and voting rights are subject to the partnership agreement.

A shareholder may vote at the meeting in person or by electronic communication if authorised by the board of directors. The board is also permitted to hold the meeting solely by electronic communication (NYBCL Section 602(a), (b)).

Section 609 of the NYBCL permits shareholders to vote by proxy. A proxy expires 11 months after its execution, unless otherwise stated in the proxy. There is no prescribed form or language for granting a valid proxy (NYBCL Section 609).

Section 620 of the NYBCL expressly permits voting agreements, provided that the agreement is in writing and signed by the parties thereto (NYBCL Section 620).

For LLCs and partnerships, see 2.8 Shareholder Approval.

Shareholders do not have a statutory right in New York to bring a resolution forward, or to otherwise have a specific issue considered, at a shareholders’ meeting. Such rights may exist in the corporation’s foundational documents (NYBCL Section 602).

A shareholder’s right to bring a resolution forward is absent from New York LLC and partnership statutory law. Although the law is silent, this right could be enshrined in a company’s by-laws or operating agreement.

A shareholder who wishes to challenge a resolution passed at a shareholders’ meeting may bring a lawsuit against the company and/or its board (typically in the jurisdiction in which the company was incorporated) (NYBCL Section 626).

Common bases for legal challenges include:

• a failure to comply with the meeting or voting procedures set forth under law or the company’s governing documents (ie, certificate of incorporation or by-laws);
• the validity of shareholder votes, including whether a purported shareholder was entitled to vote at the meeting, or the timeliness of a vote; and
• the board of directors’ failure to fulfil its fiduciary duties with respect to the resolution, including because directors breached the duty of loyalty.

SEC changes to the ownership disclosure requirements took effect in February 2024, and require investors to notify the market sooner if their ownership level crosses 5%. For Schedule 13D filers – that is, investors that seek to influence strategy – the deadline is now five days (decreased from ten days), while the timing to make material is now two days (changed from “promptly”). The new rules also clarify the scope of derivatives that should be disclosed.

In February 2025, the SEC published a revision to their guidance on filing Schedule 13D and 13G. Shareholders filling out Schedule 13G must certify whether they hold the shares for “the purpose or with the effect of changing or influencing the control of the issuer”. To determine whether the shareholder holds the shares to “change or influence” the issuer, the SEC will look to the meaning of “control” under Exchange Act Rule 12b-2.

Under the NYBCL, shares are voted by shareholders of record rather than beneficial owners. Every shareholder of record shall be entitled at every meeting of shareholders to one vote for every share standing in their name on the record of shareholders, unless otherwise provided in the certificate of incorporation (NYBCL Section 612).

Shareholders may pass a resolution without holding a meeting, provided that the resolution is in writing and contains the action to be taken, and is signed by the holders of all outstanding shares entitled to vote.

The certificate of incorporation may, however, permit the holders of outstanding shares of at least the minimum number of votes necessary to authorise or take action at a meeting at which all shares entitled to vote are present and voting (NYBCL Section 615).

For corporations incorporated after 22 February 1998, shareholders have no pre-emptive rights, except as expressly provided in the certificate of incorporation (NYBCL Section 622(b), (c)).

For corporations formed before 22 February 1998, shareholders do have pre-emptive rights, unless the certificate of incorporation provides otherwise (NYBCL Section 622(b), (c)).

In LLCs, members do not have pre-emptive rights under the NYLLCL. However, the members of an LLC can create pre-emption rights in the LLC’s operating agreement. The same is true for partnerships. New York law does not create pre-emption rights in GPs or  LPs, but the partners can choose to create pre-emption rights in the partnership agreement.

New York does not impose any statutory restrictions on the transfer or disposal of shares, such as a right of first refusal or right of first offer. Corporations – especially closely held ones – may enter into shareholder agreements. These agreements may impose restrictions or additional requirements on shareholders seeking to transfer their shares. Courts generally enforce these agreements in the interest of avoiding drawn-out litigation in close corporations (see In re Penepent Corp).

