Bill Summary for S 622 (2017-2018)

Summary date: 

Apr 5 2017

Bill Information:

View NCGA Bill Details2017-2018 Session
Senate Bill 622 (Public) Filed Tuesday, April 4, 2017
AN ACT TO MAKE VARIOUS REVISIONS TO THE NORTH CAROLINA BUSINESS CORPORATION ACT.
Intro. by Barringer, Newton.

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Bill summary

Amends GS 55-1-22 to direct the Secretary of State to collect a $150 filing fee for articles of validation.

Amends GS 55-2-02(b) to provide that articles of incorporation may set forth any or all of the listed information (currently, does not specify any or all). Authorizes articles of incorporation to also set forth a provision limiting or eliminating any duty of a director, officer, or other person to first offer business opportunities to the corporation prior to persons taking the opportunity for themselves.

Enacts new GS Chapter 55, Article 1, Part 6 (Ratification of Defective Corporate Actions), as follows.

Defines eight terms as they are used in the Part.

Provides that defective corporate actions are not void or voidable if ratified or validated. Provides that ratification or validation under this Part are not the exclusive means of ratifying or validating defective corporate action, and absence or failure of ratification or verification does not affect validity or effectiveness of ratification under common law or otherwise, nor does it create a presumption of voidness or voidability. Provides for the validity of overissuance of putative shares upon a corresponding effectiveness of an amendment to the articles of incorporation, or the effectiveness of any other corporate action ratifying the authorization, designation, or creation of the shares.

Provides for a board of directors to ratify a defective corporate action by taking an action, as described below, that states four listed things relating to the defective action. Provides for a majority of sitting persons exercising the powers of directors to ratify defective corporate actions relating to the election of the initial board of directors by taking an action that states three listed things relating to the election. Provides for the submission of ratification of defective actions to shareholder approval, if required by statute or corporate governing documents as listed. Authorizes boards of directors to abandon a ratification submitted to shareholder approval at any time prior to the validation, unless otherwise provided in the directors' action.

Provides that quorum and voting requirements for ratification of an action by a board of directors, and for approval of ratification by shareholders in circumstances that do not involve the approval of an election of a director, are those as of the time the ratifying or approving action is taken. Requires notice, as specified, to shareholders for ratifying actions that require shareholder approval. Provides a specific quorum and voting requirements for shareholders approving the election of a director. Provides that putative shareholders are not entitled to vote nor counted for quorum purposes in votes to approve the ratification of any defective corporate action. Requires approvals of putative shares resulting in overissue to be accompanied by approval of an amendment to the articles of incorporation authorizing the shares.

Requires notice, as specified, to shareholders for actions not requiring shareholder approval.

Provides that ratification makes defective corporate actions, and any corporate actions taken subsequent to or subsequent defective corporate actions resulting directly or indirectly from the original defective action, not void or voidable as a result of the defect in authority identified in the ratifying action, and that issued putative shares are not void or voidable.

If a corporation ratifies a defective action that would have required a filing under GS Chapter 55, the corporation must file articles of validation, which will serve as an amendment to or substitute for the otherwise required filing. Provides requirements for the contents of articles of validation.

Authorizes courts, upon application by the corporation or other listed parties, to determine the validity and effectiveness of any corporate action, defective corporate action, ratification, or putative shares. Requires service of process on the corporation, and authorizes the court to require notice to and authorize intervention by other persons. Requires actions asserting an ineffective ratification to be brought within 120 days of the validation effective date.

Amends GS 55-7-25 to provide that voting by one or more series of shareholders as separate groups is subject to the requirements for articles of incorporation within GS 55-10-04(c).

Amends GS 55-7-30 to authorize voting trusts created on or after October 1, 2017, to be subject to duration limits set forth in the voting trust (currently, statutory limit of 10 years). Provides that voting trusts that became effective prior to that date remain subject to the current statutory limit of 10 years, unless amended to provide otherwise by agreement of the parties to the voting trust. Directs the voting trustee to deliver copies of amendments and lists of signing beneficial owners to the corporation's principal office.

Amends GS 55-7-31 to delete the provision in subsection (a) restricting the duration of shareholders' voting rights agreements to 10 years. Provides that shareholder agreements under subsection (a) are not subject to GS 55-7-30, and are specifically enforceable. Deletes subsections (b) concerning the validity of written agreements to which all shareholders have assented and concerning any phase of corporate affairs, and the validity of written agreements between any subset of shareholders that allegedly interferes with the discretion of directors. Provides for the validity of shareholder agreements, except in the case of public corporations, that does any or all of eight listed things including eliminating the board of directors, whether or not the agreement is consistent with other provisions in GS Chapter 55. Provides requirements for the creation and amendment of such agreements. Requires notice on outstanding shares of the existence of such an agreement, and provides for the rescission of sale of shares when notice is not provided. Provides that such agreements are no longer effective when the corporation becomes a public corporation. Protects shareholders from personal liability, even if the agreement treats the corporation as a partnership or fails to observe corporate formalities. Provides for duration limits on agreements under this statute, either as described in the agreement, or for 10 years, depending on when the agreement is effective, extended, or renewed. Makes a technical change.

Amends GS 55-8-11 to provide that boards of directors may fix director compensation for services in any capacity without regard to personal interest. Compensation is presumed fair to the corporation unless proven unfair by a preponderance of the evidence.

