PA 09-55—SB 963
AN ACT CONCERNING THE CONNECTICUT BUSINESS CORPORATION ACT
SUMMARY: This act makes several changes to the laws giving shareholders the right to have their shares appraised and to obtain payment of their fair value in the event the corporation takes certain actions. (This is referred to as “appraisal rights. ”) Among other things, the act eliminates appraisal rights under certain circumstances, requires shareholders asserting appraisal rights to certify that they did not consent to the transaction creating the appraisal right, and requires additional information to be provided to shareholders concerning corporate action that triggers appraisal rights.
The act makes numerous changes to the laws that allow corporate actions that could be taken at a shareholders meeting to be taken without a shareholders meeting.
The act also makes several changes regarding corporate directors relating to the (1) term of office, (2) election of directors of a public corporation, (3) resignation of a director, and (4) election of directors by other directors.
The act requires corporations to deliver, instead of mail, annual financial statements to each shareholder within 120 days after the close of each fiscal year. It specifies that any such delivery by electronic transmission must be in a manner the shareholder authorizes. The act specifies that a public corporation may satisfy this requirement by delivering the specified financial statements, or otherwise making them available, in any manner applicable U. S. Security and Exchange Commission (SEC) rules and regulations permit.
With certain exceptions, the act authorizes a public corporation to adopt a bylaw that allows its directors to be elected by a “more votes for than against” system, under which a director who does not receive more votes for than against his or her election, but still wins a plurality of votes, may serve for only 90 days as a director.
The act allows a corporation to deliver one copy of a written notice, any other report or statement required by the Business Corporation Act, the certificate of incorporation, or the bylaws to all shareholders who share a common address under certain circumstances.
The act limits certain shareholder suits for judicial dissolution, eliminates the court's duty to dissolve under certain circumstances, and permits the court to do so under other circumstances.
The act establishes a definition of “expenses” for the Business Corporation Act, defining them as reasonable expenses of any kind that are incurred in connection with a matter, including reasonable attorney's fees.
The act also makes technical and conforming changes.
EFFECTIVE DATE: October 1, 2009
§§ 2 & 10 — Appraisal Notice of Intent to Demand Payment and Reply
Under prior law, the appraisal notice had to supply a form that specified the date of the first announcement to shareholders of the principal terms of the proposed corporate action and required the shareholder asserting appraisal rights to certify (1) whether or not those shares for which appraisal rights were asserted were acquired before that date and (2) that the shareholder did not vote for the transaction. The act requires the corporation also to supply a form that specifies the first date of any announcement of the principal terms of the proposed transaction before the transaction became effective. It also requires the shareholder to certify that the shareholder did not consent to the transaction. It also makes some technical changes.
By law, a shareholder who receives notice and wishes to exercise appraisal rights must certify on the form whether the beneficial owner of the shares acquired beneficial ownership before the date required to be specified in the notice. The act specifies that the owner must sign the form and, in the case of certificated shares, include the certificates.
§ 3 — Right to Appraisal
The law specifies certain situations for which appraisal rights are not available. The act adds to these situations. Specifically, it makes appraisal rights unavailable for the holders of shares of any class or series of shares that (1) is issued by an open-end management investment company registered with the SEC under the Investment Company Act of 1940 and (2) may be redeemed at the holder's option at net asset value. It also makes technical changes.
§ 8 — Written Consent for Corporate Actions that Trigger Appraisal Rights—Required Notices
Where any corporate action (such as a merger) that triggers appraisal rights is to be approved by written consent of the shareholders, the act requires that the corporation provide written notice that appraisal rights are, are not, or may be available to each record shareholder from whom a consent is solicited when shareholder consent is first solicited. If the corporation has concluded that appraisal rights are or may be available, the notice must be accompanied by a copy of state statutes dealing with appraisal rights. The act extends these notice requirements to non-voting and non-consenting shareholders. If it has concluded that appraisal rights are or may be available, it must include a copy of state statutes dealing with appraisal rights.
