New Massachusetts Corporate Statute Takes Effect July 1, 2004
The new Massachusetts Business Corporation Act (the Act) has taken effect as of July 1, 2004. The Act constitutes a significant modification to the current Massachusetts corporate statute and Massachusetts corporations should carefully consider whether or not to amend their charter or bylaws either to take advantage of some of the new optional provisions of the Act or to opt out of provisions that are no longer mandatory. The Act automatically applies to all Massachusetts business corporations that are governed by the current corporate statute without the need for those corporations to take any action.
Some of the key provisions of the new Act that corporations may want to address through an amendment to their charter or bylaws are set forth below.
The Act includes several new provisions that apply to a corporation only if specifically adopted by the corporation. Those provisions can afford Massachusetts corporations more flexibility in several areas of corporate governance. In order for a Massachusetts corporation to take advantage of these optional provisions, it must amend its charter or bylaws to include them. Some of these optional provisions include:
- Resolutions proposed to be adopted by the shareholders may be adopted in writing by less than all of the shareholders. The writing would need to be signed only by shareholders holding the requisite number of votes necessary to adopt the resolution.
- Cumulative voting for directors may be adopted.
- A Massachusetts corporation may have as few as one director, regardless of the number of shareholders it has.
- The determination of the rights and obligations of any class or series or securities and the number of shares to be allocated to the class or series may be determined solely by the directors.
- The quorum and voting requirements for directors established by the Act may be varied by the charter or bylaws but the quorum cannot be reduced below one-third of the directors fixed to serve or a majority of the directors actually serving.
Default Provisions That May Be Modified
The Act includes many provisions that, unless modified in the charter or bylaws will apply automatically. There are two implications to these so-called default provisions. First, a Massachusetts corporation may want to amend its charter or bylaws in order to modify these default provisions. Second, the corporation’s charter or bylaws may already contain terms that modify the default provisions and thus require amendment in order for the default provisions to apply. Examples of these default rules that may be varied in the charter or bylaws of the corporation include:
- There need be no fixed time in which an annual shareholders’ meeting must be held.
- Meetings of shareholders of private corporations may be held entirely in cyberspace without the need to designate a physical location. Participation can be by means that are wholly electronic (such as telephonic conference call, via the Internet or by similar means).
- Shareholder proxies, as well as shareholder and director consents, votes, waivers and other actions may be given in electronic form such as facsimiles and e-mail.
- There is no requirement that any specific corporate purpose be stated in the charter.
- The new Act permits proxies to be valid for 11 months. Existing bylaws may reflect the six-month period provided for in the current statute.
- Unless limited by the charter, the directors have unlimited authority to issue shares and determine the amount and type of consideration to be received.
Additional New Provisions
The Act further includes new provisions that cannot be modified by the charter or bylaws. These include:
- Every Massachusetts corporation must have a registered agent, even if it has an office in Massachusetts and even if its clerk/secretary is a Massachusetts resident. The Secretary of State has issued regulations and new forms to implement this requirement.
- A shareholder list must be available for inspection by shareholders, but may be maintained in an electronic form.
- Agreements among the shareholders and the corporation can extensively reorder the governance of a privately-held corporation, including the obligations and duties of directors and shareholders.
- The Act includes a new “safe harbor” provision which, if complied with, protects interested directors in the case of transactions between such director and the corporation.
- The list of corporate documents that must be maintained and made available to shareholders has been expanded.
- The Act now provides for a new concept of “share exchange” transaction in which, if the requisite number of shareholders vote to sell the corporation by means of a transfer of shares, all shareholders must so transfer their shares.
- Fundamental transactions such as mergers, sales of substantially all the assets of the corporation and share exchanges must now first be approved by the directors and referred for a shareholder vote by the directors.
The foregoing discussion is a brief summary of some of the more significant matters addressed by the Act. There are many more issues and procedures (both optional and default) addressed by the Act that should be considered by all Massachusetts corporations. In the wake of the new Act, careful review of a Massachusetts corporation’s current charter and bylaws is essential in order to ensure that the provisions relating to corporate governance, procedures and relationships among the shareholders and directors properly reflect the intent and desire of the shareholders and directors of the corporation.
You should note that two aspects of the Act may require action on the part of some Massachusetts corporations. Those are: (i) the requirement to designate a registered agent and (ii) the requirement to maintain certain documents and records (for example, copies of all written communications to shareholders within the past three years) in addition to those previously required under current law.
Our corporate attorneys at Holland & Knight would be happy to assist you with the review of your governing documents and the analysis and implementation of the appropriate action to take in light of shareholder and director preferences.