While corporations may restrict transferability of shares, courts do not permit a prohibition or an effective prohibition on transferability (see Newburgh Commer Dev Corp v Cappelletti). Courts look to whether the restraint is reasonable in light of the circumstances and the purpose of the restriction to determine whether the restraint is valid.

Unless prohibited by the company’s foundational documents, shareholders are permitted to grant securities interests over their shares (NYUCC Section 8-104).

In general, the granting of a security interest in shares is a private matter between the shareholder and the lender. Exceptions may exist where the granting of a security interest is considered to be a share transfer under the constituent organisational documents and may require a consent or waiver of such restriction thereunder. In addition, public companies typically have publicly disclosed policies that prohibit insiders from pledging shares. Waivers of or other deviations from those policies may require disclosure in SEC filings.

SEC rules also require persons who beneficially own more than 5% of a public company’s issued equity securities to file ownership reports (Schedules 13D and 13G) with the SEC, which may require the disclosure of borrowing arrangements with respect to the shares owned by the reporting person (17 CFR Section 240.13d-1). Material changes in the facts contained in such reports are required to be reported via amended filings (17 CFR Section 240.13d-1)(g)). The SEC adopted final rules in 2023 which, among other things, have accelerated the reporting timelines that had been in effect for years. These changes are intended to increase the speed and transparency of reports to the market by investors having accumulated significant positions in a company’s shares and the shareholder’s intention with respect to such ownership, such as to influence or change corporate policy or control (17 CFR Sections 232, 240).

Shares may be cancelled after issuance only if they are purchased, redeemed or otherwise reacquired by the issuer if:

• they are reacquired out of stated capital;
• they are converted shares; or
• the certificate of incorporation requires the shares to be cancelled.

(See NYBCL Section 515(a)).

Reacquired shares may return to the status of authorised but unissued shares or be held as “treasury shares” (issued but not outstanding) – in either case subject to re-issuance or sale by the issuer, or to being retired so as not to be issuable or sold again (NYBCL Section 515(b)).

Companies may generally repurchase issued shares, either in voluntary transactions or, in the case of redeemable shares, pursuant to such redemption rights (NYBCL Section 512(a)). Share repurchases are limited by state law requirements similar to those that limit dividends or other distributions upon equity. Generally, shares may only be repurchased if, after giving effect to such purchase, the fair value of the company’s assets will exceed the fair value of its liabilities and the company will still be able to pay its obligations as they come due (NYBCL Section 513).

Further, a corporation cannot purchase more than 10% of its own stock above market value without approval of the board of directors and a majority of the outstanding shares. This requirement can be altered in the certificate of incorporation (NYBCL Section 513).  In addition, the board of directors must determine, in the fulfilment of their fiduciary duties, that the share repurchase is in the best interest of the company and its shareholders.

In the case of public companies, SEC rules require enhanced quarterly disclosures setting forth on a daily basis share repurchases during the most recently completed fiscal quarter, and the reasons and policies under which such repurchases were effected, among other things (17 CFR Section 229.703). In addition, share repurchases may be limited under a company’s negative covenants with its lenders or other investors.

The board of directors may declare and pay dividends on the shares of its capital stock, subject to any restrictions in the certificate of incorporation or restrictions due to insolvency (NYBCL Section 510).

A corporation may declare or pay dividends out of surplus (such that the net assets remaining after distribution will at least equal the amount of the corporation’s stated capital). In the absence of a surplus, a dividend can be paid out of the corporation’s net profits for the fiscal year in which the dividend is declared or the preceding fiscal year (NYBCL Section 510).

Directors may not declare or pay a dividend if the capital of the corporation was diminished by depreciation in the value of its property, or by losses or otherwise an amount less than the aggregate amount of the stated capital represented by the issued and outstanding shares of all classes having a preference on the distribution of assets (NYBCL Section 510).

