On April 1, 2013, Governor Chris Christie signed into law a three-bill package designed to make New Jersey businesses more competitive in the global marketplace, attract new businesses to New Jersey, and make New Jersey law consistent with the laws of neighboring states. The package reached the Governor's desk after being unanimously approved by the Assembly and approved with only one contrary vote by the Senate.
The first bill (A-3049) amends the New Jersey Shareholders' Protection Act to clarify that all public corporations formed in New Jersey are subject to the protections of this Act, regardless of whether their principal executive offices or significant business operations are located in New Jersey. The bill includes a 90-day opt out provision for corporations that are currently not covered by the Act and wish to continue operating without these protections. It also allows corporations covered by the Act to participate in a merger or business combination with an interested shareholder so long as such transaction was approved by the corporation's board of directors prior to the stock acquisition date. An interested shareholder is generally a shareholder that owns 10 percent or more of the voting stock of the corporation.
Additionally, the bill allows subsequent business combinations between a corporation and an interested stockholder, provided the combination is approved by the board of directors or a committee of the board that is not affiliated or associated with the interested stockholder and by an affirmative vote of the holders of a majority of the voting stock not owned by the interested stockholder in question. This change brings the law more in line with current business practices, in which all subsequent transactions are approved at the time that the first business combination is approved.
Finally, the bill exempts any stockholder from the provisions of the Act who owns five percent or more of the outstanding voting stock of the corporation, provided that the corporation in question did not have its principal executive offices or significant business operations in New Jersey at the time of the enactment of this bill.
The second bill (A-3050) updates the New Jersey Business Corporation Act to allow shareholders of New Jersey corporations to participate in shareholder meetings by remote communication methods and clarifies remedies for dissenting shareholders. This Act previously did not allow for remote participation by shareholders, which goes against the common practices of many New Jersey corporations. The Act now has been amended to take into account advances in technology. A shareholder is now permitted to participate in a shareholders' meeting by means of remote communication to the extent that the board of directors authorizes such participation.
A shareholder participating in a shareholders' meeting by means of remote participation shall be deemed present and shall be entitled to vote at the meeting if the corporation has implemented reasonable measures to (i) verify that each person participating remotely is a shareholder and (ii) provide each shareholder with a reasonable opportunity to participate in the meeting and to read or hear the proceedings of the meeting substantially concurrently with those proceedings. This Act was also amended to provide that dissenter's rights are the exclusive remedy for dissatisfied shareholders in corporate mergers and corporate transactions. The exception to this new requirement is that a shareholder may bring an action if the corporation has not complied with Chapter 11 of Title 14A of the New Jersey Statutes when the corporation files for bankruptcy protection or if the corporation engaged in fraudulent or material misrepresentation, or deceptive means, in obtaining approval of such transactions.
The third bill (A-3123), which was endorsed by the New Jersey State Bar Association, significantly alters the law concerning shareholder derivative lawsuits, and now makes such suits more difficult to commence and prosecute. Among other provisions, the changes:
require shareholders – before filing suit – to submit a written demand that the corporation take action, wait to file suit until the demand is rejected or 90 days have passed (unless the corporation would suffer irreparable injury), and to show any rejection was in bad faith or not made by "independent directors;"
allow a suit to be dismissed if an independent director, majority of independent directors, board-appointed committee, a majority of all shareholders, or court-appointed panel determines the suit is not in the best interests of the corporation;
allow a corporation to move for dismissal on the grounds that its board is independent and acted in good faith, which motion will be granted unless the court finds otherwise or the shareholders rebut the corporation's supporting facts;
require all but certain limited discovery to be stayed during the pendency of a motion to dismiss;
require court approval before a suit is settled or discontinued;
require any shareholder holding less than five percent of the corporation's shares, or shares with a market value less than $250,000, to post security for a possible fee award (the first increase in this threshold in 45 years); and
require corporations to amend their certificates of incorporation to make these changes applicable to them.
For more information about these new laws and how they may impact your business, please contact the authors or the Saul Ewing attorney with whom you regularly communicate.