- Changes to Shareholder Majority Written Consents - Effective 05.10.11
- June 15, 2011
- Law Firm: Parr Brown Gee Loveless A Professional Corporation - Salt Lake City Office
A Change in the Utah Corporations Act Regarding Majority Written Consents
The Utah legislature recently passed Senate Bill 95, which went into effect May 10, 2011 and amended Section 704 of the Utah Revised Business Corporation Act relating to shareholder majority written consents to corporate actions taken without a meeting. Under the old version of Section 704, if a corporation’s shareholders approved a resolution by majority (not unanimous) written consent, the corporation was required to provide notice of the action to non-consenting shareholders 10 days prior to the corporation taking the approved action. This 10-day notice period frequently creates delays in closing significant investment and exit transactions. Under the amended version of Section 704, a corporation may amend its bylaws to permit the shareholders to approve a resolution by majority written consent to be effective immediately, as long as the corporation provides notice of the majority written consent to non-consenting shareholders within 10 days after the signing of the consent by the holders in a majority of the shares eligible to vote. We believe that many private Utah corporations would benefit from adopting amendments to their bylaws to include language permitting majority written consents to become effective prior to the mailing of notice to non-consenting shareholders.
The Need to Amend Bylaws to be Able to Rely on the New Provision
The provisions of revised Section 704 permitting actions by majority written consent to become effective immediately do not automatically apply to Utah corporations. Corporations must adopt amendments to their bylaws in order to opt in to the new provisions. In order to opt in, a corporation needs to replace the Action Without a Meeting section (or similar section) of its bylaws with language similar to the following:
Action Without a Meeting. Any action required or permitted to be taken at a meeting of the shareholders, other than the election of directors, may be taken without a meeting and without prior notice if one or more consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Such written consent (which may be signed in counterparts) shall have the same force and effect as a unanimous vote of the shareholders and may be stated as such in any articles or document filed with the Utah Department of Commerce, Division of Corporations and Commercial Code or other governmental agency. If the written consents of all shareholders entitled to vote are not obtained, the corporation shall give written notice of shareholder approval of an action without a meeting not more than ten (10) days following the later of the day on which (i) the written consents sufficient to take the action are delivered to the corporation, or (ii) the tabulation of the written consents is completed. Such notice shall be given to a shareholder who (i) would be entitled to notice of a meeting at which the action could be taken, (ii) would be entitled to vote if the action were taken at a meeting, and (iii) did not consent in writing to the action. The foregoing notice shall contain or be accompanied by the same material that would have been required under the Act to be sent in a notice of meeting at which the proposed action would have been submitted to the shareholders for action.