The New Corporate Landscape: 2004 Kansas General Corporation Code Revisions
| Jurisdiction | Kansas,United States |
| Citation | Vol. 73 No. 7 Pg. 30-41 |
| Pages | 30-41 |
| Publication year | 2004 |
73 J. Kan. Bar Assn. 7, 30-41 (2004). The New Corporate Landscape: 2004 Kansas General Corporation Code Revisions
In May 2004, the Kansas Legislature adopted broad-ranging amendments(fn1) to the Kansas General Corporation Code (the Code),(fn2) to take effect January 1, 2005. The amendments, which mark the first substantial revisions to the Code since 1988, were the result of work done by a 12-member special study committee(fn3) of the Kansas Bar Association (KBA), with extensive contribution from the Kansas Secretary of State's office. The committee, formed in 2001, determined early on that any proposed revisions to the Code should be principally based on bringing those Kansas statutes into substantial compliance with the current text of the General Corporation Law of Delaware (the Delaware Code),(fn4) the laws upon which the Code has been based since 1939. The committee believed that Kansas' past adherence to the Delaware Code,(fn5) coupled with the wealth of evolving Delaware and derivative case law precedent and legal commentary, presented a stable platform for the Kansas corporate community that should not be undermined by introducing a hodgepodge of disparate provisions from a number of sources (such as from the Model Business Corporation Act or the statutes of other jurisdictions). The committee also recognized that Kansas' existing, albeit limited, corporate case law was decided under the Delaware Code model and deviation from that framework could undermine the precedential value of such existing Kansas case law.
Based on the decision to defer and adhere to the Delaware precedent, the committee next determined its scope of review to be a comprehensive assessment of current differences between the Kansas and Delaware codes. After discussion of the possibility of proposing improvements to or advancements beyond the current Delaware Code, the committee opted (in most cases) for the stability and certainty of substantially following the Delaware codes. The committee agreed that deviation from the Delaware language would cast uncertainty onto the interpretation of the Code's text. Ultimately, the committee determined its task to encompass bringing the Code current with the latest Delaware Code, excepting deviations justified on the basis of public policy concerns or where the committee believed alternate language improved the flow, clarity, and consistency of the language in the Code without compromising the benefits of adhering to the text of the Delaware Code.
The committee determined that, in the interest of preventing the review process from becoming a quagmire and to increase the likelihood of passage of the proposed revisions by the Kansas Legislature, it would focus only on the Code, deferring proposals of changes to other Kansas business statutes for future committees. Attention was paid, however, to ensuring that changes to the Code complimented existing provisions in Kansas' other business statutes.
The KBA Legislative Committee reviewed and approved the committee's proposal as submitted, with the exception of the rejection of one proposed change to K.S.A. §17-6518 on public policy grounds (the proposed change would have allowed for stockholder action by less than unanimous written consent in lieu of a meeting), and forwarded the modified proposal to the KBA Board of Governors. The board approved the proposal for submission to the 2002 Kansas Legislature.
For various reasons the proposal was not acted on during the 2002 legislative session but was reintroduced in the 2003 legislative session, this time as Kansas Senate Bill 29 (SB 29). SB 29 was subsequently amended in part by the addition of certain provisions (regarding professional corporations and noncorporate entity registration requirements) from two other bills, which were themselves not passed by the Legislature.(fn6) SB 29, as amended, was signed into law by Gov. Sebelius on May 17, 2004, to take effect January 1, 2005.
Overview
The recent revisions to the Code include several conceptual changes that run throughout the Code. These are highlighted as follows:
Electronic transmissions
Provisions for the use of electronic communications, electronic signatures, and the tendering of documents and instruments by "electronic transmission" were incorporated throughout the revised Code.7 "Electronic transmission" has been defined to mean "any form of communication which may be directly reproduced in paper form."8 Interpretation of this term may be given further context through reference to another section of the revised Code, which refers to "transmitting a telegram, cablegram or other means of electronic transmission including telephone transmission"9 (emphasis added). Faxes, e-mails, and Internet postings that may be reproduced in a paper form were all contemplated by the committee as constituting electronic transmissions.
