Corporations Law Committee Activity in Review

As published in the NY Business Law Journal:

Winter 2012 NY Business Law Journal
Corporations Law Committee

The Corporations Law Committee held its Fall Meeting in connection with the Fall Meeting of the Business Law Section. Committee chair Jeffrey Bagner of Fried, Frank, Harris, Shriver and Jacobson LLP gave a presentation on legal opinions in corporate transactions. The Committee is looking for volunteers to make presentations at future committee meetings. The next meeting of the Committee will be held in conjunction with the Annual Meeting of the NYSBA. Please contact Jeffrey Bagner (212- 859-8136 or jeffrey.bagner@friedfrank.com) to volunteer to make a presentation, to provide suggestions about future topics to discuss at committee meetings, or for other information concerning committee activities.

- Jeffrey Bagner, Chair

Summer 2012 NY Business Law Journal
Corporations Law Committee

The Corporations Law Committee met on January 25 during the New York State Bar Association Annual Meeting. Jeffrey Bagner of Fried, Frank, Harris, Shriver & Jacobson LLP led a discussion on shareholder rights plans, with an emphasis on New York and Delaware corporations. At the Spring Meeting of the Business Law Section held on May 9, the committee held two panel discussions: a panel entitled “M&A Market Update,” chaired by Richard De Rose of Houlihan Lokey, and a panel entitled “Cybersecurity and the Ethical Rules Around the Use of Technology,” chaired by Adele Hogan of Cadwalader, Wickersham & Taft LLP. Two hours of NY CLE credit were provided, including one hour of ethics CLE credit.

One of the committee’s functions is to review pending legislation that affects corporations and other legal entities. The committee has recently held discussions with a New York State Assemblyman who has sponsored a bill to amend the New York Business Corporation Law to require that New York-incorporated publicly traded corporations hold shareholder meetings electronically and allow shareholders to vote at these meetings electronically. New York State would become the first U.S. jurisdiction that would mandate that shareholder meetings and voting be conducted electronically. The committee has prepared its own version of an amendment to the New York Business Corporation Law, consistent with the approach taken by many other states, that would permit, but not mandate, New York incorporated publicly traded corporations to hold shareholder meetings electronically and to allow voting at these meetings electronically. The Executive Committee of the New York State Bar Association has endorsed the committee’s position.

-- Jeffrey Bagner, Chair

Winter 2011 NY Business Law Journal
Corporations Law Committee

The Corporations Law Committee met on September 17 during the Business Law Section Fall Meeting in Cooperstown. Stephanie Hendricks led a very informative meeting discussing the differences between the New York Business Corporation Law and other state corporation statutes. It was the general view of the participants that the New York statute needs to be modernized to make New York State a more attractive forum for corporations and other legal entities to be domiciled. A discussion followed on what steps should be undertaken to achieve this objective. This topic will be discussed at future committee meetings. The committee encourages members of the committee and other interested persons to be involved in these discussions.

One of the committee’s functions is to review pending legislation that affects corporations and other legal entities. At the present time, the committee is reviewing a proposed amendment to the New York Business Corporation Law that would permit holders of more than 10% of the outstanding voting stock of a New York publicly traded corporation to require that shareholder meetings be conducted electronically and that voting at these meetings also be conducted electronically.

—Jeffrey Bagner, Chair

Fall 2009 NY Business Law Journal
Corporations Law Committee

At the May 7, 2009 meeting, Melissa Sawyer and Simeon Gold updated the Committee regarding their April 2009 meeting with Assemblyman Brodsky and his chief aide, Kelly McMillan, at which they (together with the City Bar’s Corporations Committee) discussed Assemblyman Brodsky’s legislative agenda and potential ways for his office to work more closely with the bar association committees.

Richard Runes provided an update regarding the proposed Franchise Act amendments. Mr. Runes noted that the Assembly sponsor (Adam Bradley) was leaving to become Mayor of White Plains, so it was likely the bill would have to start over in the Assembly.

Janet Geldzahler updated the Committee regarding a bill relating to remote access at shareholder meetings, which the Committee was opposing the adoption of because it mandated remote access at shareholder meetings of New York corporations, unlike the permissive provisions in Delaware law.

