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ComplianceJanuary 06, 2023

2022: A year in review for corporation, LLC, and other business entity laws

Keeping track of the changes to business entity statutes is important for a company’s managers, owners, investors, and advisers. But it can be hard to do considering how often the laws are amended and how many judicial decisions interpreting those laws are rendered each year.

To help all interested parties keep up, we have compiled some of the significant legislative and case law developments that CT has tracked and reported for you in Legislative and Regulatory Updates during 2022.

Alabama

Senate Bill 104, effective June 1, 2022, revises the requirements for a corporation to issue or transfer fractional stock and prohibits a corporation from issuing a certificate representing scrip in bearer form.

California

Senate Bill 1202, effective January 1, 2023, extensively amends the Corporations Code including (but not limited to) the following topics: foreign business corporation alternate names, authorization for the Secretary of State to cancel certain filings due to dishonored payment of filing fees, conforming amendments requiring status certificates submitted in support of certain foreign entity filings to be dated within six months of filing, requirement for LPs to maintain records at their principal office instead of the designated office, additional prohibited words regarding insurance which may not be included in LP names, substitution of reference to an entity’s principal office instead of the principal executive office in several sections, and substitution of reference to the Department of Financial Protection & Innovation instead of the Department of Business Oversight in several sections. 

Assembly Bill 1802, effective January 1, 2023, amends the LLC law regarding dissolution and winding up. 

Senate Bill 218, effective January 1, 2023, amends the General Corporation Law by authorizing ratification of defective corporate acts. 

Senate Bill 49, effective January 1, 2023, amends the General Corporation law regarding conversion to foreign entities and fees. 

Assembly Bill 2431, effective January 1, 2023, amends the LLC law regarding contents of Statements of Information. 

Assembly Bill 1780, effective January 1, 2023, amends the General Corporation Law regarding shareholder meetings. 

Sirott v. Superior Court, A164037, decided May 5, 2022. The California Court of Appeal held that a party must maintain continuous membership in an LLC to represent it derivatively and that the statutory discretion conferred on trial courts to permit a member who does not otherwise meet the requirements to maintain a derivative suit does not excuse a former member from the continuous membership requirement.

Colorado

House Bill 1250, effective August 10, 2022, amends the business entities law to change references to “owner’s interest” from “owners’ interest”, to repeal a provision exempting certain domestic entities from a provision allowing reinstatement, and to clarify notification requirements for ratification of defective corporate actions.

Delaware

During 2022 Delaware enacted amendments to its General Corporation Law (S.B. 203, H.B. 295, S.B. 273); Limited Liability Company Act (S.B. 275); Limited Partnership Act (S.B. 274); and Partnership Act (S.B. 276). For a summary of all of these bills, see Compliance update: The 2022 amendments to Delaware’s business entity laws

NVIDIA Corporation v. City of Westland Police and Fire Retirement System, No. 259, 2021, decided July 19, 2022. The Delaware Supreme Court held that in an action under Sec. 220 where the stockholder seeks to inspect books and records (1) a determination of the appropriateness of the scope of a stockholder’s requests, or any change to the stockholder’s requests, has no bearing on whether the plaintiff has satisfied Sec. 220’s form and manner requirements, (2) there is no blanket rule that requires the Court of Chancery to outright deny those demands that it finds to be overbroad, (3) Sec. 220 plaintiffs may narrow their requests during litigation if they do so in good faith and such narrowing is not prejudicial to the company, and (4) hearsay is admissible in a Sec. 220 proceeding when that hearsay is sufficiently reliable

In re P3 Health Group Holdings LLC, C.A. No. 2021-0518, decided September 12, 2022. A suit was filed in Delaware asserting that the defendant, the general counsel and chief legal officer of a Delaware LLC, breached her fiduciary duty of loyalty in her capacity as an officer. The defendant moved to dismiss for lack of personal jurisdiction. The Delaware Chancery Court denied the motion, holding that the court had personal jurisdiction under the implied consent provision in the Delaware LLC Act, Sec. 18-109, which establishes a mechanism for serving process on a manager of an LLC. Sec. 18-109 classifies two categories of managers—formal managers, who are named in the LLC agreement, and acting managers—who participated materially in the LLC’s management.