§ 9 — Consent for Approved Action, Assertion of Appraisal Rights
Under the act, if a specified corporate action is to be approved by less than unanimous written consent, a shareholder who wants to assert appraisal rights with respect to any class or series of shares may not execute a consent in favor of the proposed action with respect to that class or series of shares.
§ 11 — Withholding Payment
Under prior law, a corporation could elect to withhold payment from any shareholder who did not certify that beneficial ownership of all of the shareholder's shares for which appraisal rights were asserted was acquired before the date set forth in the appraisal. The act specifies that this only applies to shareholders who are required to certify.
§ 4 — ACTIONS WITHOUT SHAREHOLDERS' MEETINGS
Actions Without Meetings-Unanimous Approval
The law allows any action that may be taken at a shareholders meeting to be taken without a meeting when one or more written consents specifying the action to be taken, and bearing the date of signature, are signed by all of the people who would be entitled to vote on the action at a meeting, or by their duly authorized attorneys. The act requires that the consents be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
Action Without Meeting — Less Than Unanimous Approval
Under prior law, if the certificate of incorporation authorized it, an action could be taken by one or more written consents bearing the signature date and describing the action to be taken, signed by people holding the designated proportion, but not less than a majority, of the voting power of shares, or of the shares of any particular class, entitled to vote or to take the action, as may be provided in the certificate of incorporation, or their duly authorized attorneys.
The act instead specifies that the certificate of incorporation may provide that any action required or permitted by law to be taken at a shareholders' meeting may be taken without a meeting, and without prior notice, if written consents describing the action taken are signed by the holders of outstanding shares having no fewer than the minimum number of votes that would be required to authorize or take the action at a meeting at which all shares entitled to vote on the action were present and voted.
The act eliminates the current requirement that directors may not be elected by shareholders' action without a shareholder meeting other than by unanimous written consent or pursuant to a merger plan.
Notice of Action Without Meetings
The law requires that if action is proposed to be taken by written consent of fewer than all shareholders, or their duly authorized attorneys, notice in writing of the proposed action must be given to each person who would be entitled to vote at a meeting held for that purpose. The act requires that written consent bear the date of signature of the shareholder who signs the consent and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
Prior law required that the notice be given in the manner of giving notice of a meeting of shareholders between 20 and 50 days before the date any consents were to become effective. The act eliminates these required time frames. Under prior law, if at least five days before the date any such consents were to become effective, the corporation's secretary had received from shareholders, or their duly authorized attorneys, holding at least one-tenth of the voting power of all shares entitled to vote at such a meeting, a demand in writing that the action not be taken by written consent, all persons to whom such notice was given were so notified and the corporation could not take the proposed action except at a shareholders' meeting. The act eliminates this requirement.
The act instead requires that if action is taken by less than unanimous written consent of the voting shareholders, the corporation must give its non-consenting voting shareholders written notice of the action within 10 days of:
1. the delivery to the corporation of written consents sufficient to take the action or
2. the later date when tabulation of consents is completed as authorized by the act.
The notice must reasonably describe the action taken and contain or be accompanied by the same material that would have been sent to voting shareholders in a notice of a meeting at which the action would have been submitted to the shareholders for action.
The act specifies that these notice requirements do not delay the effectiveness of actions taken by written consent, and a failure to comply with them does not invalidate those actions taken. But the act specifies that it does not limit judicial power to fashion any appropriate remedy in favor of a shareholder adversely affected by a failure to give notice within the required time.
Record Date for Determining the Shareholders Entitled to Take Action
Under prior law, if not otherwise fixed by the court in connection with a court-ordered meeting (CGS § 33-697) or in the bylaws ( CGS § 33-701), the record date for determining shareholders entitled to take action without a meeting was the date the first shareholder signs the consent.
The act instead establishes the record date as the first date on which a signed written consent is delivered to the corporation, if the date is not otherwise fixed in the bylaws. The act also provides that if not otherwise set in the bylaws, and if prior board action is required respecting the action to be taken without a meeting, the record date is the close of business on the day the board resolved to take the prior action.
