Tuesday, January 10, 2017

It's Here! The 2016 Revision of the Model Business Corporation Act . . . .

    If you haven't yet heard, the 2016 revision of the Model Business Corporation Act has been released.  A memorandum from the Corporate Laws Committee describes the evolution of the recent revision:

    Sixty-six years ago the Committee on Corporate Laws of the ABA’s Business Law Section (the Committee) published the Model Business Corporation Act (the Act or the Model Act). Now substantially adopted by a majority of the States, the Act has strongly influenced the law governing U.S. corporations. Like corporate law, however, the Act has not been static: the Committee approved a substantial revision of the Act in 1969, less than 20 years after its initial publication; and just 15 years later, in 1984, the Committee adopted what was then called the Revised Model Business Corporation Act, a top to bottom revision of the original Act.

    Through periodic amendments, the Act has continued to evolve in significant ways since 1984, as further described below. Until recently, however, the Committee has not undertaken a comprehensive revision of the Act in a form that could be adopted by state legislatures as a means to capture all of the changes to the Act since 1984. Nor has there been any systematic attempt to revise the Act to eliminate inconsistent terminology and adjust provisions that have become outdated over the more than three decades since the 1984 Revision.

    Accordingly, since 2010, under the leadership of Karl John Ege and A. Gilchrist Sparks III, as its chairs, the Committee, now formally known as the "Corporate Laws Committee,” has undertaken a thorough review and revision of the Act and its Official Comment . . . .

The memorandum describes some of the notable recent changes to the MBCA:

• Adoption of a new subchapter E of chapter 1 of the Act, permitting the ratification of defective corporate actions, including actions in connection with the issuance of shares.

• Amendments to sections 2.02 and 8.70 (and related changes to sections 1.43, 8.31 and 8.60) that permit corporations to include in their articles of incorporation a provision that limits or eliminates a director’s or an officer’s duty to present a business opportunity to the corporation.

• The addition of section 2.08, permitting the articles of incorporation or the bylaws to specify the forum or forums for litigation of internal corporate claims.

• Amendments to section 8.02 clarifying the scope and operation of qualifications for nomination and election as directors.

• Amendments to sections 8.53 and 8.54 that eliminate the requirement that a director or officer seeking advancement of expenses provide a written affirmation that he or she has met the applicable standards for indemnification under the Act, or, in the case of a director, that the proceeding involves conduct for which liability has been eliminated under the articles of incorporation.

• Amendments to section 11.04 and certain provisions in chapter 13, permitting the merger of corporations without a shareholder vote following a tender offer, if certain conditions are met.

• Amendments to section 16.20 and to certain other sections of chapter 16 that address, among other things, the obligations of corporations to make financial statements available to shareholders, the maintenance of corporate records, and the inspection rights of shareholders and directors of corporations.

Other changes are described in the memorandum, which can be accessed at http://www.americanbar.org/content/dam/aba/administrative/business_law/corplaws/memo_2016_mbca.authcheckdam.pdf.

    At least to me, one unfortunate development of the revisions is a serious shortening of many of the Official Comments.  I find the comments to be very helpful, so cutting out material is worrisome.  I need to look a little closer, but in some cases, it appears that useful examples have been deleted.  The memorandum states the following:

    The Committee proposes to extensively revise the Official Comment to the Act so that it functions solely as a guide to interpretation of the statutory black letter provisions. Thus, the Committee proposes to:

• Eliminate language in the Official Comment that merely restates operative statutory language.

• Eliminate comparisons with prior versions of the Act or with state corporation statutes. (It is expected, however, that such comparative material will be included in the next edition of or supplement to the Model Business Corporation Act Annotated).

• Eliminate discussion of case law and law review articles. (Although again, it is expected that such material will be included in the next edition of or supplement to the Model Business Corporation Act Annotated).

In summary, the wait is over, and your New Year's gift is here.  The 2016 MBCA revisions have arrived!


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I agree that the shortening of the comments is unfortunate, particularly the elimination of comparisons with prior versions of the Act or with state corporation statutes, as well as the elimination of discussion of case law. It is unclear to me precisely how these deletions improve the comments as a guide to interpretation.

Posted by: Stefan Padfield | Jan 15, 2017 9:55:11 AM

I'm with you Stefan. The memo indicates that comparative material and case law may show up in the next annotated MBCA, but it looks like the shorter comments are here to stay.

Posted by: Douglas Moll | Jan 15, 2017 10:49:23 AM

I agree that this is an unfortunate change--regarding the abbreviated comments. They always have been very valuable to orient practitioners--new and experienced alike. And thanks for posting on this, Doug. So useful to so many . . . .

Posted by: joanheminway | Mar 17, 2018 8:17:42 AM

Have any states adopted this new version or started the adoption process? Any thoughts on states doing so?

Posted by: Constantine | Aug 14, 2018 8:25:01 AM

Thanks for your comment Constantine. Unfortunately, I haven't tracked this. If you are interested, you might contact the ABA Corporate Laws Committee and ask. A link to the committee's page is here: https://apps.americanbar.org/dch/committee.cfm?com=cl270000

Posted by: Doug | Aug 19, 2018 8:15:53 PM

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