## Facts

- K-C-K Corporation was a closely held Texas corporation governed by the Texas Business Corporation Act (TBCA).
- The corporate charter stated that the number of directors “may be fixed by the bylaws,” but could not be fewer than three, and it also authorized the board of directors to make, alter, amend, or adopt bylaws.
- The initial bylaws (adopted by the original directors and never formally changed) reserved bylaw changes to the shareholders and required “the affirmative vote of not less than” three-fourths of all issued and outstanding shares to alter, amend, repeal, or adopt bylaws.
- Shareholders elected three directors in 1957 and 1958.
- From 1959 through 1962, shareholders elected four directors each year, with full attendance and unanimous support, but without any formal bylaw amendment satisfying the three-fourths requirement.
- At the June 14, 1963 shareholders’ meeting, a motion “that three directors be elected” passed by a simple majority, not by the three-fourths vote stated in the bylaw.
- Leonard M. Keating (an officer and incumbent director) opposed the change and challenged actions taken on the theory that the meeting validly reduced the board and displaced existing management.
- The trial court treated the 1963 vote as effective, upheld the three-director result, and entered relief that prevented Keating from performing duties of his claimed corporate offices.
- Keating appealed.

## Issues

1. Whether a bylaw requiring a three-fourths shareholder vote to alter or adopt bylaws was valid under the TBCA and controlled shareholder action.
2. Whether the shareholders’ 1963 simple-majority vote to elect only three directors could validly change the board size when the bylaws required a three-fourths vote for bylaw changes.
3. Whether, given the ineffective change in governance, Keating was entitled to remain in his corporate offices until successors were duly elected.

## Decision

- The Texas Court of Civil Appeals reversed the trial court’s judgment.
- The court held the three-fourths voting requirement in the bylaws was authorized by the TBCA and was not inconsistent with Texas law; it therefore had to be applied.
- The prior four-year practice of electing four directors did not amount to a formal bylaw change because the bylaws had not been changed by action meeting the three-fourths vote requirement.
- The 1963 motion to elect three directors, having passed only by a majority, was ineffective to amend or override the bylaw voting requirement and could not validly accomplish the governance change asserted by the appellees.
- Because the attempted change was ineffective, new officers had not been duly elected, and Keating was entitled to retain his offices until a successor was properly elected.

## Legal Principles

- Under TBCA provisions on bylaws and shareholder voting (including the rule that a majority vote acts “unless the vote of a greater number is required by law, the articles of incorporation or bylaws”), a corporation’s bylaws may require a supermajority vote for shareholder action, and such a requirement is enforceable.
- Where bylaws prescribe a specific supermajority and method for bylaw changes, informal practice and repeated contrary conduct do not substitute for the required vote and formal action.
- Corporate officers and directors generally continue in office until successors are duly elected in the manner required by the governing instruments and applicable statute; actions based on an invalid election or invalid governance change do not displace incumbents.

## Conclusion

Keating v. K-C-K Corp. held that a bylaw requiring a three-fourths vote of all outstanding shares to alter or adopt bylaws was valid under Texas law and could not be bypassed by a simple-majority vote at a shareholders’ meeting; the attempted 1963 reduction of the board to three directors was ineffective, so management changes flowing from that vote failed and Keating remained entitled to hold office until successors were properly elected.


Keating v. K-C-K Corp., 383 S.W.2d 69 (1964)