Shareholders have the right to elect directors at the annual shareholders’ meeting (NYBCL Section 602).

Directors may be removed for cause by shareholders owning a majority of the outstanding shares entitled to vote at an election of directors or, if permitted in the certificate of incorporation or by-laws, by the board in certain circumstances (NYBCL Section 706). Shareholders may also remove directors without cause by a majority vote if the certificate of incorporation or by-laws provide (NYBCL Section 706).

In manager-managed LLCs, the default rule gives members the right to elect managers by a vote of the majority in interest of the members entitled to vote (NYLLCL Section 413). The default rule allows removal of a manager with or without cause by a vote of the majority in interest of the members entitled to vote (NYLLCL Section 414). The LLC can alter these default rules through their operating agreement.

A shareholder may file a derivative action to challenge a decision taken by the board of directors, or to require the board to take an action. A derivative action is a lawsuit brought on behalf of a corporation in the shareholders’ representative capacity, in which the corporation itself is the nominal plaintiff. Ultimately, the claim and any recovery obtained in the action belong to the corporation.

A shareholder must make a demand on the board prior to filing a derivative suit (NYBCL Section 626(c)). The shareholder must first demand that the board initiate the action on behalf of the company. The shareholder cannot file suit until 90 days after the demand is sent, unless the board rejects the demand earlier (see Marx v Akers).

New York law permits a shareholder to file suit without a demand, if the shareholder alleges that the demand is futile. To demonstrate demand futility, the shareholder must show that:

• a majority of directors are interested in the transaction;
• the directors failed to inform themselves to a degree reasonably necessary about the transaction; and
• the directors failed to exercise business judgement in approving the transaction (Id).

A shareholder may also file a direct suit against the board of directors. A direct suit is appropriate where the shareholder, not the corporation, suffered damages from the directors’ actions – for example, a suit regarding the board’s failure to provide shareholders with a statement of cash requirements (see Harari v Jamesman Realty Corp).

New York law applies the “business judgement rule” – pursuant to which, a court will uphold a board’s decision, in deference to the board’s “business judgement”, provided that the board’s decision is made for a legitimate corporate purpose, in good faith and within the board’s authority. A court should uphold a board’s decision that is challenged, regardless of whether the decision was a good decision or a bad decision.

In a going-private merger, New York courts may apply the entire fairness doctrine rather than the business judgement rule. The business judgement rule applies if the controlling shareholder in a going-private merger receives approval from a majority of independent directors and if a fully informed majority of the minority shareholders vote in favour of the transaction. If those steps are not taken, the entire fairness doctrine applies. This requires the court to determine that the transaction had a fair price and fair process (see Matter of Kenneth Cole Prods, Inc S'holder Litig).

New York law does not require private companies to retain an independent auditor. Public companies are required by the SEC to file a financial statement; that financial statement must be audited by an independent outside auditing firm (17 CFR Section 210).

New York law does not give shareholders the right to appoint or remove auditors. Instead, the appointment and removal of the corporation’s auditors is at the board of directors’ discretion. The corporation may request an advisory shareholder vote to ratify the appointment of the corporation’s auditor.

The certificate of incorporation or by-laws may include provisions regulating the appointment/removal of the auditor.

In private companies, there is generally no requirement that the board of directors report to shareholders on corporate governance arrangements.

Public companies are required by the SEC (ie, 17 CFR Section 229.407) and by stock exchange rules or investor expectations to provide detailed information regarding their governance arrangements, policies and practices, including:

• the number of board and committee meetings;
• director meeting attendance;
• compensation policies;
• risk management oversight;
• management stock ownership requirements;
• related party transactions;
• director diversity; and
• qualifications and business credentials, among other matters.

The NYBCL defines “control” to mean “the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting stock, by contract, or otherwise” (NYBCL Section 912).

