New Tools for Your Corporate Law Toolbox in Recent Changes to the North Carolina Business Corporation Act
The General Assembly of North Carolina recently approved changes to the North Carolina Business Corporation Act, Chapter 55 of the General Statutes (the “NCBCA”), which the Governor signed into law on June 22, 2018 and which will take effect on October 1, 2018.[1]
The bill enacted into law (the “Act”) makes significant enhancements to North Carolina corporate law, the net effect of which is to:
- eliminate any perceived advantage certain jurisdictions may have over North Carolina as business-friendly jurisdictions;
- attract and retain qualified businesspersons as officers or board members of North Carolina corporations;
- facilitate the efficient discharge of board duties, particularly for public companies subject to the Sarbanes-Oxley Act;
- facilitate efficient corporation reorganizations and acquisitions; and
- protect the reasonable expectations of shareholders with respect to their investments.
A Little Help from Our Friends
The bill resulting in the Act was drafted by the Business Corporations Committee of the Business Law Section (the “Committee”) and approved as “Association-sponsored legislation” by the NCBA Executive Committee in January 2017. The NCBA is grateful for the endorsement and support of the North Carolina Chamber, and the sponsorship of Senators Tamara Barringer and Paul Newton and Representatives Chuck McGrady and Destin Hall who ably shepherded the bill through the legislative process to enactment.
Summary Overview of the Act
The NCBCA is based on the Model Business Corporation Act (the “Model Act”), which is the work of the Corporate Laws Committee of the ABA Business Law Section (“the ABA Committee”). The amendments in the Act cover nine principal topics as follows:
- Sections 2, 10 and 12 authorize inclusion of a provision in the articles of incorporation to limit or eliminate, in advance, the duty of a director, officer or other person to bring specified business opportunities to the corporation and would create a related safe harbor from liability [based on Model Act].
- Sections 1 and 3 provide that defects in share issuances and other corporate acts shall not be void or voidable solely as a result of a failure of authorization if a prescribed ratification process is followed [based on Model Act].
- Section 4 requires that the holders of two or more series of a class of shares affected in the same or a substantially similar way by a proposed plan of merger or proposed plan of conversion vote together as a single voting group on the proposed plan of merger or conversion [based on Model Act].
- Sections 5, 6, 14 and 15 modernize the treatment of voting trusts and shareholder agreements, including removing the statutory 10-year limits on duration and clarifying the circumstances under which a purchaser of shares without notice of the shareholder agreement can nevertheless be bound by it [based on Model Act].
- Sections 7, 8, 9, 10, 11 and 13 make the discharge of Board duties more efficient and reduce negatives that deter qualified candidates from serving on Boards by requiring a challenger to the Board’s compensation to overcome a presumption of fairness [based on Nevada], authorizing the appointment of alternate committee directors [based on Model Act] and the creation of subcommittees [based on Delaware], and prohibiting the retroactive impairment of rights to indemnification and advancement of expenses [based on Model Act].
- Sections 16, 20, 23, 29, 30, 31 and 32 clarify that a plan of merger under various entity merger statutes may provide for cancellation of shares or interests at merger closing where, for example, those shares or interests are not entitled to any merger consideration.
- Sections 17, 25, 26 and 27 establish a procedure that allows a corporation to consummate a merger without a shareholder vote if the merger follows a tender offer in which the tender offeror obtains sufficient shares that would permit it to approve the merger if it were submitted to a vote at a meeting of shareholders [based on Model Act].
- Sections 18, 23, 24, 25, 26 and 28 permit “short form” mergers of subsidiary corporations into the parent entity without a shareholder vote where the parent is an entity other than a corporation that owns ninety percent (90%) or more of the shares of the subsidiary [based on Delaware].
- Sections 25, 26, 27 and 28 provide appraisal rights to shareholders with non-voting shares and provide a procedure whereby shareholders with non-voting shares must provide notice of intent to demand appraisal rights prior to the effective time of the corporate action [based on Model Act].
For the Committee’s comprehensive discussion of the NCBCA amendments in the Act, click here.
Committee Members Involved in these NCBCA Changes
The proposed bill resulting in the Act was drafted by the Business Corporations Committee of the Business Law Section of the North Carolina Bar Association. The following are the Committee members who participated in the drafting:
David B. Clement (Chair) – Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., Raleigh
Amanda A. Hayes – Parker Poe Adams & Bernstein LLP, Raleigh
Seth M. Huffstetler – Robinson, Bradshaw & Hinson, P.A., Charlotte
Stephen M. Lynch – Robinson, Bradshaw & Hinson, P.A., Charlotte
Russell M. Robinson, III – Hagan Barrett & Langley PLLC, Greensboro
Join Us!
The Business Corporations Committee will soon begin studying further refinements and improvements to North Carolina’s corporation laws. If you are interested in high-impact service that directly affects the business climate in North Carolina, or have suggestions to improve the NCBCA, please reach out to Dave Clement, the chair of the Committee, at [email protected] or any of the other Committee members.
[1] Senate Bill 622 (Session Law 2018-45), https://www.ncleg.net/Sessions/2017/Bills/Senate/PDF/S622v5.pdf