Receivers v. trustees
The reference to "trustee," where used in the context of a district court appointed "trustee or receiver," has been deleted throughout the Code, as the committee believed it was both redundant and confusing, owing to the possible confusion of such a court appointed corporate trustee with trustees in bankruptcy and trustees who derive their grant of authority from written trust agreements. Such persons appointed by the Kansas district courts are now uniformly referred to simply as "receivers" throughout the Code.10
Nonstock corporations(fn11)
The revised Code establishes a new member quorum requirement for nonstock (e.g., nonprofit, church, benevolent, and some for-profit) corporations, under which those members in attendance at a duly called and noticed meeting constitute a quorum for purposes of transacting business.(fn12) Action may then be taken at such a meeting by a majority of those members present, or, in the context of the election of the governing body, by a plurality of those members present.(fn13)
Unless otherwise provided in a nonstock corporation's articles of incorporation (articles) or bylaws, the members of the corporation's governing body are deemed to also be the members of the corporation (this revision contemplates the existence of nonstock corporations with self-perpetuating governing bodies).(fn14)
The terms "stockholders" and "board of directors" as used in the Code include the "members" and the "governing body," respectively, in the context of a nonstock corporation.(fn15) Redundant references to "members" or "governing body" when used in conjunction with "stockholders" and "board of directors" have therefore been removed from the Code for purposes of clarity (i.e., the deletions of these terms do not remove nonstock corporations from the Code's purview).(fn16)
Nonstock corporation members and governing bodies may take action by less than unanimous written or electronically transmitted consent. Such action may be taken by the number of members, or members of the governing body, that would be required to take action if all such members entitled to vote were present at a meeting at which such an action was taken.(fn17)
Filing and instrument execution requirements
Only one executed original instrument is now necessary for all filings with the Secretary of State.(fn18) Also, the Secretary of State, upon accepting an instrument for filing, is no longer required to file and index the instrument but is now required to record the image of the endorsed instrument in an electronic medium.(fn19) The executed original instrument, rather than a certified duplicate, will now be returned to the filer as its certified copy of the original, recorded instrument; however, this provision specifically excepts out annual reports.(fn20) With the exception of annual reports, the Secretary of State's office will no longer retain paper versions of filed instruments.
All requirements that particular instruments be executed by specific officers, e.g., president, vice president, or secretary, have been eliminated in favor of their execution generally by an "authorized officer."(fn21)
Efforts were made to render all personal references in the Code gender neutral, to adopt consistent usage of terms throughout the Code, and to correct typographical and scrivener's errors. It should be noted that, as discussed above, SB 29 also amends in part the Professional Corporation Law of Kansas(fn22) and several code sections dealing with other non-corporate business entity transactions.(fn23)
Internal Inconsistencies in the Revised Code
There were also several technical inconsistencies in the provisions of SB 29 resulting from revisions made to the bill's text through the legislative process. Two major inconsistencies include:
Effective date
The Kansas Legislature revised the Code's effective date from July 1, 2004, to January 1, 2005. There are several internal references in the Code's text to the revised Code's effect on corporations formed prior to July 1, 2004, based on the committee's intended July 1 effective date, which were not likewise revised by the Legislature in conformance with the effective date change.(fn24)
Action by stockholder written consent
The only area of contention among the special study committee members involved the ability of stockholders to take action by less than unanimous written consent, as is allowed under the Delaware Code. The committee, after lengthy debate and based on majority vote, recommended that stockholders be permitted to take action by less than unanimous written consent and the special study committee's proposal was drafted accordingly. The KBA Legislative Committee rejected this proposed revision on public policy grounds(fn25) and the KBA Board of Governors concurred in the Legislative...
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