An Overview of the Proposed Colorado Business Corporation Act
| Publication year | 1991 |
| Pages | 2045 |
| Citation | Vol. 10 No. 1991 Pg. 2045 |
1991, October, Pg. 2045. An Overview of the Proposed Colorado Business Corporation Act
The proposed Colorado Business Corporation Act ("Act") is the culmination of a three-year effort by the Colorado Corporation Code Revision Committee ("Committee") to adapt the Revised Model Business Corporation Act ("Revised Model Act") for enactment in Colorado as a replacement to the existing Corporation Code ("Code"). The Committee is a standing committee of the Colorado Bar Association ("CBA") Business Law Section and has been watching over the state's corporate laws since the Committee's formation in 1954.
The Act initially was approved by the CBA as Bar-sponsored legislation in September 1990 and was introduced as Senate Bill 91-106 in the 1991 General Assembly. In that first consideration by the legislature, the Act was postponed indefinitely. The Committee was told that this occurred primarily because the Act had not been given wide exposure to the Colorado business community. In addition, a few specific questions were raised about some of the Act's provisions. The Committee considered these comments and made a number of amendments as a result. These amendments were approved by the CBA Board of Governors in July 1991, and the legislation as a whole was reapproved by the Board of Governors for sponsorship in the 1992 session. In the meantime, the Committee has worked to provide the wider exposure that the legislature suggested.
Colorado has been a "Model Act State" since the 1958 enactment of the Code, which is based on the Model Business Corporation Act ("Model Act"). With the promulgation of the Revised Model Act in 1984, it was logical for the Committee to consider its enactment in Colorado. As an explanation for its efforts in promulgating the Revised Model Act, the ABA Section on Corporate Laws reported that its revisors had originally planned a fairly modest revision aimed at reordering the Model Act's provisions, increasing the uniformity of its expressions and reviewing provisions that had not been changed since the Model Act's debut in 1950. However, as the project progressed, the ABA committee added many substantive changes.
The Revised Model Act that emerged is "lawyer friendly" in a number of ways. It simplifies many requirements of corporate law, including, in particular, those governing corporate financial structure. It streamlines corporate filings. By reorganizing and clarifying many provisions and providing careful definitions of many terms, it makes it easier and quicker for lawyers to discern the content of the law and respond to their clients' requirements. For that matter, by making it easier on corporate lawyers, the new Act can be said to be "client friendly" as well. A number of these changes are noted in the discussion that follows.
The drafting efforts of the Committee, in turn, were founded on the Revised Model Act. However, the Committee made a number of changes to further uniformity of expression, as well as several substantive changes. In addition, some existing Code provisions were retained in more or less their present form, including, in particular, those governing derivative actions. This was necessary to obtain the CBA's sponsorship of the Act.
This revision of Colorado's basic corporate law can be viewed as just the current episode in an ongoing effort to assure both business lawyers and the business community that Colorado will strive to keep its basic corporate law up-to-date. If the business community were to view Colorado law as out of date, new businesses---even those that were intended to operate primarily or exclusively
in Colorado---would be incorporated under the laws of states that were perceived as being more responsive to changes in corporate legal concepts. That, in turn, eventually would lead to increased expenses for Colorado's local businesses as they dealt with the complexities of foreign incorporation and qualification. The CBA, through the Committee, has been mindful of that problem and has striven to keep Colorado's corporate law current.
Following is a brief summary of many of the Act's changes to Colorado's corporate law, listed primarily in the order in which they are found in the Act.
1. The filing and execution requirements for documents are contained in one part of the Act, rather than being scattered throughout, as is the case in the Code.(fn1)
2. The listing of corporate personnel who may sign documents that are delivered to the Secretary of State for filing has been expanded to include "any ... person authorized to execute the document."(fn2)
3. Incorporators need not be natural persons, thus permitting an expansion of the services that can be obtained from corporation service companies and making the formation of subsidiaries easier.(fn3)
4. The initial directors need not be named in the articles of incorporation. If initial directors are not named, the incorporator or incorporators may adopt initial bylaws and name the initial directors.(fn4)
5. The provisions governing the formal names and assumed names of both domestic and foreign corporations are refined to reduce conflict with the names of other entities.(fn5)
6. The Secretary of State will no longer be the registered agent for a domestic or foreign corporation that does not maintain its own registered agent. Service in such a case may be made by mail to the corporation's principal office.(fn6) An exception is made in the case of a corporation that has been dissolved by the Secretary of State or of a foreign corporation whose authority to transact business in Colorado has been revoked by the Secretary.(fn7)
7. The Act eliminates the concepts of par value, stated capital and capital surplus.(fn8) It substitutes a simpler and more meaningful method of determining a corporation's financial condition and ability to pay dividends and make other distributions. Under the Act, all distributions of funds with respect to a corporation's shares---whether as dividends, redemption, repurchase of shares or otherwise---are subject to the following two tests:(fn9)
a) Equity insolvency test: The corporation must be able, after giving effect to the distribution, to pay its debts as they become due in the usual course of business.
b) Balance sheet test: The corporation's total assets must not be less than the sum of its...
To continue reading
Request your trial