Bruce Rich updated the Committee regarding RULLCA. He suggested that an e-mail questionnaire to solicit feedback regarding the best approach to amending the Act would be useful. Mr. Runes recommended preparing a subcommittee report and then scheduling a joint meeting with the City Bar to reach consensus on the best approach.

Mark Gentile made a presentation regarding Recent Developments in Delaware Corporate Law.

—Janet Geldzahler, Chair

Fall 2008 NY Business Law Journal
Corporations Law Committee

The Corporations Law Committee was particularly active last spring in commenting on proposed legislation in New York. The two bills which the Committee supported were approved by both houses and signed into law. The first bill amends Section 614 of the BCL to provide that the plurality default for the election of directors of New York corporations can be overridden by a bylaw provision as well as an amendment to the certificate of incorporation. In recent years, many corporations have shifted from a standard that directors are elected by a plurality vote to a majority vote standard, except in the case of contested elections. Because this shift previously required an amendment to the certificate of incorporation, which required board and shareholder approval, it was more difficult for New York corporations to make this change and more difficult for shareholders of New York corporations to force this change, unlike in Delaware, where the change could be made with a bylaw amendment that shareholders can adopt without board approval. While disagreeing with the much stated rationalization for majority voting—”where a single ‘for’ vote could elect a director” because directors in companies with plurality voting have almost always also received a majority of the votes cast—the Committee acknowledged that majority election of directors was being adopted increasingly by New York as well as Delaware corporations, and the bill would facilitate that change. The bill would not eliminate the need to amend the certificate of incorporation where the corporation’s certificate of incorporation explicitly provided for plurality voting.

The second bill supported by the Committee amended paragraph (b) of Section 510 of the BCL to permit New York corporations to pay dividends out of net profits (either in the year the dividend is paid or in the prior year) in addition to paying dividends out of surplus. Under the BCL, “surplus” is the excess of the net assets of the company over the stated capital. The Committee acknowledged that in the era of no-par and low-par shares, it has been long recognized that stated capital provides no protection to creditors, and that the Model Act and most other states have eliminated the concepts of capital and surplus and adopted tests of financial condition in determining whether a corporation may pay dividends. New York’s amendment would follow Delaware law, in permitting dividends to be paid out of net profits, where surplus was insufficient.

The four bills with respect to which the Committee submitted memoranda in opposition did not become law. Two of them were consecutive versions of a bill mandating New York corporations (in the first instance with 100 or more shareholders, and in the second instance publicly traded corporations) to make the annual shareholder meeting available by remote access and to permit shareholders to vote electronically throughout the meeting (the first version also would have required the corporation to consider those shareholders attending electronically to be present for quorum purposes). While the Committee supported the concept of having permissive provisions, it explained in its memoranda that mandating these requirements was not appropriate because they were either technologically or economically not feasible at present. Very few corporations as of yet Webcast their annual meetings; the Committee could not find any example where a corporation whose shareholders remotely accessed the meeting were considered present for quorum purposes, and the voting during the meeting requirement was contrary to the practices of most issuers (where the mechanics of compiling the vote require an earlier cutoff for proxies, as opposed to ballots submitted at the meeting). Moreover, the Committee noted that because most shares are held in nominee name, and these provisions applied only to record holders, the legislation would not have the intended effect.

The Committee also opposed a bill that would have amended subdivision (3) of the limited liability company law to require, among other things, New York LLCs to include in their articles of organization the names and addresses (which must be an actual location, rather than a post office box) and a description of the duties and responsibilities of all members, the actual addresses of all offices of the LLC wherever located, and the amendment of the articles of organization whenever any changes in the foregoing occurred. While the stated purpose of the bill was to assist cities in enforcing local codes and ordinances and the collection of taxes and judgments, the Committee noted that imposing these onerous requirements would simply cause entities seeking to avoid such obligations to gravitate to another form of entity, and force most of the hundreds of thousands of New York LLCs that were not shunning these obligations to also change to another form of entity to avoid continual amendments of the articles of organization, resulting in considerable transaction costs and the likely abandonment of the LLC as a business entity in New York.