According to the court, the pleading stage record supported a reasonable inference that by acting as general counsel and CLO, the defendant participated materially in the LLC’s management and was an acting manager. In addition, the exercise of personal jurisdiction over the defendant comports with minimum standards of due process. Individuals who take positions as senior officers of Delaware entities do so with the understanding that personal jurisdiction exists in Delaware courts to adjudicate disputes over compliance with their contractual or fiduciary obligations. Just as the corporate consent to jurisdiction statute reaches C-suite executives including the CLO, the LLC Act’s consent to jurisdiction reaches C-suite executives and CLOs.

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District of Columbia

RFB Properties LLC v. Federal National Mortgage Association, No. 19-CV-0527, decided October 27, 2022. The District of Columbia Court of Appeals reversed the trial court’s dismissal of an LLC’s action to quiet title on the grounds that it was administratively dissolved when the claim arose and lacked standing to sue. Although the LLC had subsequently reinstated, the trial court rejected the LLC’s argument that its reinstatement related back to the date of administrative dissolution, thereby validating its actions. The Court of Appeals noted that the DC Code provides that when reinstatement is effective it relates back to the date of administrative dissolution and the court had to treat the LLC as if the administrative dissolution did not occur. The reinstatement validated the LLC’s filing the action and its recording of the deed during the period of dissolution. The trial court had relied on case law interpreting sections of the DC Code that had been repealed.

Florida

Richman v. Calzaretta, No. 5D21-1307, decided May 13, 2022. The Florida Court of Appeal held that Sec. 607.1604 of the Florida corporation law, which provides that a court that orders a corporation to allow a shareholder to inspect records shall also order the corporation to pay the shareholder’s attorney fees, does not authorize the court to award attorney’s fees in a garnishment action brought by the shareholder to collect the attorney fee judgment.

Hawaii

Alexander & Baldwin, LLC v. Armitage, SCWC-16-0000667, decided April 5, 2022. The Hawaii Supreme Court held that an unincorporated entity may only appear in court through licensed attorneys and the trial court should have used its sua sponte power to prevent two non-attorneys from representing the entity. The court also held that while the judgment in a case where the entity was not represented by an attorney does not require the judgment to be a nullity, in this case the judgment against the entity had to be vacated because the non-attorneys did not know they could not represent the entity and were not told this by the trial court.

Iowa

House File 2469, effective July 1, 2022, amends the corporation law regarding a corporation sending notices and communications to shareholders by email. 

Louisiana

House Bill 515, effective August 1, 2022, amends the LLC law to provide (1) that if all members of an LLC die, the succession representative of the deceased member may petition the court for dissolution, windup, and liquidation of the LLC, (2) that upon the death of a member of a single-member LLC, the interest of the member is fully inheritable, (3) that unless otherwise provided in rule or contract, the member's properly appointed succession representative may exercise all of the deceased member's rights, and (4) that the full rights of membership transfer to the appointed succession representative upon a judgment of possession. 

House Bill 973, effective August 1, 2022, provides that the owner of a corporate name reservation may terminate the reservation by delivering to the Secretary of State a signed notice of termination, that articles of merger or share exchange shall include the name of the surviving entity or names of the acquiring and acquired corporations, and that a corporate name shall not contain the phrase “doing business as” or any abbreviation thereof. 

House Bill 830, effective August 1, 2022, provides that the Secretary of State may charge a $25 fee for transferring a reserved LLC name and terminating a reserved corporate or LLC name. 

Payne v. Bolding, No. 21-C-702, decided February 24, 2022. The Louisiana Court of Appeal held that the sole manager of an LLC (Landry) had the authority to sign an uninsured motorist rejection form on behalf of the LLC. At one time the LLC had three managers. However, at the time the form was signed, Landry was the sole manager and had filed a document with the Secretary of State to remove the names of the former managers. Although the articles of organization at the time the form was signed still stated that decisions required a majority vote of three managers, the court noted that as the sole manager, Landry’s vote was the majority vote, and that if it accepted the argument that Landry lacked authority it would lead to the absurd result that all decisions made by Landry before he amended the articles of organization could possibly be considered null and void.

Maryland

House Bill 342 (cross-filed with Senate Bill 261), effective October 1, 2022, authorizes an LLC agreement and a partnership agreement to allow transfers of interests to non-members under certain circumstances. 

House Bill 390 (cross-filed with Senate Bill 447), effective October 1, 2022, prohibits the use or maintenance of an improper or outdated address in documents filed for inclusion in records of the State Department of Assessments and Taxation, authorizes real property owners to report the improper use of their address, and provides further procedures after the filing of the report. 

House Bill 853 (cross-filed with Senate Bill 125), effective October 1, 2022, provides that non-stock corporations and religious corporations only have to file the seven most recently due annual reports when filing articles of revival and past-due annual reports online. 

