Bill Summaries: S507 (2021)

Tracking:
  • Summary date: Apr 6 2021 - View summary

    Part I.

    Makes the following changes to GS 55-7-21 regarding voting entitlement of corporate shares. Clarifies that, absent special circumstances, the shares of a corporation are not entitled to vote if they are owned by or otherwise belong to the corporate, directly or indirectly, through an entity of which a majority of the voting power is held directly or indirectly by the corporation or which is otherwise controlled by the corporation. Enacts the same limitation regarding the corporation's power to vote any shares held directly or indirectly in a fiduciary capacity. Adds that voting power means the current power to vote in the election of directors of a corporation or to elect, select, or appoint managers, managing members, or other members of the governing body of another entity. Effective October 1, 2021. 

    Part II.

    Amends GS 55-8-11 to specify that the power of the board of directors to fix the compensation of directors is limited to services in any capacity as a director. Effective October 1, 2021.

    Part III.

    Revises the parameters for a quorum of a board of directors under GS 55-8-24. Now provides that a quorum consists of a majority of the number of directors specified in or fixed in accordance with the articles of incorporation or bylaws, unless the articles of incorporation or bylaws provide otherwise or unless otherwise expressly provided for in GS Chapter 55 (previously, only qualified by the article or bylaws requiring a greater number, and provided for variable board size). Requires the quorum provided in the articles of incorporation or bylaws to consist of at least one-third of the number of directors specified in or fixed in accordance with the articles of incorporation or bylaws. Provides for action by the board by an affirmative vote of the majority of directors present unless a greater number is required by the articles of incorporation or bylaws, or unless otherwise expressly provided in the GS Chapter (previously, only qualified by the articles or bylaws). Makes technical changes. Effective October 1, 2021. 

    Part IV.

    Removes the limitations set forth under GS 55-10-02(5) regarding the corporation's board of directors' power to change the corporate name through adoption of an amendment to the articles of incorporation without shareholder approval. Makes technical and clarifying changes. Effective October 1, 2021.

    Part V.

    Adds to the court's jurisdiction under GS 55-13-30 to include determining whether the shareholder demanding payment has complied with the requirements of and is entitled to appraisal rights under Article 13, in addition to determining the fair value of the shares and accrued interest if compliance and entitlement are found. Establishes that the shareholder has the burden of providing compliance with Article 13, and if unsuccessful, requires the court to dismiss the proceeding as to the shareholder. Makes conforming changes regarding entitlement to judgment. Makes technical changes.

    Part VI.

    Revises the recordkeeping requirements of corporations set forth in GS 55-16-01 to now require a corporation to maintain the following: its currently effective articles of incorporation; its currently effective bylaws, all general written communications to shareholders in the past three years; minutes and records of shareholder, board of directors, and board committee meetings, as specified; a list of the contact information for the current board of directors; and its most recent annual report delivered pursuant to State law (previously, provided for permanent records for all meetings of incorporators, shareholders, and board of directors, and records of the board and board committee actions; consolidates subsections (a) and (e), except no longer specifically provides for board resolutions regarding class creation). Requires corporations to maintain all annual financial statements prepared for the corporation for its last three fiscal years or each year of its existence if shorter than three years, and any audit or other reports with respect to the financial statements (previously, more generally required appropriate financial records). Specifies that the corporation or its agent must maintain a record of its current shareholders. Requires a corporation to maintain accounting records in a form that permits preparation of its financial statements (was, written records or a form easily capable of conversion into written form). Requires records to be maintained in a manner so that they can be made available for inspection within a reasonable time. 

    Enacts GS 55-16-01A to define qualified shareholder, defined as a shareholder for at least six months preceding demand for corporate record inspection or holds at least 5% of any class of shares, and shareholder as the terms apply to Article 16, which governs corporate records (moved from existing law in GS 55-16-02).

    Updates and adds statutory cross-references in GS 55-16-02 to reflect the amendments to and recordkeeping requirements of GS 55-16-01. Excludes from a qualified shareholder's right to inspect corporate records minutes of meetings of, and records of action taken without a meeting by, the corporation's board of directors and board committees; makes conforming changes. Adds financial statements to the records a qualified shareholder is entitled to inspect and copy subject to the notice, time and location requirements specified in existing law. Adds authority for the corporation to impose reasonable restrictions on the confidentiality, use, or distribution of records described in subsection (b) which a qualified shareholder is entitled to inspect and copy once notice, time and location requirements are met. Makes changes to refer to a qualified shareholder throughout the statute. Makes language gender neutral. Makes technical changes.