Finally, the Committee opposed an Assembly bill that would have amended the limited liability company law and the general construction law with respect to the definition of newspaper to eliminate the requirement that a “newspaper” has a paid circulation. The Committee noted that the Assembly Memorandum in Support provided no data or analysis as to the difference in publication costs, public availability and archival retrieval between newspapers with or without paid circulations, and that given the number and significance of legal notices that must be published in a “newspaper,” such an analysis should be undertaken before making the change.

—Janet Geldzahler, Chair

Spring 2008 NY Business Law Journal
Corporations Law Committee

At the January 2008 annual meeting, the Corporations Law Committee met jointly with the Securities Law Committee and discussed the status of certain pending and proposed legislation, including amendments to the NPC law and potential updating of the LLC statute. There were CLE presentations on Foreign Investment and the Port Authority of New York/New Jersey and Merging New York Not for Profit Corporations. The topic of amending the BCL to permit the adoption of majority election of directors in the bylaws was raised again, in light of the ongoing trend to majority election of directors and the greater flexibility this would give boards of directors, as opposed to the present requirement of including such a provision in the certificate of incorporation.

Finally, the recent AirTran case was discussed, in which the court held that the issue of whether a foreign corporation was doing business in New York, thereby giving rise to shareholder inspection rights under the BCL for New York shareholders of such foreign corporation, is a matter that should be construed to afford the broadest relief to New York residents.

—Janet T. Geldzahler, Chair

Fall 2007 NY Business Law Journal
Corporations Law Committee

The Committee reviews new and proposed legislation and court cases involving the Business Corporation Law and other New York laws affecting corporations and other business entities, including partnerships, limited partnerships, and limited liability companies. It takes an active role in proposing legislation which affects corporations and other business entities.

—Janet T. Geldzahler, Chair

Spring 2007 NY Business Law Journal
Corporations Law Committee

The Committees on Corporation Law and Securities Law met jointly at the Section’s Fall Meeting, held at the Cranwell Resort in Lenox, Massachusetts. The joint meeting has been the custom for the Fall Meeting.

Present were: Janet Geldzahler, Robert Fine, Joseph Hansen, Glenn Witecki, Gary Trechel, Robert Yellen, Jeffrey Rubin, Richard Gutman, Edward Cohen and Frederick Attea.

Mr. Attea noted that the primary items covered by the Corporation Law Committee during 2006 dealt with the continued work on a proposed revision to the New York Not-For-Profit Corporation Law, efforts to deal with consequences of the "Publication Bill" and providing "educational" opportunities to members with CLE credit.

The revised NFPCL draft was presented to the Executive Committee of the House of Delegates of the NYSBA earlier in June of this year. The New York City Bar Association requested time to review the proposed legislation and, accordingly, the Executive Committee of the NYSBA Executive Committee suggested that the matter be deferred for this reason. At press time the Corporation Law Committee anticipated resubmitting the proposed revision for action by the House of Delegates at the January 2007 meeting.

The other subject that occupied substantial Committee time was proposed amendments to the Publication Bill which finally became law. There was a general discussion regarding the "negotiations" between the Committee and the Governor’s Office and other interested parties. As finally adopted, the law did not contain many of the most onerous provisions of the early version of the bill but there is still a substantial desire to repeal the law entirely. Mr. Attea noted that a bill was introduced or about to be introduced that would repeal the publication law; however, the NYSBA legislative experts did not believe that this bill would have any material support.

There was a discussion regarding the feasibility of joint projects with the Corporation Law and Securities Law Committees. This would be explored further. One example of such a project was the "director majority vote" controversy that was being studied by a Subcommittee chaired by Janet Geldzahler. She generally described the background giving rise to the issue and the status of "majority voting" under current Delaware and New York statutes.

Mr. Attea noted that the Securities Law Committee provided CLE credit on a regular basis at its monthly meetings. The Corporation Law Committee was trying to follow that practice. There was a broad-ranging discussion regarding a need to establish closer ties between the Committees of the Business Law Section and legislative subcommittees that deal with legislation affecting matters covered by the Section’s committees. The Business Law Section’s Legislative Affairs Committee has been formed recently to make progress on this front.

—Frederick G. Attea, Chair