Opinion ID: 1970132
Heading Depth: 1
Heading Rank: 3

Heading: Status of DHC as Shareholder

Text: The Model Business Corporation Act, drafted and proposed by the Business Law Section of the American Bar Association and adopted in many States, largely excludes non-profit and non-stock corporations from its ambit. See Model Business Corporation Act, Official Comment to § 3.01 at 3-4. In line with that approach, it defines shareholder, for purposes of the Act, as the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. See Model Business Corporation Act, § 1.40 (emphasis added). That definition focuses on shares of stock and says nothing about members of a non-stock corporation. Maryland has taken a very different approach. The Corporations and Associations Article of the Maryland Code contains statutes governing both general business corporations and several other types of corporate entities, one of which, provided for in Title 5, subtitle 2, is the non-stock corporation. Three provisions are of particular importance. The first is the definition of stockholderthe equivalent of shareholderin § 1-101(t): `Stockholder' means a person who is a record holder of shares of stock in a corporation and includes a member of a corporation organized without stock.  (Emphasis added). That definition, according to § 1-101(a), applies throughout the Article, unless the context clearly requires otherwise, and thus applies to the provisions in Title 5, subtitle 2, dealing with non-stock corporations. Confirming the extension of that definition to members of non-stock corporations are §§ 1-102(a) and 5-201. Section 1-102(a), dealing with the applicability of the Article, states that, [e]xcept as otherwise expressly provided by statute, the provisions of this article apply to every Maryland corporation and to all their corporate acts. Section 5-201, which applies specifically to non-stock corporations, states that [t]he provisions of the Maryland General Corporation Law apply to nonstock corporations unless: (1) The context of the provisions clearly requires otherwise; or (2) Specific provisions of this subtitle or other subtitles governing specific classes of corporations provide otherwise. No provision of any other statute has been cited to us that would make the definition of stockholder in § 1-101(t) inapplicable to a non-stock corporation, whether it is for-profit or not-for-profit. Indeed, the equation, at least in a definitional sense, of stockholders and members of non-stock corporations is not new. See Downing Dev. Corp. v. Brazelton, 253 Md. 390, 395, 252 A.2d 849, 852 (1969). It is true that the rights and responsibilities that stockholders possess may vary, depending on the type of corporation involved, but that does not make them less of a stockholder. The members of DHN were the owners of the corporation; they appointed the directors and officers and were therefore in ultimate control of the corporation. That they were not entitled to any part of the profits or surplus of the corporation was not because they were other than the equivalent of shareholders, but because DHN was a not-for-profit corporation. We therefore hold that the Class A and Class B members of DHN were shareholders within the meaning of § 19-713.2 and, accordingly, could not be considered external providers for purposes of that section.