In addition, a person’s beneficial ownership of 10% or more of a corporation’s outstanding voting stock shall create a presumption that such person has control of such corporation.

A majority shareholder with control over a corporation owes fiduciary duties to the corporation’s minority shareholders. These include the duty to “treat all shareholders fairly and equally, to preserve corporate assets, and to fulfill their responsibilities of corporate management with ‘scrupulous good faith’”. The minority shareholders may petition the court to use its equitable powers to dissolve the corporation if the majority shareholders are not meeting these fiduciary duties. This suit can be brought by the shareholders individually, not in a derivative context.

Shareholder rights do not generally change simply because a company becomes insolvent (NYBCL Section 513(a)).

Further, New York courts do not create fiduciary duties to creditors when a company is in the “zone of insolvency”. An insolvent corporation’s directors do have a duty to “hold the remaining corporate assets in trust for the benefit of its general creditors” once the corporation is insolvent. However, until the corporation is actually insolvent, the duties are owed only to the corporation’s shareholders.

No information is available on the topic of shareholder remedies.

Directors of New York corporations have a duty of care and a duty of loyalty, which is expressed in the NYBCL as a duty to act “in good faith and with the degree of care that an ordinarily prudent person in a like position would use under similar circumstances in fulfilling their responsibilities as a member of the corporation’s board of directors” (NYBCL Section 717(a)).

The fiduciary duty of due care requires directors to act in an informed and reasonably diligent basis in considering material information. The fiduciary duty of loyalty requires directors not to engage in the promotion of personal interests that are incompatible with the superior interests of the corporation. Accordingly, directors cannot profit personally at the expense of the corporation and must not allow their private interests to conflict with those of the corporation.

New York courts review the exercise of these duties by the directors under the business judgement rule, pursuant to which courts will not interfere with the decisions and actions of directors in managing a corporation’s affairs if the directors made the decisions and acted in good faith, in the exercise of honest judgement, and in the lawful and legitimate furtherance of corporate purposes.

The corporation’s certificate of incorporation can eliminate or limit directors’ personal liability to the corporation or its shareholders for breaches of their duty of care. However, a corporation may not limit directors’ liability for acts or omissions that are in bad faith or involve intentional misconduct or a knowing violation of the law, or where the director personally gained any advantage to which the director was not legally entitled

(NYBCL Section 402(b)).

Directors of a corporation who vote for or concur in the declaration of an unlawful dividend are jointly and severally liable to the corporation, including potential criminal liability (NYBCL Section 719(a)(1)).

Managers of an LLC have a duty of care and a duty of loyalty, which is expressed in the NYLLCL as a duty to act “in good faith and with the degree of care that an ordinarily prudent person in a like position would use under similar circumstances” (NYLLCL Section 409).

However, the members of an LLC can limit or entirely eliminate both the duty of care and the duty of loyalty (NYLLCL Section 417). The elimination or limitation must be done explicitly in the LLC’s operating agreement. The members cannot eliminate or limit the duty of good faith and fair dealing through the operating agreement.

Acts that adversely affect the company or the shareholders may be challenged through derivative actions, in which the company itself is the nominal plaintiff and the defendants are members of the company’s board of directors or officers. Derivative actions must be preceded by a demand to the board of directors to institute a cause of action against the applicable defendants, or by a showing that such pre-suit demand would be futile because the directors would have a conflict of interest in evaluating such demand. For more about demand futility requirements, see 6.2 Challenging a Decision Taken by Directors.