Under prior law, no written consent to take the corporate action was effective unless written consents signed by enough shareholders to take corporate action were received by the corporation within 60 days of the earliest date appearing on a consent delivered to the corporation. The act instead specifies that written consents are ineffective unless, within 60 days of the earliest date on which a consent delivered to the corporation was signed, written consents signed by the holders of shares having sufficient votes to take the action have been delivered to the corporation.
Effect of a Signed Consent
By law, a signed consent has the effect of a meeting vote and may be described as such in any document.
The act specifies that unless the certificate of incorporation, the bylaws, or a resolution of the board of directors provides for a reasonable delay to permit tabulation of written consents, the action taken by written consent is effective when written consents signed by the holders of shares having sufficient votes to take the action are delivered to the corporation.
Under the act, if any provision of law requires that notice of a proposed action be given to non-voting shareholders and the action is to be taken by written consent of the voting shareholders, the corporation must give its non-voting shareholders written notice of the action within 10 days of:
1. delivery to the corporation of written consents sufficient to take the action or
2. the date when tabulation of consents is completed as authorized by the act.
The act requires that the notice reasonably describe the action taken and contain or be accompanied by the same material that, under any provision of the Business Corporation Act, would have been required to be sent to non-voting shareholders in a notice of a meeting at which the proposed action would have been submitted to the shareholders for action.
The act allows electronic transmissions to be used to consent to an action if they contain or are accompanied by information from which the corporation can determine the date on which they were signed and that they were authorized by the shareholders or their agents or attorneys-in-fact.
Delivery of Consents
The act specifies that the delivery of a written consent to the corporation means delivery to the corporation's registered agent at its registered office or to the secretary of the corporation at its principal office.
§§ 4 & 5 — CUMULATIVE VOTING AND ELECTION OF DIRECTORS BY CONSENTS
The act eliminates the requirement that directors be elected by action of shareholders in a meeting of shareholders, unless there is unanimous written consent, or pursuant to a merger plan.
The act specifies that directors may not be elected by less than unanimous written consent if a corporation's certificate of incorporation authorizes shareholders to cumulate their votes when electing directors.
§ 6 — COURT-ORDERED MEETING
Under prior law, the Superior Court for the judicial district where a corporation's principal office or, if the office was not in Connecticut, where its registered office, was located could summarily order a meeting to be held on application of any shareholder entitled to participate in an annual meeting if one was not held within the earlier of six months after the end of the corporation's fiscal year or 15 months after its last annual meeting. The act provides that the court may do so only if directors were not elected by written consent in lieu of such a meeting during that same time period.
§ 12 — Term of Office
By law, the terms of a corporation's initial directors expire at the first shareholders' meeting at which directors are elected, and the terms of all other directors expire at the next annual shareholders' meeting following their election unless their terms are staggered. The act specifies that the terms may be shorter if the certificate of incorporation provides for it or a public corporation's bylaws, adopted under the act's authority, provide otherwise.
Under prior law, despite the expiration of a director's term, he or she continued to serve until a successor was elected and qualified or the number of directors was reduced. The act specifies that a corporation's certificate of incorporation or a public corporation's bylaws adopted under this act may provide otherwise.
§ 13 — Election of Directors of a Public Corporation
Under prior law, unless a public corporation's certificate of incorporation provided otherwise, directors were elected by a plurality of votes cast by shares entitled to vote at a meeting at which a quorum is present.
With certain exceptions, the act authorizes a public corporation to adopt bylaws to choose directors as follows:
1. each share entitled to a vote may cast as many votes for or against a candidate as there are director positions to be filled (cumulative voting) or a shareholder may indicate an abstention, but without cumulating the votes;
2. the board of directors may select any qualified individual to fill the office held by a director who received more votes against than for his or her election; and
3. to be elected, a nominee must have received a plurality of the votes cast by holders of shares entitled to vote in the election at a meeting at which a quorum is present.