House Bill 996 (cross-filed with Senate Bill 87), effective October 1, 2022, establishes a procedure by which a corporation may ratify a defective corporate act. 

House Bill 999 (cross-filed with Senate Bill 431), effective October 1, 2022, enacts various amendments to the Corporations & Associations law including amendments regarding corporations with a limited duration, electronic transmission of a director’s dissent, insurance for service relating to an LLC, remote meetings, parent-subsidiary mergers, abandonment of mergers, and dissolution.

Missouri

Kansas City Chrome Shop, Inc. v. Smith, WD84407, decided May 3, 2022. The Missouri Court of Appeals affirmed the ruling that a Kansas corporation that had been administratively dissolved lacked standing to sue to recover alleged debts entered into before it was administratively dissolved. The corporation had been reinstated, which the court acknowledged revived its right, in general, to maintain a suit. However, the Kansas corporation law provides that only the rights and credits which belonged to the corporation at the time its articles of incorporation became forfeited and which were not disposed of prior to reinstatement shall be vested in the corporation after its reinstatement. In this case the rights the corporation claimed to have acquired did not vest in it upon reinstatement because they did not belong to it at the time of forfeiture.

Michigan

House Bill 5295, effective March 15, 2022, allows formation of professional LLCs by chiropractors.

House Bill 5296, effective March 15, 2022, allows formation of professional corporations by chiropractors.

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Mississippi

Weeks, Inc. v. Lewis, No. 2020-IA-013337, decided March 24, 2022. The Mississippi Supreme Court held that a corporation’s principal place of business, for venue purposes, is the county in which it actually conducts business. Therefore, the corporation’s principal place of business was not located in the county the corporation listed on its filings with the Mississippi Secretary of State as its principal office. The address the corporation listed was actually the address of its CPA, who handled the corporation’s correspondence and filings with Secretary of State. The corporation conducted no business from this location. Instead it operated solely out of an office in a different county.

New York

Senate Bill 113, effective February 1, 2022, amends the business corporation and LLC laws by requiring the Department of State to provide certain information to corporations filing Biennial Statements and LLCs reserving a name.

Assembly Bill 9969, effective November 21, 2022, amends the Not-for-Profit Corporation Law regarding action by members and by directors without a meeting; filling director vacancies; and director quorums. 

Pennsylvania

House Bill 2057, generally effective January 3, 2023, extensively amends the entity laws including, but not limited to, authorization for ratification of defective entity actions; authorization for forum selection clauses in charters; various amendments concerning director and officer standards of care; LLC members and managers standard of conduct; officer and director meetings; shareholder consents to action; non-stock corporations; statutory close corporations; registered foreign corporations; benefit corporations and nonprofit corporations; repeal of the Decennial Report and nonprofit Annual Report requirements; and, effective one year after the effective date of the bill, enactment of a new Annual Report requirement for all entities. 

Rhode Island

House Bill 7753 and Senate Bill 2813, effective January 1, 2023, enact a new Uniform Partnership Law including governance of LLPs. The new law requires all LLPs to designate a registered agent (formerly, not required if the LLP’s principal office was located in Rhode Island) and the new law imposes a new Annual Report requirement for LLPs that will be due on or before May 1.

House Bill 7603 and Senate Bill 2812, effective January 1, 2023, enact a new Uniform Limited Partnership Law which would apply as follows: (a) one year after the effective date, to all LPs and (b) after the effective date but before one year thereafter, to LPs formed after the effective date and those formed before the effective date which elect to be governed by the new law, in each case with the applicability of certain Sections being subject to special provisions. The new law contains new provisions concerning Annual Reports, foreign name reservation, interest exchanges, domestication, reinstatements, tax clearances, and LLLPs, among other changes.

Senate Bill 2645 and House Bill 8001 effective January 1, 2023, amend the Commercial Law - General Regulatory Provisions title by authorizing electronic filing of assumed names by individuals and partnerships.

Tennessee

House Bill 2645, effective April 20, 2022, allows an LLC to be formed as a decentralized organization. The articles of organization must contain a statement that it is a decentralized organization and set forth a notice on restrictions on duties and transfers. 

Senate Bill 1935, effective April 8, 2022, amends provisions relating to the certification of certain documents filed by certain nonprofits with the Department of State. 

