On June 27, 2013, Governor Maggie Hassan signed into law Senate Bill 41, enacting a comprehensively revised and updated New Hampshire Business Corporation Act, RSA 293-A. The new Business Corporation Act goes into effect on January 1, 2014, replacing the current Business Corporation Act, which was enacted in 1993. The new Business Corporation Act represents a better-engineered law which will bring New Hampshire into line with a number of other states which have enacted more recent variants of the American Bar Association’s Model Business Corporation Act.
Background of the Statute
The new Business Corporation Act was drafted by an ad hoc committee of corporate lawyers, accountants and businesspeople convened under the auspices of the New Hampshire Business and Industry Association in 2011. The Act was based on the most recent version of the Model Business Corporation Act drafted by Committee on Corporate Laws of the Section of Business Law of the American Bar Association. In adapting the Model Act, the committee pursued several goals:
- Provide private companies with a reasonable set of off-the-rack governance rules which would help managers run their companies fairly and efficiently
- Allow sophisticated investors to order the affairs of their private company in the way that they consider most advantageous
- Modernize corporate governance to take advantage of various technological advances since the early 1990s, including permitting electronic communications and meetings
- Eliminate various perceived disadvantages for public companies to incorporate in New Hampshire
- Retain several feature of existing New Hampshire law which are perceived to be working well
The Act was first introduced in the legislature in 2012 but was sidelined in the 2012 session while the legislature passed a revised Limited Liability Company Law, RSA 304-C. The Act was introduced again by a group of senators in January 2013 as Senate Bill 41 and was the subject of several public hearings in the spring of 2013. SB 41 was amended in certain respects at the suggestion of the New Hampshire Secretary of State’s office, and passed the Senate and the House of Representative by wide margins in June 2013.
Notable Provisions
The following is a description of some of the more notable provisions of the new Act:
- The new Act has been updated by importing language and concepts from the Uniform Electronic Transmissions Act and the federal Electronic Signatures in Global and National Commerce Act and more broadly authorizes the use of electronic communications, such as emails, for the delivery of notices and other communications. Use of electronic communications in most instances still requires the consent of the recipient, although a corporation’s articles of incorporation or by-laws can authorize or require the delivery of notices of meetings of directors by electronic transmission.
- The new Act now permits the board of directors to authorize remote participation by shareholders in annual and special meetings using things like the internet or telephone conference calling. The use of remote participation is subject to guidelines and procedures to be established by the board to ensure that it is possible to verify that each person participating remotely is a shareholder and to provide the shareholders with reasonable opportunity to participate in the meeting and vote on the matters submitted to the shareholders.
- The new Act changes the standard for when a sale of assets by a corporation requires shareholder approval. Under the old Act, shareholder approval was needed if the corporation proposed to sell all or substantially all of its assets, which left room for disagreement about whether shareholder approval was required in some cases. The new Act specifies that a sale of assets will require shareholder approval if the sale would leave the corporation without significant continuing business activity, and defines when that will be considered to happen with some clear tests.
- Changes to dissenters’ rights — Under certain circumstances involving a basic change in the corporation, the shareholders have the right to dissent from the change and obtain the fair value of their shares, as determined by the courts. Fair value proceedings are typically lengthy and expensive and require judges to evaluate the testimony of valuation experts hired by the parties. The new Act will modify certain of the circumstances under which a shareholder will have the right to dissent from corporate action:
- Under the old Act, shareholders had the right to dissent if the corporation sought to change the articles of incorporation in a way that materially and adversely affects the rights of the holders of a class of shares if the change would alter or abolish a preferential right, alter or abolish a redemption right, exclude or limit voting rights or take certain other actions. Under the new Act, shareholders do not generally have the right to dissent from changes in the corporation’s articles of incorporation unless dissenters’ rights are specifically provided in the articles of incorporation. Thus, potential investors may want to consider specifically negotiating the types of changes to the articles which should give rise to the right to dissent.
- Under the old Act, investors in preferred stock of a corporation had the right to dissent in general and with respect to the changes described above, whether they wished to have those rights or not in the same way as holders of common stock. Under the new Act, the rights of preferred shareholders to dissent can in certain instances be eliminated to the extent expressly provided in the articles of incorporation of the company.
- The new Act makes clear that, when a corporation dissolves and winds-up its business, directors have a duty to discharge or make reasonable provision for the payment of creditors’ claims against the corporation, before any distributions may be made to shareholders. The new Act also added a provision allowing a dissolved corporation, if faced with contingent or other unknown claims, to apply to the Superior Court for a judicial determination of the amount and the form of security to be provided for payment of contingent or unknown claims.
- The new Act also makes clear that directors have broad-ranging inspection rights to the corporation’s books, records and other documents. With the emphasis in recent years on the fiduciary duties of directors, the new Act empowers directors to inform themselves directly, without being dependent on the willingness of officers and employees to provide information to them.
Transition to the New Act
The new Business Corporation Act will go into effect on January 1, 2014, allowing time for businesspeople, lawyers and accountants to study its provisions and, if necessary, adapt their governance documents and practices to the new law. Many small companies which are accustomed to dealing with the old Business Corporation Act and have simple governance documents and structures likely will not see a pressing need to change how they do business They may, over time, wish to modify their charter and/or by-laws to take advantage of some of the innovations offered by the Act. Other companies with complex capital structures and different classes of stock outstanding or proposed, should consult with knowledgeable corporate counsel, in order to understand the changes and the opportunities that the new Act offers.