But the act requires that a nominee who is elected with more votes against than for must serve for a term that ends the earlier of:
1. 90 days from the date on which the voting results are determined or
2. the date on which an individual is selected by the board of directors to fill the office held by the director, which must be deemed to constitute the filling of a vacancy by the board.
A nominee who is elected but receives more votes against than for his or her election may not serve as a director beyond the 90-day period.
The act specifies that a public corporation may not adopt such bylaws if the certificate of incorporation (1) specifically prohibits it, (2) alters the vote specified by law to elect directors, or (3) provides for cumulative voting. The act also specifies that the bylaw does not apply if there are more candidates for election than the number of directors to be elected, one or more of whom are properly proposed by shareholders. The act specifies that an individual may not be considered a candidate for an election of directors if the board of directors determines before the notice of meeting is given that the individual's candidacy does not create a bona fide election contest.
The act also specifies that if a corporation originally adopts such a bylaw by vote of the shareholders, the shareholders can repeal it, unless the bylaw otherwise provides. If adopted by the board of directors, it may be repealed by the board or the shareholders.
§ 14 — Resignation of a Director
Under prior law, a director could resign at any time by delivering a written notice to the board of directors or its chairperson. The act instead requires that the director deliver a written resignation instead of a notice and permits it also to be delivered to the corporation's secretary.
Under prior law, a resignation was effective when delivered unless it specified a later effective date. The act also allows it to specify an effective date determined upon the occurrence of an event or events.
The act also provides that a resignation conditioned on failing to receive a specified vote for election as a director may provide that it is irrevocable.
§ 15 — Election of Directors by Directors
By law, if the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group can vote to fill the vacancy if it is filled by the shareholders. The act specifies that only the directors elected by that voting group are entitled to fill the vacancy if it is filled by directors.
§ 23 — Court-Ordered Dissolution
The act eliminates the requirement that the Superior Court dissolve a corporation in a proceeding by a holder or holders of shares having voting power sufficient under the circumstances to dissolve the corporation pursuant to the certificate of incorporation. It also eliminates the requirement that the court dissolve a corporation if a shareholder or a director establishes certain facts in a lawsuit he or she brings. The act permits, instead of requires, the court to do so under similar but not identical circumstances.
Specifically, the act eliminates the requirement that the court dissolve a corporation in a proceeding by a shareholder or a director when it is established that the directors are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock. Instead it permits, instead of requires, the court to dissolve a corporation if a suit by a shareholder, and not a director, establishes that in addition, irreparable injury to the corporation is threatened or being suffered or the corporation's business and affairs can no longer be conducted to the advantage of the shareholders generally, because of the deadlock.
The act also eliminates the requirement that the court dissolve a corporation in a proceeding by a shareholder or a director when it is established that the shareholders are deadlocked in voting power for the election of directors and are unable at the next annual meeting to elect successors to directors whose terms would normally have expired when their successors were elected. The act authorizes, instead of requires, the court to do so in a proceeding by a shareholder, but not a director, if it is established that the shareholders are deadlocked in voting power and have failed, for at least two consecutive annual meeting dates, to elect successors to directors whose terms have expired.
The act eliminates the court's authority in certain circumstances and duty in other circumstances in a suit by a shareholder or director if on the date the proceeding is filed, the corporation has shares that are:
1. listed on the New York Stock Exchange, the American Stock Exchange, any exchange owned or operated by the NASDAQ Stock Market LLC, or listed or quoted on a system owned or operated by the National Association of Securities Dealers, Inc. or
2. not so listed or quoted, but held by at least 300 shareholders and the shares outstanding have a market value of at least $20 million, excluding the value of shares held by the corporation's subsidiaries, senior executives, directors, and beneficial shareholders owning more than 10% of the shares.
§ 2 — Court's Jurisdiction in Dissolution Proceedings
By law, a court in a judicial proceeding brought to dissolve a corporation may appoint one or more receivers to wind up and liquidate, or one or more custodians to manage, the corporation's business and affairs. The act gives jurisdiction to a court appointing a receiver or custodian, instead of exclusive jurisdiction, over the corporation and all of its property, wherever located.