Senate Bill 1660, effective March 18, 2022, provides that directors, trustees or members of the governing bodies of nonprofit corporations, associations, and organizations that are exempt from federal income taxation under § 501(c)(19) of the Internal Revenue Code shall be immune from suits arising from the conduct of the nonprofit’s affairs as long as the conduct at issue does not amount to willful, wanton, or gross negligence. 

Senate Bill 1931, effective July 1, 2022, permits a nonprofit corporation to hold a meeting of members or proxy holders by means of remote communication. 

Texas

Hartman Income Reit, Inc. v. Mackenzie Blue Ridge Fund III, L.P., No. 01-20-00218, decided January 27, 2022. The Texas Court of Appeals held that the right to inspect a corporation’s shareholder list is an internal affair, and under the Business Organizations Code, a foreign corporation’s internal affairs are governed by the state of formation. Therefore the court held that the plaintiff, a shareholder in a Maryland corporation, did not have the right to inspect the shareholder list because it did not own 5% of the corporation’s shares as required under Maryland law. The court therefore reversed the trial court’s order granting the shareholder’s request to inspect.

G Force Framing LLC v. MacSouth Forest Prods, LLC, No. 05-20-00835, decided February 18, 2022. The Texas Court of Appeals held that a Texas LLC that was forfeited under the Tax Code for failing to pay its franchise tax was not a terminated entity under the Business Organizations Code (BOC). BOC provides that the Secretary of State can terminate an entity for failing to file a report or pay a fee when due or maintaining a registered agent or registered office, but not for failing to pay franchise taxes. Furthermore, the LLC did not have to be reinstated within three years of forfeiture. BOC has a three year time limit but the Tax Code does not. Therefore, the trial court erred in dismissing the LLC’s claims on the grounds it was terminated, not reinstated within three years, and its claims expired.

In re Estate of Poe, No. 20-0178, decided June 17, 2022. The Texas Supreme Court held that the probate court erred in submitting a question to the jury about whether an informal fiduciary duty existed that required the sole director to manage the corporation in the sole shareholder’s best interest. The court held that as a matter of law, a corporation's director cannot owe an informal duty to operate or manage the corporation in the best interest of or for the benefit of an individual shareholder. A director's fiduciary duty in the management of a corporation is solely for the benefit of the corporation.
Utah

Senate Bill 213, effective May 4, 2022, prohibits the use of “911” in the names of corporations, nonprofit corporations, professional corporations, LLPs, LPs, LLCs, and assumed names. 

Salt Lake City Laumalie Maonioni Free Wesleyan Church of Tonga v. Department of Commerce, No. 20200778, decided August 18, 2022. The Utah Court of Appeals affirmed the trial court’s dismissal of a nonprofit corporation’s petition for a determination that the Division of Corporations lacked the authority to revoke and rescind articles of amendment that had been filed by the Division. After filing the articles of amendment the corporation was involved in litigation in which the court found that the amendments were not properly approved and all actions taken after the attempted approval were invalid. Based on the court’s decision the Division revoked and rescinded the articles. The court noted that the Division’s role was purely ministerial and only the court could hold the articles of amendment invalid. Thus, the Division was required to give effect to the court’s ruling on the article of amendment’s validity and acted properly in rescinding the articles.

Virginia

House Bill 691, effective July 1, 2022, amends the Nonstock Corporation Act, Limited Liability Company Act, and Business Trust Act regarding the definitions of "entity conversion", "incorporation surrender," "organization surrender," and "trust surrender". 

House Bill 309, effective July 1, 2022, authorizes the State Corporation Commission to establish a process for online prepayment of annual registration fees whereby a domestic or foreign limited liability company may prepay its annual registration fees for two or three years.

Washington

Senate Bill 5489, effective June 9, 2022, amends the following: (A) the business corporation law regarding definitions; record dates of shareholders; special meetings of shareholders; list of shareholders; merger; share exchange; and shareholder dissenter rights; (B) the LP law regarding definitions; transactions with partners; distributions; partner transferable interests; conversion; and merger; and (C) the LLC law regarding professional services LLCs; admission of members; member voting; member dissociation; and conversion.

West Virginia

Senate Bill 6, effective June 10, 2022, amends the LLC law regarding member and manager liability. 

Wyoming

Senate Bill 68, effective March 9, 2022, amends the statutory provisions regulating decentralized autonomous organizations.

Sandra Feldman
Publications Attorney
Sandra (Sandy) Feldman has been with CT Corporation since 1985 and has been the Publications Attorney since 1988. Sandy stays on top of the most pressing and pertinent business entity law issues that impact CT customers of all sizes and segments.
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