On April 1, Gov. Chris Christie signed legislation amending the
New Jersey Business Corporation Act. The legislation was drafted by
the New Jersey Corporate and Business Law Study
Commission.1 As discussed in more detail
below, certain New Jersey corporations must take action by June 30
if they wish to opt out of the New Jersey Shareholders'
Protection Act.
The legislation:
- Creates a new section regarding shareholder derivative litigation that, if adopted in the certificate of incorporation, allows independent board members greater flexibility to move to dismiss litigation they deem is not in the best interests of the corporation and implements fee shifting and other provisions in the context of derivative and shareholder class action proceedings.
- Amends the Shareholders' Protection Act (the SPA) to make all publicly traded New Jersey corporations subject to the SPA and to allow certain business transactions to take place that previously would have been prohibited under the SPA, if the requisite approvals are obtained.2
- Amends the dissenters' rights section to provide that such section is the exclusive remedy absent fraud or material misrepresentation.
- Allows remote participation by shareholders in annual or special shareholders' meetings.
For a full discussion of the amendments, please see the Day
Pitney LLP alert dated February 19, which can be found here.
Shareholders' Protection Act -- Immediate Action May Be
Necessary
The Shareholders' Protection Act was amended to be applicable
to all New Jersey corporations. Previously, it was applicable only
to those New Jersey corporations that had principal executive
offices or "significant business operations" in New
Jersey. However, the amendment provides an opt out for those
corporations that were not previously subject to the SPA but will
be as a result of the amendments, i.e., those corporations that do
not have principal executive offices or "significant business
operations" in New Jersey. For these newly covered New Jersey
corporations, the amendments provide an opt-out period of 90 days
from the date of enactment, or by June 30. The board of directors
of a newly covered corporation that wishes to opt out must amend
its bylaws before June 30 to specifically provide that the
corporation is not subject to the SPA.
Any newly covered New Jersey corporation that does not opt out
should note in its records the identity of any 5 percent
stockholder as of 180 days after enactment. The amendment to the
SPA exempts such stockholders from the SPA's limitations on
business combinations with an interested stockholder of a newly
covered corporation.
This exemption makes it important for each publicly traded New
Jersey corporation to determine and document whether it is newly
covered - in other words, whether its executive offices are in New
Jersey or it had significant business operations in New Jersey as
of June 30.
Other Action Items
Management and the boards of directors of New Jersey corporations
should consider the following potential action items in response to
these amendments:
- Consider the new statute governing shareholder derivative and class actions and determine whether to opt in to coverage under that statute. If the decision is made to opt in, the corporation's certificate of incorporation will need to be amended, which will necessitate shareholder approval.
- Consider the advisability of permitting participation in shareholders' meetings by means of remote communication, including the feasibility, logistics and implications of implementation of remote participation. Adopt any bylaw amendments or board resolutions that may be needed to authorize remote participation.
Footnote
1 Michael T. Rave is chairman of the commission; Ronald H.
Janis is attorney to the commission; Ellen S. Knarr is secretary to
the commission.
2 The SPA applies to a corporation only at a time when it has
a class of voting stock that is registered with the SEC or traded
on a national securities exchange.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
