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.