PA 15-48—sSB 967
AN ACT CONCERNING REVISIONS TO THE CONNECTICUT BUSINESS CORPORATION ACT, THE UNIFORM LIMITED PARTNERSHIP ACT AND THE CONNECTICUT LIMITED LIABILITY COMPANY ACT
SUMMARY: This act makes a number of changes in the business corporation statutes. It:
1. removes time limits on the validity of voting trusts and shareholder agreements and allows the agreements creating them to set their term, for agreements taking effect after September 30, 2015;
2. requires qualifications for corporate directors or nominees for director to be reasonable and adds specific provisions about qualifications;
3. limits when business corporations may indemnify and advance expenses to officers;
4. eliminates statutory provisions indemnifying and advancing expenses to corporate employees and agents but does not otherwise limit a corporation's ability to provide these protections;
5. changes the documentation requirements for a director seeking an advance of funds or reimbursement for reasonable expenses incurred during the course of a legal proceeding that involves him or her as director;
6. makes minor changes regarding proxies; and
7. makes technical and conforming changes and corrects an improper reference.
The act also allows the reinstatement of a limited liability company (LLC) or limited partnership (LP), after its administrative dissolution or cancellation for failure to maintain an agent for service of process or file its annual report, to relate back to the effective date of the dissolution.
EFFECTIVE DATE: October 1, 2015
§ 1 — PROXIES
By law, a shareholder or his or her agent or attorney may appoint a proxy to vote or act on the shareholder's behalf by electronically transmitting the appointment. The act requires the electronic transmission to contain or be accompanied by information that allows someone to determine that the transmission is authorized by the shareholder, agent, or attorney.
By law, a proxy is irrevocable if (1) it states it is irrevocable and (2) the appointment is coupled with an interest, which includes appointment of someone who purchases or agrees to purchase the shares, a corporate employee whose employment contract requires appointment, or a party to a voting agreement.
By law, someone who purchases shares subject to an irrevocable appointment may revoke the appointment if he or she did not know of it when acquiring the shares and the appointment was not noted conspicuously on certain documents. The act specifies that an irrevocable appointment continues after other transfers unless the appointment provides otherwise.
§ 2 — VOTING TRUST
By law, shareholders may sign an agreement to create a voting trust that gives a trustee the right to vote or act on their behalf. Prior law limited a voting trust's validity to no more than 10 years but allowed the parties to extend it for additional terms of up to 10 years each. The act establishes new rules for the length of voting trusts' validity:
1. For voting trusts that become effective starting October 1, 2015, the act allows the trust to set any time limit.
2. For voting trusts effective before October 1, 2015, the act retains the 10-year limit but allows (a) the parties to unanimously agree to amend the trust to provide a longer limit or (b) all or some of the parties to extend the trust, and bind the signing parties, for up to 10 additional years in the same manner as previously allowed. (The parties must sign a binding agreement, obtain the trustee's consent to the extension, and deliver copies of the agreement and a list of beneficial owners to the corporation. )
§ 3 — SHAREHOLDER AGREEMENTS
The law allows shareholders to form agreements between them and the corporation on certain topics, even if they are inconsistent with the statutes governing corporations. These agreements may include such things as eliminating the board, requiring dissolution under certain circumstances, restricting the board's powers or discretion, establishing who is a director or officer, specifying how voting power is exercised by shareholders and directors, and outlining how corporate powers are used and the corporation's affairs managed.
The act removes a default 10-year term that applied to these agreements unless the agreement provided otherwise by allowing agreements entered into beginning October 1, 2015 to provide any time limit.
§ 4 — QUALIFICATIONS FOR DIRECTORS AND NOMINEES
The act specifies that the certificate of incorporation or corporate bylaws may set the qualifications for nominees for director, as well as for directors as authorized by existing law.
By law, a director does not need to be a state resident or shareholder unless the certificate or bylaws requires it. For directors and nominees, the act:
1. requires any qualification set by the certificate or bylaws to be lawful and reasonable and
2. prohibits requirements based on past, current, or prospective actions or expressions of opinions that could limit the person's ability to discharge a director's duties but allows a qualification that a person have (a) no past or current criminal, civil, or regulatory sanctions or (b) not been removed as a director by judicial action or for cause.
The act provides that a qualification for nomination applies to a person only if it is prescribed before he or she is nominated. Qualifications for directors prescribed before a director's term starts can apply at the time the individual becomes a director or during the term, but those prescribed during a director's term do not apply during that term.
§§ 6-10 — INDEMNIFICATION
The act limits when business corporations may indemnify and advance expenses to officers who are not also directors. The law allows a corporation to provide these protections under a contract, the corporation's certificate of incorporation or bylaws, or a board resolution. The act prohibits indemnification and advancing expenses based on liability from a legal proceeding by or on behalf of the corporation, other than for expenses incurred connected to the proceeding. It also prohibits it when the officer's conduct:
1. was a knowing and culpable violation of law;
2. enabled the officer to receive an improper personal gain;
3. showed a lack of good faith and conscious disregard for the officer's duty to the corporation under circumstances in which the officer was aware that his or her conduct or omission created an unjustifiable risk of serious injury to the corporation; or
4. was a sustained and unexcused pattern of inattention amounting to an abdication of the officer's duty to the corporation.
The act also specifies that the indemnification laws do not limit a corporation's power to reimburse expenses that an officer incurs when appearing as a witness in a proceeding when he or she is not a party. Corporations already have this power for directors.
Employees and Agents
The act eliminates statutory rules on how corporations indemnify, advance expenses to, and insure employees and agents. These rules previously treated employees and agents the same as officers.
The act provides that it does not limit a corporation's ability to indemnify, advance expenses to, or provide insurance for an employee or agent. Thus, corporations may still provide these protections to employees and agents subject to any common law rules that may apply and contracts the corporations may have with their employees or agents.
Documentation. The act changes the documentation requirements for a director seeking an advance of funds or reimbursement for reasonable expenses incurred during the course of a legal proceeding that involves him or her as director.
It eliminates the requirement that the director submit to the corporation a signed written affirmation:
1. of his or her good faith belief that he or she has followed the relevant standard of conduct and will be entitled to indemnification under the statutes or the certificate of incorporation or
2. that the proceeding involves conduct covered by a liability protection in the certificate of incorporation. (The law allows the certificate to limit a director's personal liability to the corporation or its shareholders for certain breaches of his or her duty as director. )
Under existing law, unchanged by the act, the director must submit a signed written undertaking to repay the funds if (1) he or she is not entitled to mandatory indemnification under the statutes because he or she was not wholly successful in defending the proceeding and (2) it is ultimately determined that he or she has not met the relevant standard of conduct to qualify for indemnification.
Committee Approval. The law allows a majority vote of a board committee consisting of at least two qualified directors to authorize these advance payments. The act specifies that the committee must consist only of qualified directors. Generally, qualified directors are directors who are not parties in the court proceeding and do not have a material relationship with a director who is a party.
§§ 11 & 12 — REINSTATEMENT OF LLC OR LP
By law, the secretary of the state may dissolve an LLC or cancel an LP by forfeiture if the entity fails to (1) maintain a statutory agent for service of process or (2) file its annual report for more than one year. But, the LLC or LP may apply for reinstatement.
Under the act, the LLC's or LP's reinstatement in these circumstances relates back and is effective as of the dissolution's or cancellation's effective date. Once reinstated, the entity resumes carrying out business as if the dissolution or cancellation never occurred. Previously, when these entities were reinstated for these or other reasons, reinstatement took effect when the certificate of reinstatement was filed with the secretary.
OLR Tracking: CR; JO; VR; BS