Massachusetts Business Corporations Act
The Massachusetts Business Corporation Act (the “Act”) is codified at Massachusetts General Laws, Chapter 156D. It sets forth the rules and regulations for corporations and applies to all Massachusetts business corporations governed by G.L. C156B, Foreign Corporations under G.L. C181, and Professional Corporations under G.L. C156A.
The Act, which became effective in 2004 governs some of the following aspects of these corporate entities:
Key Changes to the Massachusetts Business Corporations Act
Some of the key changes between the previous law and the ‘new’ Massachusetts Business Corporations Act include the following:
- Conversion: the ‘new’ Massachusetts Business Corporations Act establishes a procedure to directly convert the corporation into a completely different form without the need to merge it into a different entity. The new conversion procedure requires the corporation to adopt a plan of conversion subject to shareholder approval by a two-thirds vote.
- Domestication: the ‘new’ Massachusetts Business Corporations Act establishes a procedure to change a corporation’s state of domicile-to Massachusetts or to another state that establishes the same procedure.
- Corporate Records Keeping: Sections 16.01, 16.02 and 16.05 set forth the statutory guidelines for corporate records keeping and inspection by shareholders and directors. The ‘new’ Massachusetts Business Corporations Act provides detailed requirements for corporate records maintenance, expands shareholders’ and directors’ rights to inspect corporate records and books to include:
- Corporation’s accounting / financial records and statements and, if the entity is subject to audit, the corporation’s audited financial statements and supporting records; and
- Complete corporate minute book and corporate filings.
- Doing Business in the Commonwealth of Massachusetts: Some out-of-state / foreign corporations are not required to register with the Secretary of the Commonwealth if certain criteria are met.
- First, those that must register include but are not limited to any business that:
- purchases or leases real estate in the Commonwealth;
- engages in the construction or repair of any structure, railway or road located in the Commonwealth; and/or
- engages in any activity that requires the performance of labor in the Commonwealth.
- Second (and this list is not complete), some businesses that are not required to register are those that solely sell through independent contractors in the Commonwealth and those that conduct only an isolated transaction that is not in the course of repeated transactions of like nature. Nonetheless, any business that desires to or is conducting business in the Commonwealth of Massachusetts should contact an attorney to determine whether the business must register with the Secretary of the Commonwealth.
- Amendments & Restatements of Articles:
- The ‘new’ Massachusetts Business Corporations Act permits amendments to the Articles solely by a vote of the director for the following ministerial matters / circumstances:
- Where the corporation has not yet issued any shares. In this circumstance, the incorporator(s) may also amend the Articles;
- Where a corporation had a limited duration (a dissolution date was set in the Articles), that duration or corporate lifespan may be amended by directors-only vote;
- Where a corporation has only one class of shares outstanding, the Articles may be amended by a directors-only vote: (1) to increase each share equally, or (2) to increase the number of authorized shares for the purpose of a share dividend;
- Change a corporation’s geographical designation;
- Change a corporation’s corporate suffix;
- Where a corporation has acquired / bought back a portion of its own shares but the Articles prohibit the reissuance of those shares, a directors-only vote is permitted to reduce the quantity of authorized shares;
- Where a corporation has acquired / bought back all the shares of a particular class or series and the Articles prohibit the reissuance of those shares OR where a corporation has converted all the shares of a particular class or series into other securities and the articles prohibit the reissuance of those shares, then a directors-only vote is permitted to delete that class or series of shares.
- Restated Articles supersede the original Articles.
- Amendment of Bylaws: Bylaws may only be amended by the shareholders unless amended by the directors is permitted pursuant to the Articles.
- Shareholder Meetings:
- Deadlocks: The threat of court ordered dissolution was the only means to resolve a deadlock that prevented a stockholder’s meeting from being held. However, the ‘new’ Massachusetts Business Corporations Act provides that a stockholder may obtain a specific court order requiring that the stockholder meeting be held. The ‘new” Massachusetts Business Corporations Act also sets forth specific court remedies for other corporate failures of a ministerial nature;
- Majority Consents: In lieu of a shareholder meeting, a majority consent may be signed. However, the following pre-requisites must be met:
- the Articles must expressly permit it;each signature must bear the date of signing;all majority consents must be delivered for filing in the corporate minute book within 60 days of first signature; andall non-consenting shareholders must receive at least seven (7) to sixty (60) days prior notice of the majority consent.
- Remote Shareholders’ Meetings: Sections 7.08 and 7.20 allow remote shareholder meetings but require the shareholders list to be made available electronically for any meeting that is to be convened only by remote communication. “If the meeting is to be held solely by means of remote communication, the list shall be made available on an electronic network.” Shareholders may seek Court intervention to enforce the shareholders’ inspection right.
- Proxies: Section 7.22 identifies the duration of proxies and outlines the circumstances when a proxy may be deemed coupled with an interest and therefore irrevocable.
- “Appointments coupled with an interest include, without limitation, the appointment of: (1) a secured party; (2) a person who purchased or agreed to purchase the shares; (3) a creditor of the corporation who extended it credit under terms requiring the appointment; (4) an employee of the corporation whose employment contract requires the appointment; or (5) a party to a voting agreement created under section 7.31.”An appointment made irrevocable under 7.22(d) is revoked when the interest with which it is coupled is extinguished.
- Board of Directors:
- The number of directors may now vary instead of being fixed; and
- Unanimous consents may be delivered electronically instead of an in-person meeting;
- The ‘new’ Massachusetts Business Corporations Act also:
- provides for the creation and operation of committees;
- defines ‘conflict of interest’ for a director;
- establishes the procedure for a director to disclose a conflict of interest to the board and obtain a waiver of the conflict of interest; and
- Codifies rules for corporate loans to directors.
- Ultra Vires: Section 3.04 of M.G.L. ch.156D defines three proceedings in which a corporation’s authority to act may be challenged: (1) by a shareholder against the corporation to enjoin the act, (2) by the corporation against an officer, director, agent, etc. and (3) by judicial dissolution.
- Share Exchanges: Section 11.03 of the ‘new’ Massachusetts Business Corporations Act allows for share exchange. This is a new process where a corporation may exchange its shares for the shares / securities, interests, obligations, rights to acquire shares or other securities, cash or other property, or any combination of these of an acquiring corporation, pursuant to a plan of share exchange. This eliminates the need for shareholder approval if the following apply: (1) the corporation will survive the acquisition / merger, (2) the Articles remain unchanged except for amendments which also do not require shareholder approval, (3) all shareholders of the surviving corporation hold the same number of shares with the same preferences, rights, etc. immediately following the exchange / acquisition / merger, (4) and the number of shares (of the surviving corporation) to be issued pursuant to the share exchange / acquisition / merger does not exceed 20% of the existing shares.
- Dissenting and Appraisal Rights: Sections 13.02, 13.20 and 13.22 deal with appraisal rights, notice, and form. “A shareholder is entitled to appraisal rights, and obtain payment of the fair value of his shares in the event of, any of the following corporate or other actions” and then the statute lists those ‘events’ in detail. Further, the ‘new’ Massachusetts Business Corporations Act sets forth a process for shareholders to dissent, obtain appraisal and receive a “fair value” payment for their shares.
- Newly Defined Terms:
- “Organic Law,” meaning the rules governing the internal affairs of an entity (distinguished as either “Private,” i.e. bylaws, “Public,” i.e. articles, etc.), appears frequently in Chapter 156D.
- “Secretary” replaces Clerk, but “Articles” (not “Certificate,” as in Delaware) remain the primary filing document in Chapter 156D.
- “Notice” gets an entirely new section that applies to all notices to be given under the act.