69 CBJ 445. Connecticut Business Law 1994.

AuthorBy HENRY M. BECK, JR. (fn*)

Connecticut Bar Journal

Volume 69.

69 CBJ 445.

Connecticut Business Law 1994

Connecticut Business Law 1994A Tour Of A New Edifice, The Connecticut Business Corporation Act, And A Brief Survey Of The Business Law Landscape

By HENRY M. BECK, JR. (fn*)The biggest development in Connecticut Corporate Law in many years was the adoption in 1994 of a new Connecticut Business Corporation Act (the "CBCA") (fn1) based upon the Revised Model Business Corporation Act (fn2) (the "RMBCA") promulgated by the American Bar Association. When the CBCA becomes effective January 1, 1997 (fn3), it will replace the Connecticut Stock Corporation Act (the "CSCA") (fn4), which is based to a significant extent on an earlier version of the Model Business Corporation Act. (fn5)

It had been apparent to the Connecticut corporate bar for some time that the Connecticut statutes governing stock corporations were in need of an overhaul. (fn6) Thanks to the recent efforts of the Model Business Corporation Act Task Force of the Executive Committee of the Business Law Section of the Connecticut Bar Association (fn7) and a favorable political climate, Connecticut will shortly enjoy a modernized statute that will provide increased clarity, uniformity, predictability and flexibility to corporations organized here and assures that Connecticut's corporate law can contribute to vibrant economic growth rather than fostering an economic backwater.

The delayed effective date is worthy of special emphasis. The legislature has determined that the CBCA is to become effective at the beginning of 1997. The intent included permitting ample opportunity for the Secretary of State's Office and the business and legal communities to prepare for the change, providing time to amend the Connecticut Nonstock Corporation Act and other laws to bring them into harmony with the CBCA, and permitting technical amendments to the CBCA that broader public awareness might generate. (fn8)

This Article will not be a detailed discourse about the CBCA in its totality, but will rather be confined to a review of the highlights of the new law, noting a number of the material differences between the CBCA and the CSCA. judicial decisions reached in 1994 will be mentioned when they are relevant to the discussion of the CBCA, and other 1994 business law developments will be mentioned briefly by footnote. (fn9)

Public Act 94-186 contains, in addition to the CBCA, limited amnesty provisions for foreign corporations, foreign limited partnerships and foreign limited liability companies that have not properly qualified to do business in Connecticut.

Public Act 94-178 amends the Connecticut Uniform Securities Act. In addition to technical changes, it changes provisions applicable to open-end investment comanies and permits the Banking Commissioner to order restitution or disgorgement y an issuer or controlling person.

Judicial:

Rosenfeld v. The Metals Selling Corporation, 229 Conn. 771, 643 A.2d 1253 (1994). This case involves a dispute between two shareholders of sister closed corporations and contains interesting discussion of business judgment rule, derivative actions and director self-interest conflicts.

In re: Colonial Limited Partnership Litigation, 854 F. Supp. 64 (D. Conn. 1994). This case reviews statutes of limitation applicable to federal and state securities laws, provides guidance on information to be disclosed in private placement memoranda, and addresses the scope of RICO in securities law cases.

Durham v. Michael Kane Brick Co., 1994 WL 318936. This is a case involving a corporate officer seeking a PJR remedy to cover corporate indemnification obligations in a breach of duty dispute.

Fusco-Long Wharf Associates v. SNET Real Estate, 10 CTLR 581. This is a troublinig partnership law case where a partner was found to have breached a fiduciary duty when the partner did not guaranty a loan in order to force an additional capital contribution which would in turn force a dilution of the interest of another partner. The partnership agreement expressly provided that no guaranties would be required.

For other 1994 case citations and discussions see notes 7, 49, 52, 61, 71, and 91.

GENERAL PROVISIONS

As enacted, the CBCA contains 215 undifferentiated sections, which hopefully may be administratively grouped and indexed in a manner corresponding to the Chapters of the RMBCA when the Public Act is codified as part of the General Statutes. This Article will follow the RMBCA Chapter headings but all references will be to the sections of the Public Act. The Article The reader may assume that, as to particular matters not discussed, the new Act and existing law are substantially the same.

