New Jersey Legislature Considers Corporate and Business Law Reforms
A series of bills that would reform the New Jersey Business Corporation Act (“NJBCA”) are slowly churning their way through the New Jersey State Legislature. The pending legislation is modeled upon provisions of the “Delaware Business Corporation Law” and the recommendations of the “New Jersey Corporate and Business Law Study Commission.” In sum, the proposed revisions would generally benefit corporate boards of directors and modernize provisions of the NJBCA.
Inspections of Corporate Books and Records
Assembly Bill 2975 (Pinkin)/Senate Bill 2238 (Diegnan) 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 bill does not define such “limitations and conditions,” the legislative statement accompanying A-2975/S-2238 provides an example of conditioning the receipt of requested materials on the demanding shareholder agreeing to customary confidentiality obligations. The bill preserves the ultimate authority of a court to decide and order relief in actions brought by shareholders for inspection of materials. On January 23, 2017, A-2975 passed the General Assembly by a vote of 69-0. On June 19, 2017, S-2238 passed the Senate Commerce Committee by a vote of 4-0. This bill is now awaiting a vote in the full State Senate.
Derivative Proceedings and Shareholder Class Actions
Assembly Bill 2970 (Pinkin)/Senate Bill 2236 (Diegnan) gives corporations greater flexibility to vary the applicability or effect of commencing and maintaining a derivative proceeding and shareholder class action. Current law provides that the derivative proceeding and shareholder class action provisions of the NJBCA apply if a corporation makes them applicable in its certificate of incorporation. This bill reverses current law 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. On March 16, 2017, A-2970 passed the General Assembly by a vote of 74-0. On June 19, 2017, S-2236 passed the Senate Commerce Committee by a vote of 4-0. The bill is now awaiting a vote in the full State Senate.
Forum Selection Clauses
Senate Bill 2234 (Diegnan)/Assembly Bill 2162 (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.
On June 19, 2017, S-2234 passed the Senate Commerce Committee by a vote of 4-0. It is now awaiting a vote in the full Senate. On January 27, 2016, A-2162 was introduced and referred to the Assembly Commerce and Economic Development Committee where it awaits a hearing.
“Force the Vote”
Assembly Bill 2161 (Pinkin)/Senate Bill 2237 (Diegnan) impacts the merger and consolidation of corporations. The bill 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.
A-2161/S-2237 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 could not 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. On January 23, 2017, A-2161 passed the General Assembly by a vote of 69-0. On June 19, 2017, S-2237 passed the Senate Commerce Committee by a vote of 4-0. The bill is now awaiting a vote in the full State Senate.
Approval by Electronic Transmission
Senate Bill 2235 (Diegnan)/Assembly Bill 2971 (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. The NJBCA currently allows approval of actions without a formal meeting only if such actions are in “writing.” Current law does not reflect the advances in technology, the reliance on electronic communications, and the actual practice of many corporate directors, since this provision of the NJBCA was enacted in 1988. On June 19, 2017, S-2235 passed the Senate Commerce Committee by a vote of 4-0. On February 16, 2016, A-2971 was introduced and referred to the Assembly Commerce and Economic Development Committee where it is awaiting a hearing.
Proxy Solicitation Materials
Senate Bill 2239 (Diegnan)/Assembly Bill 2973 (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. On June 19, 2017, S-2239 passed the Senate Commerce Committee by a vote of 4-0. On February 16, 2016, A-2973 was introduced and referred to the Assembly Commerce and Economic Development Committee where it is awaiting a hearing.
Gibbons regularly advises corporations on legislative initiatives to reform New Jersey’s business laws, and also counsels clients on transactional and litigation matters governed by these statutes. We will continue to monitor these reforms and their impact on private sector entities.