- August 10, 2017 | Authors: Christia A. Pritts; Lawrence D. Coppel; Andrew D. Bulgin; Marjorie A. Corwin; Peter B. Rosenwald; D. Robert Enten; David S. Musgrave; Robert A. Gaumont; Christopher R. Rahl; Bryan M. Mull; Chastity E.C. Threadcraft
- Law Firm: Gordon Feinblatt LLC - Baltimore Office
Chapter 674 makes a number of substantive and technical amendments to the Corporations and Associations (CA) and Courts and Judicial Proceedings (CJ) Articles. Among the substantive amendments, a new definition of “internal corporate claim” has been added to the CA Article. An “internal corporate claim” is defined as a claim brought by or in the right of a corporation that is based on an alleged breach of a duty owed to the corporation or the corporation’s stockholders by a director, officer, or stockholder. The amendments prohibit the charter or bylaws of a corporation with capital stock from requiring a stockholder who is a party to an internal corporate claim to pay the corporation’s legal fees or the legal fees of any other party, and permit the corporation’s bylaws to require, consistent with applicable jurisdictional requirements, that any internal corporate claim be filed only in courts sitting in one or more specified jurisdictions, provided that the charter or bylaws may not prohibit the filing of an internal corporate claim in a Maryland state or federal court. Under an amendment to the CJ Article, directors of a corporation (or trustee of a REIT), on or after October 1, 2017, will be deemed to have consented to service of process on a corporation’s (or REIT’s) resident agent, or SDAT if no resident agent is appointed, as to any proceeding filed in Maryland by or on behalf of a corporation or REIT as to which the director or trustee is a necessary or proper party, and as to an action against the director or trustee on an internal corporate claim. Most notably, the amendment provides that “deemed consent to service” applies regardless of whether the individual is a director or trustee when suit is filed.
Practice Point: This law applies to Maryland chartered financial institutions. As a result of the “deemed consent to service of process” provision, it will be important for Maryland financial institutions and other corporations to maintain contact information for their present and former directors and update that information on a regular basis.
These Acts establish a simplified process for the formation of a holding company through the merger of a Maryland parent corporation with or into a direct or indirect wholly-owned subsidiary corporation. Currently, parent holding corporations are typically formed through a process known as a share exchange, which (unless the charter provides otherwise) requires the affirmative vote of stockholders who hold at least two-thirds of all outstanding capital stock. Under Chapters 358 and 359, a stockholder vote will not be required if, among other conditions, the charter and bylaws of the new holding company will be identical in all material respects to the charter and bylaws of the merging corporation immediately prior to the merger. Finally, the Acts specify that a merger of a parent real estate investment trust with or into a single subsidiary real estate investment trust may be approved in the manner specified for corporations, provided that the merger otherwise conforms to statutory requirements.
This new law makes several changes to the Maryland Securities Act. One item of regulatory relief provided by this law is the elimination of the filing requirement applicable to some of the most common types of employer-adopted plans that permit the grant or sale of the employer’s securities (e.g., equity compensation plans, employee’s stock purchase plans, etc.). Under current law, an employer’s grant of awards and/or issuance of securities under these plans does not need to be registered under the Maryland Securities Act, provided the employer files a notice of its intent to grant awards and/or issue securities with the Maryland Securities Commissioner at least 30 days prior to the first grant or issuance and pays a $400 filing fee. This new law creates a self-executing exemption for these plans, meaning that no filing will be required, as long as no commission or other compensation will be paid to anyone in connection with securities issued under the plan and certain other conditions are satisfied.