Diegnan & Burzichelli Corporate Business Reform Bill Package Approved by Assembly as Part of Job Creation Effort
Three-Bill Package Stems from Recommendations of Corporate and Business Law Study Commission; Would Help NJ Businesses Stay Competitive in Global Marketplace
(TRENTON) – A three-bill package sponsored by Assembly Democrats Patrick J. Diegnan, Jr., and John J. Burzichelli that would make changes to the state’s corporate business laws in order to keep New Jersey companies competitive in the global marketplace was approved this week by the Assembly as part of Assembly Democratic job creation efforts.
“Simplifying and streamlining outdated and confusing portions of New Jersey’s corporate business laws will help make it easier for the companies that are already here to continue conducting business,” said Diegnan (D-Middlesex). “These changes will make New Jersey even more attractive for businesses looking to set up shop or expand their presence in the state.”
“These are technical changes that are easy to make that will hopefully have a big, positive impact on the businesses operating here,” said Burzichelli. “Making it easier to do business in New Jersey is just one more way we can work to stimulate our sluggish economy.”
The first bill (A-3049) – approved 76-0 – would amend the “New Jersey Shareholder’s Protection Act,” which was designed to help protect New Jersey corporations from hostile takeovers.
Specifically, it would amend the definition of “resident domestic corporation” to clarify that all public corporations incorporated under New Jersey law would be subject to the protections of the act, regardless of whether their principal executive offices or significant business operations are located in the state. Under current law, there is confusion about what level of business operations a corporation must have in the state to be subject to the act.
The bill contains a 90-day opt-out window to allow those public corporations not currently subject to the act to continue operating without it.
The bill also would allow a corporation to engage in a business combination with an interested stockholder – generally an individual who owns 10 percent or more of the outstanding voting stock of a corporation – provided that the transaction in question was approved by the corporation’s board of directors prior to the stock acquisition date.
Additionally, the bill would allow subsequent business combinations between a corporation and an interested stockholder, provided the combination is approved by the board of directors or a committee of the board that is not affiliated or associated with the interested stockholder and by an affirmative vote of the holders of a majority of the voting stock not owned by the interested stockholder in question. This change brings the law more in line with current business practices, in which all subsequent transactions are approved at the time that the first business combination is approved.
Finally, the bill would exempt any stockholder from the provisions of the act who owns five percent or more of the outstanding voting stock of the corporation, provided that the corporation in question did not have its principal executive offices or significant business operations in New Jersey at the time of the bill’s enactment.
The second bill (A-3050) – approved 77-0 – makes changes to the “New Jersey Business Corporation Act” as it concerns participation by shareholders in shareholder meetings, taking into account advances in technology that allow for cheap, reliable teleconferencing.
Under the bill, a shareholder would be allowed to participate in a shareholder meeting via remote communication, provided that the corporation’s board of directors authorizes this type of communication. Shareholders participating in this way would be deemed present and entitled to vote only if the corporation has implemented reasonable measures to verify that each person participating remotely is a shareholder and that each shareholder participating via teleconference is able to access the same materials and information provided to individuals at the actual meeting.
The bill also would streamline the methods by which shareholders are able to contest corporate actions they disagree with. Under the bill, dissenter’s rights would be the exclusive remedy for shareholders dissatisfied with the corporation’s actions, except when the corporation files for Chapter 11 bankruptcy protection or is engaged in fraudulent or otherwise illegal activity. These changes were based largely on the American Bar Association’s Model Business Corporation Act, similar portions of which have been adopted by several other states.
The third bill (A-3123) – approved 77-0 – would revise the law concerning shareholder derivative proceedings in the state.
A derivative proceeding is a lawsuit brought by a minority or small shareholder against the directors, management or other larger shareholders of a corporation that argues a failure by management. In such a proceeding, the minority shareholder claims to be acting on behalf of the corporation because, from his or her point of view, the management and directors are failing to use their authority to the benefit of the entire company and all its shareholders.
Under the bill, the regulations governing derivative proceedings and shareholder class actions would be applicable only if the corporation’s certificate of incorporation makes it applicable. A New Jersey corporation would be allowed to amend its certificate of incorporation to supersede judicial case law developments regarding written demand requirements and adopt the statutory standards laid out in this measure, allowing corporations to avoid derivative suits that would otherwise impose unnecessary costs. The statutory standards would require a written demand in every derivative proceeding and would allow disinterested directors, shareholders or court appointed professionals to deem, after a good faith investigation into the demand, that the derivative proceeding is not in the best interest of the corporation.
Additionally, the measure would raise to $250,000 the value of the minority shareholdings required to avoid the need to post security for a fee award, which has not been increased since 1968 and would require that shareholder plaintiffs continue to hold their shares throughout the derivative proceeding.
“With fierce competition on all sides from our neighboring states, we must seize any advantage that will help make New Jersey an even more attractive place in which to do business,” said Burzichelli.
“Making these common-sense updates to our corporate business laws is just one more way to show companies that New Jersey is truly ‘open for business,’” said Diegnan.
The measures now head to the Senate for consideration.