Model Business Corporation Act as Adopted in Louisiana

• Author: Glenn G. Morris
• Position: J. Dawson Gasquet Professor of Law and Vinson & Elkins Professor of Law, LSU Paul M. Hebert Law Center.
• Pages: 983-1069

Model Business Corporation Act as Adopted in Louisiana Glenn G. Morris * INTRODUCTION Effective January 1, 2015, Louisiana adopted a customized version of the Model Business Corporation Act. 1 The new Act replaces the former Louisiana Business Corporation Law (LBCL) 2 and makes several coordinating changes in other areas of the law. 3 The author served as the Reporter and Chair of the Corporations Committee of the Louisiana State Law Institute, the Committee that considered and modified the Model Act for adoption in Louisiana. Louisiana’s modifications to the Model Act were designed to do three things: (1) to adapt the Model Act to Louisiana’s legal system and terminology, (2) to retain some of the desirable features of existing law, and (3) to make what the Committee judged to be corrections or improvements in the Model Act provisions. This Article summarizes the ways in which the new Act changes the law as well as those in which the law remains largely unchanged. This Article also points out the areas in which the Louisiana version of the Act differs from the Model Act, either by retaining the earlier Louisiana law on the subject, or by offering some new solution to the problem. Louisiana’s adoption of the Model Act returns it to the mainstream of American corporation law, much as the LBCL did when it was adopted in 1968. 4 The Model Act is the foundation of Copyright 2015, by GLENN G. MORRIS.  J. Dawson Gasquet Professor of Law and Vinson & Elkins Professor of Law, LSU Paul M. Hebert Law Center. 1. Act No. 328, §§ 1, 7, 2014 La. Acts. 2. Id. § 5. 3. The other changes affected provisions concerning the prescriptive periods applicable to business organizations, see LA. REV. STAT. ANN. §§ 12:1501–1502 (Supp. 2015); the conversion of business organizations, id. §§ 12:1601–1604; filing methods and secretary-of-state-records provisions, id. §§ 12:1701–1704; filing fees chargeable by the secretary of state, id. § 49:222; and the derivative action provisions of the Code of Civil Procedure, LA. CODE CIV. PROC. art. 611 (2015). 4. As one of my Committee colleagues noted, Louisiana’s corporation law has been designed to fit into the mainstream of American corporate law since at least 1928. Louisiana’s 1928 corporation statute was based on a then-proposed Uniform Business Corporation Act, which influenced the Model Business Corporation Act that later took its place. The 1968 statute was designed to combine the best features of the 1928 statute with the best features of the corporate laws of many other states, and it included some provisions from the 984 LOUISIANA LAW REVIEW [Vol. 75 the corporation law of 30 other states, including all southern states east of the Mississippi River. 5 The Model Act is the product of the Committee on Corporate Laws of the Section of Business Law of the American Bar Association and is subject to continuous revision by that body to deal with developments in corporate law and practice as they occur. 6 The new Act goes a step further in the direction of mainstream law than did the LBCL. Unlike the LBCL, the new Act adopts not just the substance of mainstream American corporation law, but the leading mainstream law itself, by name. 7 This approach should make it easier to explain Louisiana’s position on corporation law to lawyers and business executives in other states. Louisiana is not just similar in its corporate law to a Model Act state; it is a Model Act state. This simple point should save Louisiana lawyers and business owners many hours of detailed explanation and reassurance to their out-of-state colleagues and clients. Of course, some differences will still exist between Louisiana’s version of the Model Act and the versions enacted in other states. However, these differences will operate as exceptions rather than the rule. Louisiana’s adoption of the Model Act will also make it easier to find persuasive authority on interpretive issues that have not yet been addressed by Louisiana courts and to keep up with future developments in the law. 8 When Louisiana had its own unique corporation statute, the corporate law decisions rendered in other states were less likely to be relevant. Earlier efforts to update the LBCL by inserting Model Act provisions sometimes created Model Act as it existed at the time. See Richard P. Wolfe, The Fiduciary Duty of Directors and Officers Under the Louisiana Business Corporation Act of 2014 , 60 LOY. L. REV. 523, 528–30 (2014). 5. MODEL BUS. CORP. ACT ix (2011). Including the District of Columbia, the count is 31 other jurisdictions. Of those 31 jurisdictions, Alaska, New Mexico, and the District of Columbia have statutes based on the 1969 version of the Model Act, rather than the more modern version that was first promulgated in 1984. Id. at n.2. 