A package of bills recently passed by the New Jersey Legislature include several amendments to the New Jersey Code affecting corporate shareholders. The bills are waiting for the governor’s signature. One bill would amend the New Jersey Shareholders’ Protection Act (SPA) to expand its coverage of corporations located in the state. Another bill would modernize the provisions for shareholder meetings by allowing appearances via electronic communication. Small and closely-held businesses may benefit from these bills, which would allow greater flexibility in shareholder votes and meetings.
Remote Participation by Shareholders
New Jersey law currently states that shareholder meetings must occur at a “place” provided in the corporation’s bylaws or designated by the board of directors. N.J.S.A. § 14A:5-1. If neither the bylaws nor the board designates a location for a meeting, the statute requires it to take place at the corporation’s registered office. The law as written does not take into account advances in communications technologies over the past several decades. While corporations have undoubtedly already allowed shareholders to participate remotely, via telephone or internet-based communications, this technically goes against state law.
S-2327 amends the statute to allow remote participation, if approved by the board of directors. It also directs corporate boards to develop procedures and guidelines for remote shareholder participation, particularly for verification that the person appearing remotely is in fact the shareholder. Shareholders participating remotely, with the board’s approval and verification, will be deemed “present” for the meeting as though they were physically there.
S-2327 would also amend the provisions of the law dealing with the rights of shareholders who want to contest actions of the corporation with which they dissent. N.J.S.A. § 14A:11-1. It would limit a shareholder’s right to dissent to situations in which the corporation did not follow the dissenters’ rights statute, N.J.S.A. § 14A:11-5, or the corporation’s own governing documents; or if the corporation took an action through fraud or other deception.
Shareholders’ Protection Act
The SPA generally prohibits “resident domestic corporations” from engaging in “business combinations” with shareholders that own more than ten percent of the voting stock, known as an “interested shareholder,” for a specified period of time after the shareholder acquires stock. N.J.S.A. § 14A:10-4. The statute’s definition of “resident domestic corporation” is not always clear. The current definition is a corporation organized under New Jersey law that issues voting stock and has either “principal executive offices” or “significant business operations” within the state. N.J.S.A. § 14A:10-3n.
S-2328 amends the statute to expand the definition of “resident business corporation” to include nearly all corporations organized in New Jersey. It allows a ninety-day period for corporations not currently subject to the SPA to “opt out.” Corporations subject to the SPA would be able to engage in business combinations with interested shareholders, provided the board of directors approved the transaction before the shareholder acquired the stock.
The business attorneys at Samuel C. Berger, PC offer fixed-fee packages of legal services to businesses and entrepreneurs who want to do business in New York and northern New Jersey. To speak to a member of our skilled legal team, contact us today online or at (212) 380-8117.
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Corporate Directors, Even Though Acting in Subjective Good Faith, May Breach Fiduciary Duties to the Corporation, According to Delaware Court, New York & New Jersey Business Lawyer Blog, December 28, 2012
New Limited Liability Company Act to Take Effect in New Jersey in 2013, New York & New Jersey Business Lawyer Blog, October 26, 2012
New Jersey Small Business Owners Urge State to Pass Health Insurance Exchange Law, New York & New Jersey Business Lawyer Blog, September 27, 2012
Photo credit: By Marion Touvel [Public domain or Public domain], via Wikimedia Commons.