By Jim Roche
Although it has not been in the spotlight, there is an important pro-business, pro-jobs bill making its way through the New Hampshire Legislature. SB 41 revises and updates the New Hampshire Corporations Act. The bill, sponsored by Sen. Jeb Bradley, R-District 3, is truly a bipartisan effort, with Democratic and Republican co-sponsors, and it complements the Business and Industry Association’s work last session to modernize New Hampshire’s LLC act.
Like many states, New Hampshire’s current business corporation act is based on model act language provided by the American Bar Association. New Hampshire first adopted its version of the act in 1992 and it became effective on Jan. 1, 1993. The act outlines how corporations in New Hampshire are formed, governed and dissolved. At the time, it was seen as a comprehensive and progressive business corporation statute. In the years since, however, businesses and the laws governing business corporations have changed significantly. Technological change has revolutionized communications, business customs have evolved and experience with contentious issues has led to smarter ways of resolving them. Every New England state except Rhode Island has recognized this and already updated their respective business corporation acts.
The ABA’s Committee on Corporate Laws continuously monitors these developments and regularly amends or makes additions to the model act. It is important for states like New Hampshire, which bases its state law on the model act, to monitor the committee’s proposed changes and periodically update its statute.
Most of the changes in SB 41 are updates to concepts that already exist in the current statute, with the changes reflecting current methods of doing business and best practices. For example, the revisions in SB 41 allow for delivery of documents to the New Hampshire Secretary of State by electronic transmission if and only to the extent permitted by the Secretary. It also expressly authorizes remote participation by shareholders at a shareholder meeting, simplifies the process for out-of-state corporations to domicile in New Hampshire and expands the ability for entities to convert to corporations.
Changes in SB 41 also reflect a greater deference to freedom of contract principles. For example, it allows for a corporation to include language in its articles of incorporation that limit the kind and amount of consideration due in connection with the issuance of shares and allows the corporation to set the terms of any option or limit a shareholder’s right to dissent.
SB 41 also clarifies a number of issues with our current, outdated statute. For example, the bill clarifies provisions regarding director conflict of interest and creates more certainty with regard to how these issues are resolved. It provides a mechanism to require members of the board to bring business opportunities to the corporation, a method for addressing these issues and clarification of what constitutes the assets in a transaction where shareholder approval is needed to approve the transaction.
So why is all this important? The answer is that corporations consider carefully the state in which to incorporate. Many larger corporations choose Delaware because of the flexibility of its corporation act, which is largely governed by centuries of Delaware Chancery Court case law. But smaller corporations, family owned or closely held corporations, will seek out states that have current, updated and flexible acts. New Hampshire was one of those states in the early 1990s but has lost that advantage. With the passage of SB 41, New Hampshire will once again be in a position to attract new corporations. This is not only a good way to grow our state’s economy, but also a way to put New Hampshire citizens back to work.