A package of bills that reform the New Jersey Business Corporation Act (“NJBCA”) were signed into law on January 16, 2018. We previously wrote about this legislation which was modeled upon provisions of the “Delaware Business Corporation Law” and was recommended for enactment by the “New Jersey Corporate and Business Law Study Commission.” These revisions generally benefit corporate boards of directors and modernize provisions of the NJBCA.
Inspections of Corporate Books and Records (P.L. 2017, c.364)
Assembly Bill 2975 (Diegnan/Pinkin) modifies the NJBCA to allow corporations to impose reasonable limitations or conditions on the use or distribution of requested corporate books and records. While the law does not define such “limitations and conditions,” the legislative statement provides an example of conditioning the receipt of requested materials on the demanding shareholder agreeing to customary confidentiality obligations. The measure preserves the ultimate authority of a court to decide and order relief in actions brought by shareholders for inspection of materials.
Derivative Proceedings and Shareholder Class Actions (P.L. 2017, c.362)
Assembly Bill 2970 (Diegnan/Pinkin) gives corporations greater flexibility to vary the applicability or effect of commencing and maintaining a derivative proceeding and shareholder class action. This new law deviates from the prior standards and requires that the NJBCA’s provisions shall apply to a corporation unless that corporation chooses to vary the applicability or effect of the provisions in its certificate of incorporation.
Forum Selection Clauses (P.L. 2017, c.356)
Assembly Bill 2162 (Diegnan/Schaer) provides that corporate bylaws may include a forum selection requirement, and that the bylaws may provide that the federal and state courts in New Jersey are the sole and exclusive forum for:
- Any derivative action or proceeding brought on behalf of the corporation;
- Any action by one or more shareholders asserting a claim of a breach of fiduciary duty;
- Any action brought by one or more shareholders asserting a claim against the corporation or its directors or officers, or former directors or officers, arising under the NJBCA or the certificate of incorporation; or
- Any other state law claim or other claim brought by one or more shareholders which is governed by the internal affairs or an analogous doctrine.
“Force the Vote” (P.L. 2017, c.355)
Assembly Bill 2161 (Diegnan/Pinkin) impacts the merger and consolidation of corporations. The law allows a traditional C-corporation to adopt a “force the vote” provision in a plan of merger or consolidation. A “force the vote” provision is used to require the shareholders of a corporation to vote on a plan of merger or consolidation after the board of directors approves the plan, even if the board of directors later determines it no longer wants the merger. Such a provision supports the original intent of the board by putting the matter to the shareholders, thereby preventing an individual or small group of directors from getting “cold feet” and derailing a merger or consolidation.
The law also allows the directors of a corporation to amend a plan of merger or consolidation after the shareholders have formally approved and adopted the plan, but prior to its effective date. This procedure cannot be used, however, to alter the kind or amount of consideration paid to the shareholders, the terms of incorporation of the surviving corporation, or any other terms and conditions that would materially and adversely affect the shareholders.
Approval by Electronic Transmission (P.L. 2017, c.363)
Assembly Bill 2971 (Diegnan/Webber) clarifies that corporate directors may approve actions without a formal meeting by employing electronic transmission, which includes fax, email, or other form of electronic transmission. Before this modification, the NJBCA only allowed approval of actions without a formal meeting if such actions are in “writing.” This did not reflect the advances in technology, the reliance on electronic communications, and the actual practice of many corporate directors, since the former provision of the NJBCA was enacted in 1988.
Proxy Solicitation Materials (P.L. 2017, c.299)
Senate Bill 2239 (Diegnan/Pinkin) allows a corporation to establish in its bylaws the procedures or conditions for including materials concerning shareholder-nominated individuals in a corporation’s proxy solicitation materials.
Should your corporation have any questions as to the implementation of these laws, please contact a member of the Gibbons Government Affairs or Corporate Departments. We regularly advise entities on legislative initiatives and new laws that impact New Jersey businesses, and also counsel clients on transactional and litigation matters governed by the NJBCA and other statutes.