§ 22 — NOTICE TO SHAREHOLDERS
The act specifies that a corporation has delivered written notice or any other report or statement under any provision of the law, the certificate of incorporation, or the bylaws to all shareholders who share a common address if:
1. the corporation delivers one copy of the notice, report, or statement to the common address;
2. the corporation addresses the notice, report, or statement to those shareholders as a group, to each one individually, or in a form to which each of those shareholders has consented; and
3. each of those shareholders consents to delivery of a single copy of the information to the shareholders' common address.
The act permits any of the shareholders to revoke consent by delivering written notice of revocation to the corporation. If the notice is delivered, the corporation must begin providing individual notices, reports, or other statements to that shareholder within 30 days after delivery.
If a corporation sends written notice to shareholders who share a common address of its intent to send single copies, shareholders are deemed to have consented if they do not object by written notice to the corporation within 60 days.
§ 28 — MERGER
Under prior law, a domestic parent corporation that owned shares of a domestic or foreign subsidiary corporation that carried at least 90% of the voting power of each class and series of the subsidiary's outstanding shares that have voting power could merge the subsidiary into itself or into another such subsidiary, or merge itself into the subsidiary, unless:
1. the certificate of incorporation of any of the corporations provided otherwise, and
2. in the case of a foreign subsidiary, approval by the foreign subsidiary's board of directors or shareholders was required by the law under which the subsidiary is organized.
The act specifies that a domestic parent may do so without the approval of the board of directors or shareholders of the subsidiary.
§ 17 — EXPENSES
The act establishes a definition of “expenses” for the Business Corporation Act. It defines “expenses” as reasonable expenses of any kind that are incurred in connection with a matter, including reasonable attorney's fees. It uses this term instead of terms like “counsel fees,” and “fees and expenses. ” This term is used in provisions involving derivative proceedings, appraisal rights cases, court-ordered inspection of corporate records by shareholders or directors, court proceedings to dissolve the corporation, and indemnification.
§ 30 — DELIVERY OF FINANCIAL STATEMENTS BY ELECTRONIC TRANSMISSION
By law, a corporation, except a corporation required to file financial reports with the banking or insurance commissioner or the Department of Public Utility Control, must furnish its shareholders with annual financial statements that include certain information.
Under prior law, corporations had to mail these statements to each shareholder within 120 days after the close of each fiscal year, and upon written request from a shareholder who was not mailed the statements, had to mail him or her the latest financial statements. The act requires corporations to deliver rather than mail this information.
It specifies that any delivery of financial statements by electronic transmission must be in a manner the shareholder authorizes. The act specifies that a public corporation may satisfy its requirements by delivering the specified financial statements, or otherwise making them available, in any manner permitted by applicable SEC rules and regulations.
Appraisal and Payment Rights
By law, a shareholder is entitled to have his or her shares appraised and to obtain payment of their fair value in the event of certain corporate actions (CGS §§ 33-818 & 33-831).
Open-End Management Investment Company
State law does not define an “open-end management company. ” But, under federal law, “open-end company” means a management company that is offering for sale or has outstanding any redeemable security of which it is the issuer (15 USC § 80a-5). Apparently, it is a portfolio of securities professionally managed by the sponsoring management company or investment company, which issues shares to investors. The manager must create shares when money is invested and redeem shares as requested by shareholders.
Cumulative voting is a voting process that helps strengthen the ability of minority shareholders to elect a director. It allows shareholders to cast all of their votes for a single nominee for the board of directors when the company has multiple openings on its board. In contrast, in “regular” or “statutory” voting, shareholders may not give more than one vote per share to any single nominee. For example, if the election is for four directors and someone holds 500 shares (with one vote per share), under the regular method he or she could vote a maximum of 500 shares for any one candidate (giving the shareholder 2,000 votes total - 500 votes per each of the four candidates). With cumulative voting, the shareholder could choose to cast all 2,000 votes for one candidate, 1,000 each to two candidates, or otherwise divide his or her votes.
OLR Tracking: GC: CR: SS: DF