Amends GS 55-8-24(d) to apply those provisions regarding assent of an absent director to absences from subcommittee meetings, and to provide that avoiding assent requires meeting all of the listed requirements (currently, the director must only meet one of the requirements). Makes technical changes.

Amends GS 55-8-25 to provide that committees may create subcommittees consisting of one or more members of the committee, and delegate powers and authority of the committee to the subcommittee, unless otherwise provided in governing documents or resolutions. Authorizes the board of directors to appoint alternate members of committees to replace absent or disqualified members at committee or subcommittee meetings. Makes technical and conforming changes.

Amends GS 55-8-58 to provide that rights of indemnification or to advances for expenses may not be eliminated or impaired with regard to a particular act or omission, after the occurrence of the act or omission, except for rights created under GS 55-8-57(a) when the provision creating the right and in effect at the time of the act or omission explicitly authorizes their elimination or impairment after the occurrence of an act or omission.

Amends GS 55-11-01(b) to further authorize plans of merger to set forth provisions for the cancelling of shares in the required provisions regarding the shares of each corporation.

Amends GS 55-11-03 to provide that approval by corporate shareholders of a plan of merger or share exchange is not required, unless otherwise required by the articles of incorporation, if eight listed requirements in new subsection (j) are met. Defines terms as they are used in new subsection (j). Makes conforming changes.

Amends the title of GS 55-11-04.

Amends GS 55-11-10(c) to further require the written plan of merger to include, if the surviving business entity is not authorized to transact business or conduct affairs in this State, a designation of its mailing address and a commitment to file with the Secretary of State a statement of any subsequent change in address, and if applicable, the manner of cancelling interests in the merging businesses.

Repeals GS 55-11-10(e) and (e1), regarding the effective date and effectiveness of a plan of merger.

Recodifies GS 55-11-11 (merger to effect a holding company reorganization) as GS 55-11-20 and makes conforming changes.

Enacts new GS 55-11-12 (Merger between parent unincorporated entity and subsidiary corporation or corporations). Authorizes parent unincorporated entities owning at least 90% of voting shares of each class and series of a domestic subsidiary and that have the power to vote in director elections at the time of merger under this statute to merge the subsidiary or subsidiaries into itself, or merge itself and a subsidiary into another subsidiary corporation, without approval of the board of directors or shareholders of the subsidiary corporation or corporations, unless the articles of incorporation requires approval of the subsidiary's shareholders, if the merger is permitted by the laws governing each each merging entity, and each entity complies with this statute and laws governing each entity. Requires the affirmative approval of any shareholder that will have personal liability for any existing or future obligation of the surviving entity solely as a result of holding interest in the surviving entity. Requires notice to shareholders of the subsidiary corporation, if the parent does not own all shares. Directs the surviving entity to deliver articles of merger to the Secretary of State, with specified content included in them.

Enacts new GS 55-11-13 (Effect of merger with unincorporated entity). Provides that mergers under GS 55-11-10 or new GS 55-11-12 has seven listed effects concerning the existence, property, liabilities, litigation, articles of incorporation, interests in, and appraisal rights of the merging and surviving entities. Provides that the merger does not affect the liability or absence of liability of any holder of an interest in a merging business entity incurred prior to the merger. Deems surviving business entities that are not domestic listed entities to have agreed that they may be served with process in this State as specified, and have appointed the Secretary of State as their agent for service of process, as specified.

Amends GS 55-13-02 (Right to appraisal). Deletes provisions requiring the shareholder to be entitled to a vote on a merger, share exchange, or disposition of assets to exercise its rights to appraisal regarding those events. Provides a right to appraisal for mergers under new GS 55-11-12. Provides that articles of incorporation and accompanying amendments may not limit or eliminate appraisal rights for a class or series of preferred shares if the class or series does not have the right to vote separately as a voting group on the action or if the action is an amendment to the articles of incorporation that changes the corporation into a nonprofit corporation or cooperative organization. Makes conforming and technical changes.

Amends GS 15-13-21 to further require shareholders wishing to assert appraisal rights on actions approved by less than unanimous written consent to deliver to the corporation, before the proposed action becomes effective, written notice of the shareholder's intent to demand payment if the proposed action is effectuated, except if the notice required by GS 55-13-02(c) is given less than 25 days prior to the date the proposed action is effectuated. Provides written notice requirements for shareholders wishing to assert appraisal rights with respect to actions under new GS 55-11-03(j) and a particular class or series of shares that do not require shareholder approval, and requires the shareholder to not tender any shares of the class or series in response to the offer.

Amends GS 55A-11-09(c) to require the written plan of merger required under that statute to include, if applicable, the manner and basis of cancelling interests in the merging entities.

Amends GS 55-8-30, GS 55-8-31, GS 55-8-42(d), GS 55-10-03(b), GS 55-10-20(a), GS 55-11-06(a), GS 55-13-01(7), GS 55-13-20, GS 55-13-22(a), GS 57D-9-41(a), GS 59-73.31(a), and GS 59-1071(a) to make conforming and technical changes.

Directs the Revisor of Statutes to print all relevant portions of the Official Comments to the Model Business Corporation Act and the explanatory comments of the drafters of this act.

Effective October 1, 2017.

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