Subsection (a) of Section 3 of the CBCA duplicates the broad authority conveyed by CONN. GEN. STAT. Section 33-283 to conporations- to vary the requirements of corporate statutes by so providing in their certificates of incorporation (articles of incorporation under the CBCA) or byla w-s, unless a statute prohibits variation, contains numerical requirements or the public interest is adversely affected. Closely-held corporations can also rely on this broad license, but the broader rights given to them by Section 74 of the CBCA, discussed infra will make such reliance unnecessary.

Subsection (b) of CBCA Section 3 provides that an existing Connecticut Corporation may continue to be governed by provisions of its existing certificate of incorporation that are inconsistent with, contrary to or in addition to the new provisions of the CBCA. The provisions must be in effect on the effective date of the CBCA.

CBCA Section 4 sets forth basic filing requirements. The new law no longer requires two signatures on filed documents. Further, it goes beyond the RMBCA to anticipate electronic filing of documents if so authorized by the Secretary of State. (fn10) Hopefully, the corporate barA411 workAith the Secretary of State to assist in the early development of quick and simple procedures to exploit this cost and time saving opportunity.

Section 11 of the CBCA upgrades the certificate of legal existence ("good standing" certificate) issued by the Secretary of State from being prima facie evidence of legal existence under current law to conclusive evidence. (fn11) This provision will help parties that place reliance on such certificates in conducting corporate transactions.

CBCA Section 17 sets forth definitions for a number of key terms. However, Section 18 of the CBCA defines the term "notice" and changes the rule as to when notices are deemed received for purposes of the Act. The current law states that notices, which can be given by mail, are effective as of the date postmarked. The new law preserves this rule only for notices to shareholders. Otherwise, notice is effective as of the earlier of actual receipt, five days from the date of mailing, or the date shown on any return receipt. (fn12)

INCORPORATION

The CBCA does away with the requirement for the incorporators to hold an organizational meeting. If the initial directors are named in the certificate of incorporation, they may complete the organizational process. (fn13)

The Task Force of the Executive Committee of the Business Law Section of the Connecticut Bar Association initially sought to provide for the complete elimination of director liability and to allow fewer exceptions to the ability to limit director liability. The goal was to parallel more closely other prominent states and to add increased certainty to reduce potential litigation. (fn14) Unfortunately, this objective is not achieved in the final statute. Section 21(b) reflects the CSCXs current provision on the ability to limit director liability.

CBCA Sections 26 and 30 introduce a new concept to Connecticut corporate practice; i.e., the provision for corporate emergencies caused by the occurrence of a catastrophic event which prevents the assembly of a quorum of a corporation's directors. Section 26 permits the adoption of bylaws that are operative only in the event of such emergencies. The theory is for a corporation to provide for an orderly chain of command in its bylaws. If these bylaws are followed in good faith, then action taken on authority thereof is binding and such action may not be the grounds for later liability of any director, officer, employee or agent of the corporation.

It should also be noted that there is no longer a minimum capital requirement.

PURPOSES AND POWERS

Corporate purpose and powet is handled by CBCA Sections 27 through 31. Except for Section 30, these basically restate current Connecticut law. Section 30 deals with emergencies, providing guidelines for what a corporation can do in an emergency if no emergency bylaws exist. Unless emergency bylaws provide otherwise, notice of a board meeting need be given only to those directors practicable to reach and notice may be given in any practicable manner, including publication or radio. This Section goes on to permit officers to act as directors at an emergency meeting in order of rank and seniority Within rank as necessary to establish a quorum. Further, a board may modify lines of succession to accommodate the incapacity of a key person to the corporation and to relocate offices in an emergency.

NAME

Sections 32 through 34 pertain to corporate names. They provide increased guidance for the resolution of name conflicts between corporations and for use of the same name in reorganization situations. (fn15)

OFFICE AND AGENT

Sections 35 through 38 of the CBCA pertain to...

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