The North Carolina General Assembly approved a number of changes to the North Carolina Business Corporation Act, Chapter 55 of the General Statutes (the “NCBCA”), which go into effect on January 1, 2014. The following provides a brief overview of these changes.
Delegation of Authority to Officers to Award Equity Compensation. Article 6 of the NCBCA is amended to clarify the authority of the board of directors to delegate to officers of the corporation the authority to issue equity in the company. Naturally, the board may limit this authority at its discretion.
Remote Participation in Meetings. § 55-7-08 of the NCBCA has been repealed and replaced with § 55-7-09 to clarify the ways in which shareholder meetings may be conducted by electronic or other means of remote communication. Under the amended NCBCA, the board of directors may limit participation by remote communication to certain classes or series of shareholders. However, the amended NCBCA does not allow the board to limit such participation to particular shareholders within a class or series. Further, the amended NCBCA now requires the corporation to implement reasonable measures to (i) verify that each person participating via remote communication is a shareholder and (ii) provide shareholders a reasonable opportunity to participate in the meeting via remote communication and to vote on matters submitted to the shareholders. Despite these changes, corporations must still hold shareholder meetings at a physical location.
Force-the-Vote Provisions. Force-the-vote provisions require the board of directors to submit a matter for shareholder approval even if the board later determines that it no longer believes the matter is in the best interests of the shareholders. § 55-8-26 of the amended NCBCA makes clear that ‘force-the-vote” provisions are valid and enforceable.
Short-Form Mergers. Under the current NCBCA, a corporation may merge with another corporation only upon the approval of the boards and shareholders of each. § 55-11-04 of the amended NCBCA, however, provides that, where a parent company owns at least 90% of each class of stock of a subsidiary, a merger may take place with only the approval of the board and shareholders of the parent company.
Definition of “Substantially All.” Generally, shareholder approval is necessary for sales of “all or substantially all” of the assets of the corporation outside the ordinary course of business. However, the term “substantially all” is not defined by the current NCBCA, sometimes leaving corporations to wonder whether shareholder approval is actually required prior to a sale. Under the amended NCBCA, a sale in which the corporation retains a continuing business that accounts for at least 25% of total assets and at least 25% of either income from continuing operations before taxes or revenues from continuing operations is conclusively deemed to be a sale of less than “all or substantially all” of the assets and therefore would not require shareholder approval. The amendment creates a safe harbor, providing corporations with a bright-line test and removing the previous uncertainty.