## Facts

- Blackhawk Holding Corporation was incorporated in Illinois in 1963 under the Illinois Business Corporation Act.
- The articles authorized 3,000,000 shares of $1-par Class A stock and 500,000 shares of no-par Class B stock, and denied preemptive rights to both classes.
- The articles limited Class B stock by providing that none of the Class B shares would be entitled to dividends “upon voluntary or involuntary liquidation or otherwise.”
- Pre-organization subscription agreements resulted in 21 promoters purchasing 87,868 Class A shares at $3.40 per share and all 500,000 Class B shares at $0.0025 per share.
- Blackhawk later registered 500,000 Class A shares for public sale at $4 per share.
- Class A shares carried economic rights (including dividends and participation in assets upon liquidation).
- Class B shares carried voting rights but no rights to dividends or corporate assets, giving promoters substantial voting control without economic participation.
- Shareholders (Stroh and others) sued, alleging Class B shares were not “shares of stock,” and that their issuance was ultra vires and void because the shares lacked economic incidents of ownership.
- The circuit court granted summary judgment for plaintiffs on one count, declaring Class B shares invalid and void ab initio; the appellate court reversed; plaintiffs appealed to the Illinois Supreme Court.

## Issues

1. Whether, under the Illinois Business Corporation Act, a class of shares limited to voting rights and denied dividends and liquidation participation can constitute valid “shares of stock.”
2. Whether issuance of such voting-only shares is ultra vires or void when the rights and limitations are stated in the articles of incorporation.

## Decision

- The Illinois Supreme Court affirmed the appellate court and remanded to the circuit court.
- The court held the 500,000 shares of Class B stock were valid shares of stock under Illinois law despite the absence of dividend and liquidation rights.
- The court rejected the trial court’s conclusion that the Class B shares were not stock and were void ab initio.

## Legal Principles

- The Illinois Business Corporation Act permits corporations, through their articles of incorporation, to create classes of shares with designated preferences, limitations, and relative rights.
- A “proprietary interest” in a corporation may be expressed through voting control; economic participation is not a mandatory attribute of every valid class of stock if the statute permits the structure.
- Courts will not invalidate a stock classification stated in the articles of incorporation absent a statutory prohibition or a clear public-policy bar.
- The statutory scheme’s protection of voting rights does not imply a requirement that each class of stock also carry dividend or liquidation rights.

## Conclusion

The court upheld a capital structure in which a class of shares had voting power but no dividend or liquidation rights, concluding that Illinois corporate law allows voting-only stock when the limitations are authorized by statute and stated in the articles of incorporation.


Stroh v. Blackhawk Holding Corp., 48 Ill. 2d 471, 272 N.E.2d 1 (Ill. 1971)