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. T he 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 ti me. 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 Schedl er

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 Dombalagi an, 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 Sout hern University Law Center.