Bar News - December 13, 2013
Business Law & Business Litigation: Committee Chair Outlines Updates to the NH Business Corporation Act
By: Patrick C. Closson
A rundown of the changes to New Hampshire’s Business Corporations Act, which goes into effect Jan. 1
After 20 years, the law governing the operation of business corporations in New Hampshire – the New Hampshire Business Corporation Act (NHBCA, RSA 293-A) – has undergone a comprehensive update, which will go into effect Jan. 1, 2014.
New Hampshire last engaged in a systematic reworking of its business corporation statute in 1993. The 1993 NHBCA was derived from the Model Business Corporation Act, a model law published by the Committee on Corporate Laws of the Section of Business Law of the American Bar Association. When it was adopted, the 1993 NHBCA was a seen as a comprehensive and progressive business corporation statute. Since 1993, business, and the law governing business corporations, has continued to evolve, and technology has changed the way that business is conducted.
In 2010, an ad hoc committee of the New Hampshire Business and Industry Association, made up of corporate lawyers and accountants, worked with the NH Legislature to develop legislation that updated the NHBCA. The committee agreed that the update should be based on the fourth version of the Model Business Corporation Act and incorporate certain idiosyncrasies of the current NHBCA. The committee believed that this approach would ensure consistency throughout the revised NHBCA.
The Legislature passed the updated NHBCA in 2013. The new statute reflects the current best practices, with regard to the formation, governance and dissolution of business corporations, and acknowledges that we are in an age of electronic communication. The updated NHBCA allows for filings with the Secretary of State to be made electronically (when permitted by the Secretary of State) and allows notices to be delivered electronically, subject to specific guidelines. The changes relating to electronic communications will make the process for filing documents and providing notices more efficient for corporations.
The updated NHBCA includes many efforts to clarify areas where uncertainty previously existed in the current statute. For example, the updated NHBCA provides a bright line test for what constitutes a sale of “all, or substantially all” of a corporation’s assets, which would require shareholder approval. This change, and many others found in the updated NHBCA, reflect an effort on the part of the drafters to provide more guidance in areas where ambiguity existed.
The updated NHBCA also makes it easier for corporations and other entities to become domesticated in New Hampshire. The updated NHBCA includes authority for foreign corporations to become New Hampshire corporations by filing a simple set of documents with the Secretary of State. This streamlined process provides a way for out-of-state corporations to become New Hampshire corporations, which previously could only be accomplished through a series of transactions.
Overall, the updated act provides business owners, and the lawyers who counsel them, the best corporate governing statute. The following is a summary of the significant changes contained in the updated NHBCA.
Article 1: General Provisions. Article 1 deals with general filing requirements, the authority of the Secretary of State, definitions, and notices. The changes to Article 1 allow for electronic filing and include a number of additional definitions relating to terms that are used throughout the NHBCA. The changes also require that all notices be in English (Section 1.41(a)) and may be delivered by any method of delivery (Section 1.41(b)).
Article 2: Incorporation. Article 2 deals with the articles of incorporation and bylaws. The changes to Article 2 clarify and expand on the concepts addressed in the current statute.
Article 3: Purposes and Powers of Corporations. Article 3 deals with the corporation’s purpose and powers. The changes clarify or simplify the language regarding corporate purpose and ultra-vires activities.
Article 4: Name. Changes to Article 4, which deals with the corporation’s name, clarify and simplify the language of Sections 4.02, 4.03 and 4.04 and consolidate Sections 4.03 and 4.04 into Section 4.03. The committee did not address any issues regarding the process of corporate name selection.
Article 5: Office and Agent. Article 5 deals with registered agents and registered officers. The changes to Article 5 allow more types of entities to serve as registered agents.
Article 6: Shares and Distributions. Updates to Article 6 deals, which deals with the issuance of shares and distributions to shareholders, allow for classes of shares and series within classes (Section 6.201) and broaden the terms regarding a corporation’s ability to issue options (Section 6.24).
Article 7: Shareholders. The changes to Article 7 clarify the authority of shareholders to hold an annual meeting by written consent (Section 7.01), require that an action by written consent include a date of signature, and clarify the process surrounding a written consent (Section 7.04) and how a meeting of shareholders is to be conducted (Section 7.09). The statute also expressly allows for the appointment of a receiver (Section 7.48).
Article 8: Directors and Officers. The changes to Article 8 broaden the authority to adjust the number of directors (Section 8.03), clarify the requirements regarding filling a vacancy where a director was elected by a voting group (Section 8.10(b)), adjust the director and officer standard of care to be consistent with the current state of the law (Sections 8.30(a) and 8.42(a)), clarify director conflict-of-interest transactions and how to resolve a director conflict-of-interest transaction (Section 8.60-8.63) and codify a safe harbor relating to the business opportunity doctrine (Section 8.70).
Article 9: Domestication and Conversion. Article 9 is a new chapter that permits: a foreign business corporation to convert to a New Hampshire business corporation; a New Hampshire business corporation to convert to a foreign business corporation; a New Hampshire business corporation to convert to a New Hampshire unincorporated entity or a foreign unincorporated entity; a foreign unincorporated entity to convert to a New Hampshire business corporation; or a New Hampshire unincorporated entity to convert to a New Hampshire business corporation.
Article 10: Amendment of Articles of Incorporation and Bylaws. The layout of Article 10 has been reorganized, but this reorganization did not result in any substantive changes to the chapter.
Article 11: Merger and Share Exchange. Changes to Article 11 clarify the requirements for a merger and share exchange.
Article 12: Sale of Assets. Article 12 deals with the sale of assets by a corporation. The changes to Article 12 add a definition of what constitutes a sale of “all, or substantially all” of the corporation’s assets and moves to a more objective standard (Section 12.02).
Article 13: Dissenters Rights. Article 13 deals with shareholder rights to and payment for shares. The changes add clarity to several of the broad provisions of Article 13. These changes also provide greater flexibility to limit the scope of appraisal rights for various classes and series of shares.
Article 14: Dissolution. Changes to Article 14 include adjusting the timeframe to bring a claim against a dissolved corporation from five years to three years (Section 14.07), and allow a dissolved corporation to file an application with the Superior Court to determine the amount and form of security to be provided for payment of contingent or other unknown claims (Section 14.08). Overall, the changes add a greater degree of certainty with regard to the dissolution of a corporation.
Article 15: Foreign Corporations. This chapter includes only minor clarifications.
Article 16: Records and Reports. Changes to Article 16 allow the corporation to maintain electronic records (Section 16.01(d)) and the right to receive copies of corporate records by electronic transmission (Section 16.03(b)) and provide for a director’s right to inspect the corporation’s records (Section 16.05).
Article 17: Transition Provisions. This Article deals with the implementation of the statute, which is intended to go into effect Jan. 1.
Overall, the update to the NHBCA represents a step forward in the administration of business corporations in New Hampshire.
Patrick Closson serves as vice chair of the Corporate Department at McLane, Graf, Raulerson & Middleton and as managing director of the firm’s Portsmouth office. He served as chair of the ad hoc committee that led the effort to update the New Hampshire Business Corporation Act.