NJ Assembly Passes Corporate Act Amendments in Response to Crisis
Corporate & Finance Alert
October 15, 2008
Pursuant to the proposed recommendations made by the New Jersey Corporate and Business Law Study Commission (the “Commission”), several bills were rushed to the floor due to economic anxiety caused by the crisis on Wall Street and are designed to streamline several aspects of corporate communication and governance that will make New Jersey more competitive with New York. Using the state of Delaware as a model, the New Jersey State Assembly (“Assembly”) on September 25, 2008, unanimously approved a package of bills designed to make New Jersey a more business friendly state. The package of bills still require Senate approval and if no amendments are suggested, the bills will be presented to the Governor to sign into law. Below is a summary of the corporate ramifications of each individual bill. Each bullet point represents a different bill and the effect such bill would have upon the corporate law in New Jersey.
- Officers of Corporation Would Have the Right to Grant Employees and Officers of Corporation Shares of Stock, Rights or Options
This particular bill recognizes that equity grants are an important part of the compensation schemes for New Jersey corporations and that it is burdensome to require the board or a committee to be involved with each individual equity grant. This bill recognizes that officers of the corporation are in a superior position to evaluate employee performance and rights to equity grants and such officers should be given the authority to provide employees with such equity compensation as well as cash compensation. This bill does place restrictions on the officers by allowing the board to determine the size of the overall equity pool available for grant and also prohibits officers from granting equity to themselves.
- Electronic Transmission Notice Allowed
This particular bill affects notice requirements under the New Jersey Business Corporation Act. Notice pertaining to any resolution of directors or shareholders, may now be provided by electronic transmission under this bill. This bill defines “electronic transmission” as any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient, and that may be directly reproduced in paper form by that recipient through an automated process.
- The Elimination of the 10 Day Waiting Periods for Certain Shareholder Actions
The 10 day waiting period for certain shareholder actions not concerning mergers and acquisition activity is eliminated by this bill. In New Jersey the 10 day waiting period has been blamed for inefficiencies in corporate transactions and also has delayed closings while the notice period ran. For example, this type of delay occurs when the certificate of incorporation is required to be amended in connection with a private placement of stock in order to increase the number of authorized shares or if the company desires to create a new class of stock.
- Director’s Notice of Resignation
This particular bill will allow a director to provide a notice of resignation to the corporation that shall be effective upon the occurrence of certain events. The Commission’s intent is to provide New Jersey corporations with more flexibility in adopting majority voting provisions, or other voting schemes, regarding the election of directors. For example, this bill would allow a director to provide a notice of resignation to the board that shall be effective if the director does not receive votes constituting a majority of shares voted at a shareholder’s meeting.
- One Hour and Two Hour Service Options for Expedited Over the Counter Corporate Service Requests
This bill would allow for one hour and two hour service options for expedited over-the-counter corporate service requests. Current law, expedited service is only available as a priority same day service. “Same day service” is defined under current regulation as “no later than 8.5 business hours from the time the request is received.”
- Elimination of Plurality Voting for Director Elections
A director is said to have received a plurality of votes when he or she receives more votes than any other candidate, despite the fact that the director did not receive a majority of the total votes made in a election. This particular bill would allow corporations to eliminate plurality voting for director elections in the by-laws of the corporation. Under current New Jersey law, a corporation can eliminate plurality voting for director elections only if that practice is allowed under the corporation’s certificate of incorporation. The bill would give New Jersey corporations more flexibility in accepting majority voting provisions, or other voting schemes, pertaining to the election of directors.
- Expansion of the Scope of Unincorporated Entities Permitted to Merge or Consolidate with Domestic Corporations)
This bill changes the definition of “foreign corporation” to provide that a foreign corporation means a corporation for profit organized under the laws of a jurisdiction other than New Jersey, including any state or territory of the United States or the District of Columbia, the United States or any foreign country or other foreign jurisdiction. The bill also changes the definition of “other business entity” to include all unincorporated entities created under any domestic or foreign jurisdiction. These definitional changes allow for more flexibility in the types of entities that a domestic corporation may merge with, including traditional partnerships and limited liability companies, as well as statutory trusts, business trusts or associations, real estate investment trusts, common-law trusts, national associations, or any other unincorporated business, subject to the requirement that the other entity comply with the laws of New Jersey.