6 . Id. at ix–x. 7. Ironically, the last time that Louisiana took that step, when it adopted the Uniform Business Corporation Act in 1928, it was apparently too far ahead of the curve in modernizing its law. Only two other states adopted the Uniform Act. Id. at xi. 8. The Reporter for the Committee on Corporate Laws oversees the publication of an annotated version of the Model Act, and the Committee has appointed state liaisons that report regularly on corporate law developments in their state. At the time this article was written, the author was serving as the liaison for Louisiana. 2015] MODEL BUSINESS CORPORATION ACT 985 unintended technical problems and interpretative issues. 9 That will no longer be true. When the Model Act is amended at the national level, Louisiana will be able to easily adopt those changes in a way that works technically with its existing corporation statute. The Committee that worked on the new Act included representatives of the secretary of state’s office, 10 corporate law practitioners from various regions of the state, 11 and four law professors in the field of corporation law, one from each of the state’s four law schools. 12 Working with the Committee was one of the highlights of the author’s professional career. Committee members knew the existing law, took great care in reviewing the proposed new law, expressed their views candidly but also respectfully and fairly, and worked cooperatively to find constructive solutions to the problems at hand. The Committee did not expect its work to be perfect or final. Drafting errors are nearly inevitable in a statute as long and complex as the new Act, and the legal issues faced by corporations will almost surely continue to evolve. Hence, the Committee plans to remain active and make proposals for corrections and improvements to the new Act as needed. The remainder of this Article provides a summarized comparison between the new Act and the LBCL, taking up issues in the order in which they are covered in the new Act. 9. Louisiana copied an Indiana anti-takeover provision in the late 1980s that utilized an important Model Act term, “voting group,” that had no meaning under the Louisiana statute. See GLENN G. MORRIS & WENDELL H. HOLMES, BUSINESS ORGANIZATIONS § 39.04, in 8 LOUISIANA CIVIL LAW TREATISE 365 n.29 (West 1999). In 2005, modified versions of the share certificate provisions of the Model Act were enacted but in a way that combined a limited Louisiana version of the Model Act rule with another, unmodified, Model Act provision that effectively undercut the effects of the earlier, limited provision. Id. § 10.13, at 30 n.1. The certificate provisions also failed to take account of the fact that Louisiana law, unlike the Model Act, still retained the par-value system of corporate capital. Id. at n.3. 10. Steve Windham served when Jay Dardenne was Secretary of State. He was replaced on the committee by Carla Bonaventure after Tom Schedler became Secretary of State. The Committee was assisted by two other staff members in the secretary’s office, Steve Hawkland and Mandy Hamilton. 11. The practitioners were Virginia Boulet, James C. Crigler, Jr., Joshua A. Decuir, Maureen Brennan Gershanik, Regina N. Hamilton, Lee Kantrow, Rick J. Norman, Robert M. Walmsley, Jr., Charles S. Weems, III, and Richard P. Wolfe. 12. The professors were Onnig Dombalagian, of Tulane University Law School; Lloyd “Trey” Drury, III, of Loyola University New Orleans College of Law; Glenn G. Morris, of the LSU Paul M. Hebert Law Center; and Roederick White, of the Southern University Law Center. 986 LOUISIANA LAW REVIEW [Vol. 75 GENERAL FILING RULES The new Act (or “Louisiana’s Act”) provides a unified set of rules for the execution, filing, and effective dates of all documents that the Act requires or permits to be filed with the secretary of state. 13 It will no longer be necessary to consult separate sets of execution and filing rules for each type of filing-eligible document covered by the new Act. All may be executed and filed in the same way; they will differ only in their required content. However, if the secretary of state’s office prescribes a particular form for a document (and the Act gives only limited authority for such forms, such as the annual report 14 ), the document must be in or on the prescribed form. 15 The requirements for dual signatures or for the signatures of specified officers on some of the documents filed under the LBCL 16 are eliminated by the new Act. Just one signature, by the chairman of the board of directors or by any officer of the corporation, is required for all documents. 17 Still, contrary to the Model Act, Louisiana did retain the requirement that this signature be acknowledged or that the document be executed by authentic act, 18 unless the document is to be filed electronically or in person at the secretary of state’s office. 19 As under the LBCL, if the secretary of state files a document, the document (and the act or transaction that the document is being filed to carry out) generally becomes effective as of the time that the secretary’s office indicates that it was received for filing. 20 That general rule is subject to...