Significant Legislation Affecting Business Passed by General Assembly

by Smith Anderson

At the end of last week, the North Carolina General Assembly passed significant legislation affecting the State’s business legal climate. With large bipartisan majorities, the Legislature adopted Senate Bill 853 (SB 853), which is intended to improve the predictability of litigation in the Business Court and empowers companies to efficiently change their corporate structure creating new financing and disposition options. Senate Bill 648 (SB 648), which contains the “Abusive Patent Assertions Act,” makes the State a path breaking national leader in protecting the intellectual property of the innovation community against frivolous attacks by “Patent Trolls.” Similarly, the bill places North Carolina in a leadership position by empowering companies to better manage their litigation risks by enabling them to specify the State as the forum for certain disputes.

Our previous Client Alert of July 10, addressed that both of these bills were close to passing. This update addresses the final content of both bills, which the Governor is expected to sign soon. The bills should have a significant positive impact on the State’s business climate.

SB 853 “The Business Court Modernization Act”

Modernizing the Business Court

Legislators addressed the need to clarify issues around Business Court jurisdiction. For example, formerly, “internet” cases were within the Court’s jurisdiction. The term “internet” was not defined in the statute and raised concerns that cases that did not require special Business Court expertise could be filed in the Business Court. Disputes regarding the “internet” alone will not qualify for Business Court jurisdiction under the new legislation; the dispute would also need to involve other covered matters such as technology licensing issues. The legislation makes a number of other adjustments including giving the Business Court jurisdiction over certain high value contract disputes.

SB 853 also establishes direct appeal for Business Court cases to the Supreme Court. Now, instead of an appeal first being heard by a randomly assigned three-judge panel of the Court of Appeals, litigants can seek review directly to the Supreme Court, with review by the full panel of seven justices. This procedure is expected to expedite resolution of business disputes and add predictability to decisions involving important business issues.

Separately, in the Budget Bill, the General Assembly provided for two more Business Court judges in 2015.

Simplifying Holding Company Reorganizations

A holding company reorganization is a transaction whereby a new parent corporation (the holding company) becomes the sole shareholder of an existing corporation (the constituent corporation) either through a merger or a share exchange. Following a holding company reorganization, the shareholders of the constituent corporation become the shareholders of the holding company, and the directors of the constituent corporation become (or remain) the directors of the holding company. Holding company structures are employed for a variety of reasons, including segregating the liabilities of separate lines of business, allowing for structured leverage, and facilitating dispositions of assets. Holding company structures are often used by publicly-traded companies, particularly ones in heavily regulated industries.

Historically, in North Carolina, an existing operating company has been required to engage in either a merger or a share exchange transaction that would require a shareholder vote and, with respect to nonpublic corporations, generally trigger statutory appraisal rights. A number of states, led by Delaware, have enacted statutes that permit holding company reorganizations without shareholder approval and without appraisal rights. New Section 55-11-11 of the North Carolina Business Corporation Act (the Holding Company Statute) is modeled on Delaware’s holding company statute, and will allow holding company reorganizations in North Carolina without shareholder approval or appraisal rights, if certain statutory requirements are satisfied. The requirements protect shareholders of the constituent corporation so that they have substantially identical ownership and rights in the holding company following the merger.

The Holding Company Statute will reduce the cost and time required by North Carolina corporations to form a holding company by removing the requirement for a shareholder vote, eliminating appraisal rights in connection with the holding company reorganization and facilitating compliance with federal securities laws and regulations. Corporations that desire to adopt a holding company structure should carefully consider availing themselves of the benefits of this law.

SB 648 North Carolina Commerce Protection Act of 2014

Abusive Patent Assertions Act

Nationally, there is significant attention to the negative effects of “patent trolls” on the American economy and innovation. A “patent troll” does not research, develop technology or products related to its patents, or perform any technology transfer function. Instead, patent trolls acquire patents solely for the purpose of obtaining licensing fees from alleged infringers. Patent trolls often employ aggressive litigation tactics in the hopes that a target will pay a licensing fee rather than undertake expensive litigation. 

With this legislation, our General Assembly sent a clear message, i.e., a patent troll threatens a North Carolina business at its own peril. The bill gives jurisdiction to a North Carolina court over any person or entity that sends a patent infringement demand letter to a North Carolina company, and empowers the North Carolina company to sue a troll in North Carolina, if the troll makes an unfair patent demand or files an unfair lawsuit anywhere against the North Carolina company. If the demand is found to be in bad faith, the bill provides for equitable relief, monetary damages, costs and reasonable attorneys’ fees, as well as “exemplary damages” of either $50,000 or triple the total damages, costs and fees, whichever is greater. 

Perhaps most importantly, the law puts the individuals who control or direct the troll on the hook for their misconduct by enabling joinder of an “interested party,” i.e., a controlling stakeholder in the patent troll itself. Subject to the court making certain legal findings, if the defendant troll isn’t able to pay an award, the court could hold the interested parties jointly and severally liable and make them pay. That potential exposure to liability could provide a healthy deterrent to meritless litigation. This legislation makes North Carolina a path breaking national leader in protecting those who innovate and build our future. 

Risk Management through Exclusive Venue Provisions

In another first-of-its-kind law, North Carolina now expressly confirms a corporation’s right to designate North Carolina as the exclusive forum for internal corporate litigation. The law creates a new section of the Business Corporations Act (§ 55-7-50) stating: “A provision in the articles of incorporation or bylaws of a corporation that specifies a forum or venue in North Carolina as the exclusive forum or venue for litigation relating to the internal affairs of the corporation shall be valid and enforceable.” For example, a company could require shareholder derivative actions, cases alleging a breach of fiduciary duty by the company's directors, and cases arising under the Business Corporation Act to be brought in North Carolina state court (where the North Carolina Business Court would have jurisdiction) or federal court in North Carolina.

Such a provision avoids the substantial expense of fighting shareholder litigation in multiple states simultaneously and ensures that internal corporate litigation is handled by a court familiar with the governing law and is convenient for the company and employees. Absent an enabling statute, however, such provisions have been challenged in litigation. By enacting this law, the General Assembly will provide certainty to North Carolina companies and give them a valuable tool to manage risks associated with internal corporate disputes. The law also puts North Carolina in a leadership position on this issue.


In debate on the bills, legislators were clear that they hope these changes will improve North Carolina’s business legal climate, such that businesses and shareholders can feel confident incorporating in North Carolina (as opposed to another state such as Delaware) and having their legal matters resolved by North Carolina courts. Similarly, the Anti-Patent Troll legislation will make North Carolina a better location for those working on the innovations that create jobs and our State’s future.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Smith Anderson | Attorney Advertising

Written by:

Smith Anderson

Smith Anderson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.