• Gov. Christie Signs Legislation Amending NJ Business Corporation Act
  • April 9, 2013 | Authors: Ronald H. Janis; Michael T. Rave
  • Law Firms: Day Pitney LLP - New York Office ; Day Pitney LLP - Parsippany Office
  • On April 1, Gov. Chris Christie signed legislation amending the New Jersey Business Corporation Act. The legislation was drafted by the New Jersey Corporate and Business Law Study Commission. [1] As discussed in more detail below, certain New Jersey corporations must take action by June 30 if they wish to opt out of the New Jersey Shareholders' Protection Act.

    The legislation:

    • Creates a new section regarding shareholder derivative litigation that, if adopted in the certificate of incorporation, allows independent board members greater flexibility to move to dismiss litigation they deem is not in the best interests of the corporation and implements fee shifting and other provisions in the context of derivative and shareholder class action proceedings.
    • Amends the Shareholders' Protection Act (the SPA) to make all publicly traded New Jersey corporations subject to the SPA and to allow certain business transactions to take place that previously would have been prohibited under the SPA, if the requisite approvals are obtained. [2]
    • Amends the dissenters' rights section to provide that such section is the exclusive remedy absent fraud or material misrepresentation.
    • Allows remote participation by shareholders in annual or special shareholders' meetings.

    For a full discussion of the amendments, please see the Day Pitney LLP alert dated February 19, which can be found here.

    Shareholders' Protection Act -- Immediate Action May Be Necessary

    The Shareholders' Protection Act was amended to be applicable to all New Jersey corporations. Previously, it was applicable only to those New Jersey corporations that had principal executive offices or "significant business operations" in New Jersey. However, the amendment provides an opt out for those corporations that were not previously subject to the SPA but will be as a result of the amendments, i.e., those corporations that do not have principal executive offices or "significant business operations" in New Jersey. For these newly covered New Jersey corporations, the amendments provide an opt-out period of 90 days from the date of enactment, or by June 30. The board of directors of a newly covered corporation that wishes to opt out must amend its bylaws before June 30 to specifically provide that the corporation is not subject to the SPA.

    Any newly covered New Jersey corporation that does not opt out should note in its records the identity of any 5 percent stockholder as of 180 days after enactment. The amendment to the SPA exempts such stockholders from the SPA's limitations on business combinations with an interested stockholder of a newly covered corporation.

    This exemption makes it important for each publicly traded New Jersey corporation to determine and document whether it is newly covered - in other words, whether its executive offices are in New Jersey or it had significant business operations in New Jersey as of June 30.

    Other Action Items

    Management and the boards of directors of New Jersey corporations should consider the following potential action items in response to these amendments:

    • Consider the new statute governing shareholder derivative and class actions and determine whether to opt in to coverage under that statute. If the decision is made to opt in, the corporation's certificate of incorporation will need to be amended, which will necessitate shareholder approval.
    • Consider the advisability of permitting participation in shareholders' meetings by means of remote communication, including the feasibility, logistics and implications of implementation of remote participation. Adopt any bylaw amendments or board resolutions that may be needed to authorize remote participation.

    [1] Michael T. Rave is chairman of the commission; Ronald H. Janis is attorney to the commission; Ellen S. Knarr is secretary to the commission.

    [2] The SPA applies to a corporation only at a time when it has a class of voting stock that is registered with the SEC or traded on a national securities exchange.