New York’s statutory and common law regulates corporate governance. The legal and regulatory tools available to activist shareholders include:

• information and inspection rights (NYBCL Section 624);
• the rights of shareholders to elect and remove directors (NYBCL Section 703, Section 706);
• the right of shareholders under SEC rules to require certain proposals to be included in a company’s proxy statement (SEC Rule 14a-8);
• the newly effective universal proxy rules that require a company to include an insurgent’s director nominees on the company’s proxy card, which makes it easier for shareholders to vote for the insurgent’s candidates (SEC Rule 14a-19);
• advisory votes on senior management compensation (SEC Rule 14a-21);
• the ability to conduct proxy contests under SEC rules seeking shareholders to vote against actions recommended by the board of directors;
• shareholders’ legal remedies against the improper or oppressive conduct of the company or its directors/officers; and
• the ability to leverage voting recommendations of proxy advisory services that have policies which seek to promote shareholder rights and governance policies.

Activist shareholders are typically institutional investors who build up a position in a target company’s stock and employ a variety of strategies with the aim of increasing the share price of the target by unlocking value, such as improving under-performing management teams, inefficient capital structures or under-performing assets.

Historically, the focus of activist campaigns has been on promoting or resisting M&A transactions, though activists have also increasingly focused on board change. There has also been increased focus by some activists on ESG-driven proxy contests. ESG proposals still make up a sizeable portion of the proxy contests brought. However, there was a 19% drop in the number of ESG proposals in the first half of 2025 compared to the first half of 2024. By contrast, the number of “anti-ESG” proposals increased by 12% between the first half of 2025 and the first half of 2024.

Activists typically build their stake through open market share acquisitions. Sometimes, this strategy is supplemented with the use of options, swaps and other derivatives. Activist engagement strategies include:

• meeting with company management to propose specific changes;
• proxy contests seeking board representation; and
• public pressure campaigns to force change.

Shareholder activism remains on the rise in the USA. In the first half of 2025, shareholder activists launched 70 campaigns – a 13% increase compared to the first half of 2024, according to Lazard. More investors are participating in shareholder activism. In 2024, first-time activists outpaced multiple-time activists.

Shareholder activists and companies have now completed their third season of proxy contests using the universal proxy card (UPC). The SEC’s UPC rules were put into effect in August 2022, and they require companies and dissident shareholders to use a UPC that lists all candidates nominated for election and that clearly distinguishes between the company’s nominees and dissident’s nominees.

Hedge funds tend to be more activist than other groups of shareholders. Less often, an institutional investor or a family office may deploy an activist approach to a particular investment. In recent years, however, a greater number of first-time activists have been participating in proxy contests, including ESG-driven shareholders.

In the USA, through the first half of 2025, activists won 38% of the seats they sought in proxy fights that went to a shareholder vote.

There is no single playbook for how a company should respond to an activist. Each campaign has its own nuances, including:

• what the activist is asking for;
• how much of the company they own;
• how the company is performing;
• its governance structure; and
• who its other shareholders are.

Given these variables, well-advised companies regularly assess the full landscape before determining how to engage with an activist.

Many companies choose to engage with activists constructively – especially when the activist is seen as acting in good faith and focused on creating long-term value. Positive dialogue between the company and activist often leads to a settlement between the company and the activist – where the company adopts some or all of the activist’s ideas in exchange for a “standstill” (which prohibits an activist from undertaking certain actions, like running a proxy contest or increasing their stake in the company), until a set point in the future (typically the next annual meeting).

Other companies take a more aggressive approach by rejecting engagement and, in some cases, even adopting defensive measures or initiating litigation. The aggressive approach is riskier, as it has potential to escalate hostilities, which in turn risk increases in costs and distractions. Such confrontational strategies also tend to be poorly perceived by institutional investors who typically prefer that the company show a willingness to engage in good-faith discussions with credible shareholders in a constructive and transparent manner.

Savvy companies shield themselves from activism by becoming their own activists. In these cases, companies take the steps of putting themselves in the shoes of an outsider and proactively taking actions that would pre-empt an activist attack – be it by making a strategic or operational improvement, removing a governance weakness or replacing poor management, among other possibilities.

Well-advised companies routinely monitor their performance, engage with long-term shareholders and assess their governance vulnerabilities. These companies are often able to avoid the disruption and uncertainty that may accompany an activist campaign.