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What is a Porcupine Provision? A Guide to Corporate Defense Mechanisms
Definition & Meaning
A porcupine provision is a specific clause found in a corporation's charter or bylaws. Its primary purpose is to make it more challenging for outside parties to take over the company without the board of directors' approval. These provisions, often referred to as "shark repellents," can include various strategies, such as limiting shareholders' rights to call special meetings or remove directors without cause. Additionally, they may involve staggering board member terms or implementing cumulative voting, which prevents a hostile bidder from easily replacing the entire board in a single annual meeting.
Table of content
Legal Use & context
Porcupine provisions are primarily used in corporate law to protect a company from hostile takeovers. They are relevant in the context of mergers and acquisitions, where a company may face unsolicited offers from potential bidders. By employing these provisions, a corporation can maintain control over its governance and decision-making processes. Users can manage related legal documents, such as corporate bylaws or amendments, using templates available through services like US Legal Forms, which provide tools drafted by attorneys for self-management of legal matters.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A corporation includes a porcupine provision that prevents shareholders from calling special meetings unless a supermajority is achieved. This makes it more difficult for a hostile bidder to organize a vote to replace the board.
Example 2: A company staggers its board members' terms so that only a portion of the board is up for election each year, which protects against rapid changes in governance due to a takeover attempt. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Variation
Delaware
Widely allows porcupine provisions in corporate bylaws.
California
Has specific regulations on shareholder rights that may limit certain provisions.
New York
Permits porcupine provisions but requires transparency in their implementation.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Poison Pill
A strategy that makes a company less attractive to potential acquirers.
Focuses on diluting shares rather than restricting board control.
Shark Repellent
General term for tactics to prevent hostile takeovers.
Includes porcupine provisions but encompasses a broader range of strategies.
Common misunderstandings
What to do if this term applies to you
If you are involved in a corporation that may be facing a takeover attempt, consider reviewing your corporate bylaws for existing porcupine provisions. If necessary, consult with a legal professional to discuss implementing or amending these provisions. You can also explore US Legal Forms for templates that can assist in drafting or modifying corporate documents effectively.
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