## Facts

- Cooperative Management Corporation (CMC) was a closely held Louisiana corporation whose Articles of Incorporation required approval by 85% of shareholders before CMC’s stated capital could be increased or reduced.
- In 1988, CMC redeemed 150 shares owned by Janet Evans Toms (Toms) for $22,500.
- After the redemption, CMC removed the shares from its accounting records, reduced the number of outstanding shares by 150, and reduced stated capital.
- In 1997, Toms filed suit seeking to rescind the 1988 redemption, alleging the shares had been redeemed for less than fair market value.
- As part of an effort to settle the litigation, shareholders holding a majority (but less than 85%) voted to issue 150 shares of stock to Toms for $22,500.
- CMC’s board voted to proceed with the issuance over objections, taking the position that the $22,500 consideration would be treated as capital surplus rather than stated capital.
- Minority shareholders intervened to stop the issuance, arguing that the issuance would increase CMC’s stated capital and therefore required (but had not received) the 85% shareholder approval specified in the Articles.
- The trial court granted a writ of mandamus prohibiting CMC from issuing the stock to Toms.
- Toms appealed to the Louisiana Court of Appeal.

## Issues

1. Whether issuing 150 shares to Toms for $22,500, while designating the consideration as capital surplus, would nevertheless increase CMC’s stated capital so that the Articles required 85% shareholder approval.
2. Whether a writ of mandamus was an appropriate remedy to prevent the corporation from issuing shares in violation of a mandatory requirement in the Articles of Incorporation.

## Decision

- The appellate court affirmed the trial court’s issuance of a writ of mandamus stopping CMC from issuing the shares to Toms.
- The court concluded that issuing new shares for consideration increased stated capital in substance, regardless of the board’s proposed accounting treatment of the payment as capital surplus.
- Because the proposed issuance would increase stated capital, the 85% shareholder-approval condition in the Articles applied.
- Since the shareholder vote fell short of 85%, CMC lacked authority under its Articles to complete the issuance.
- Mandamus was proper to prevent a corporate act that conflicted with a mandatory, non-discretionary charter requirement.

## Legal Principles

- A corporation’s Articles of Incorporation bind the corporation, its directors, and its shareholders as governing rules for corporate action.
- When Articles impose a supermajority vote as a condition to changing stated capital, directors and shareholders cannot bypass that condition by labeling the transaction differently in corporate accounting records.
- Courts look to the practical effect of a stock issuance on stated capital, not merely to the terminology used by the board.
- Mandamus may issue to prevent or restrain corporate action that would violate a clear, ministerial duty imposed by the corporation’s charter when the relevant facts are not genuinely disputed.

## Conclusion

The Louisiana Court of Appeal affirmed mandamus barring CMC from issuing 150 shares to Toms as part of a settlement because the issuance, for $22,500 in consideration, increased the corporation’s stated capital and therefore required the 85% shareholder approval mandated by CMC’s Articles of Incorporation; the board could not avoid that requirement by treating the consideration as capital surplus.


Toms v. Cooperative Management Corporation, 741 So. 2d 164 (1999)