Bill Package Stems from Recommendations of Corporate and Business Law Study Commission; Would Help NJ Businesses Remain Competitive in Global Marketplace
TRENTON – A three-bill package sponsored by Senate Commerce Committee Chair Senator Nia H. Gill that would make changes to the state’s corporate business laws to make New Jersey more business friendly in order to remain competitive globally was approved today by the committee.
“Updating our corporate laws will create a more business-friendly environment for companies to operate in New Jersey, therefore increasing our ability to attract and maintain businesses in our state,” said Senator Gill (D-Essex/Passaic). “This will go a long way to send the message that we are working to improve conditions for local companies and those looking to move to the Garden State.”
The first bill (S-2328) would amend the “New Jersey Shareholders’ Protection Act.” 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. The bill contains a 90-day opt-out period to allow those 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 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 legislation 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 (S-2327) makes changes to the “New Jersey Business Corporation Act” as it concerns participation by shareholders in shareholder meetings, taking into account advances in technology. 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.
The final bill (S-2326) in the package would revise the law concerning shareholder derivative proceedings in the state. 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 demand requirements and adopt the statutory standards, allowing corporations to avoid derivative suits that may otherwise impose unnecessary costs on the corporation. If adopted by a corporation, written demand would be required in every derivative proceeding and disinterested directors, shareholders, or court appointed professionals would be authorized to make a decision, after a good faith investigation, that the derivative proceeding is not in the best interests 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.
“Today we took the first step in an effort to modernize our laws governing corporations and shareholders and, in doing so, improve New Jersey’s business climate,” said Senator Gill. “These changes will bring the state’s laws in line with neighboring states, which have already included these critical amendments in their own statutes, and improve our ability to remain competitive in the national and global marketplace.”
The measures are based upon recommendations of the New Jersey Corporate and Business Law Study Commission, a Legislative Commission established in 1989, and were drafted to reflect the best practices set forth in the Model Business Corporation Act (MBCA), a model set of laws prepared by the Committee on Corporate Laws of the American Bar Association. The New Jersey Corporate and Business Law Study Commission recommended the changes to the resident domestic corporation definition in order to enhance New Jersey’s standing as a “business-friendly” state. Delaware and New York have already incorporated the MBCA recommendations with respect to certain corporation/shareholder matters into their law.
The Senate Commerce Committee approved the bills by a vote of 5-0-1.They now head to the full Senate for a vote.