    Revises the provisions of GS 55-16-03 regarding the scope of the inspection right. Makes changes to consistently refer to the right of the qualified shareholder rather than the shareholder. Provides for the right of the qualified shareholder to appoint an agent or attorney to exercise the qualified shareholder's inspection and copying rights under GS 55-16-02, as amended (previously, provided for a shareholder's agent or attorney to have the same inspection and copying rights as the shareholder). Authorizes the corporation to satisfy the rights of the qualified shareholder to copy records, if reasonable, by furnishing copies by photocopy or other means chosen by the corporation, including electronic transmission (previously, framed as the right of the shareholder to include the right to receive copies or electronic transmissions, if reasonable). Authorizes the corporation to impose a reasonable charge to cover the costs of providing copies of documents to the qualified shareholder, which can be based on estimates (previously, provided for costs to cover labor and material for production for inspection or copying records, and prohibited exceeding the estimated cost of production, reproduction, or transmission). 

    Amends GS 55-16-04 regarding court-ordered record inspection as follows. Makes changes to refer to a qualified shareholder throughout. Qualifies a qualified shareholder's right to apply to a court to order a corporation to permit inspection and copying upon compliance with the notice requirements of GS 55-16-02(b). Makes further clarifying changes. Expands the court's authority to include imposing reasonable restrictions on the confidentiality of inspection and copying of records ordered (was, limited to the use and distribution of the records inspected or copied). Provides for the corporation to establish that it refused inspection in good faith due to its reasonable restrictions on the confidentiality, use, or distribution of the records demanded to which the demanding qualified shareholder had been unwilling to agree (previously, limited to establishing a limited basis for doubt about the right of inspection demanded), in order to avoid the court ordering the corporation to pay the qualified shareholder's costs and reasonable attorneys' fees incurred in obtaining the order. 

    Replaces the content of GS 55-16-20, which governs financial statements for shareholders, with the following. Directs a corporation to deliver or make available on its website or other generally recognized means, upon request by a shareholder, annual financial statements for the most recent fiscal year in which they have been prepared. Requires delivery of annual financial statement to the requesting shareholder which have been prepared on the basis of generally accepted accounting principles. Also requires delivery or availability of related audits or reports of public accountants for the financial statements to be delivered or made available to the requesting shareholder. Mandates delivery of or notice of the availability of the requested financial statements within five business days of delivery of the shareholder's written request. Allows satisfaction of these responsibilities by delivery or otherwise making financial statements available in any manner permitted by the SEC. Authorizes the corporation to condition delivery or availability of the requested financial statements to the shareholder's agreement to reasonable restrictions on the confidentiality, use, and distribution of the statements. Further authorizes the corporation to refuse the request if it reasonably determines the request is not made in good faith or for a proper purpose. Permits the requesting shareholder to apply to superior court for an order requiring delivery or access to the requested financial statements if the corporation does not respond to the written request within five business days of delivery. Allows the court include in its order reasonable restrictions on the confidentiality, use, or distribution of the statements. Places the burden on the corporation to demonstrate, as appropriate regarding the corporation's basis for denying the request, that its restrictions on confidentiality, use, or distribution were reasonable, or the shareholder's request was not made in good faith or for a proper purpose. Requires a court ordering delivery or access to financial statements to pay the shareholder's costs and attorneys' fees, unless the corporation establishes its refusal was because the shareholder refused to agree to reasonable restrictions or the corporation had reasonably determined the request was not made in good faith or for a proper purpose. 

    Amends GS 55-13-20(d) regarding notice of appraisal rights, to require the notice or offer regarding proposed corporate action described in GS 55-13-02(a) (listing various corporate actions) or effected mergers to include (1) the latest interim financial statements of the corporation, if any (was, latest available quarterly statements), and (2) a balance sheet as of the end of a fiscal year ending no more than 16 months before the date of the notice, an income statement for that year, and a cash flow statement for that year, in the event annual financial statements that meet the specified requirements are not reasonably available. Eliminates the authority to waive the right to receive the information described in subsection (d) before or after corporate action. Makes technical changes. Makes identical changes to the financial information required to accompany payment to each shareholder under GS 55-13-25, modified to apply to dates of payment. Makes technical changes. 

    Revises GS 57D-3-04 to allow each LLC member to inspect or copy, or otherwise obtain from the LLC, a copy of filed income tax returns or financial statements of the LLC described in GS 55-16-20 [was, limited to the statute's subsections (a) and (b)] that pertain to any of the LLC's preceding four fiscal years, at the election of the LLC.

    Effective October 1, 2021. 

    Part VII.

    Directs the Revisor to print annotations as specified. 


  • Summary date: Apr 5 2021 - View summary

    To be summarized.