Minnesota Business Corporation Act
By: NEIL A. WEIKART
September 2004
Minnesota recently adopted several amendments to the Minnesota Business Corporation Act (the "MBCA"). The following changes went into effect on July 1, 2004:
- Unless otherwise provided in the Articles of Incorporation, directors of Minnesota corporations are to be elected by a plurality of the voting power of the shares, not a majority of a quorum. This change was made to reflect the fact that shareholders usually vote for a number of nominated candidates for a specific number of vacancies. Under the amendment, those elected are those who receive the most votes, regardless of whether they receive a majority at the shareholders' meeting.
- If provided for in the Articles of Incorporation of a corporation that is not publicly held (as defined in the MBCA), action may be taken by the shareholders by a written action signed or consented to by shareholders having voting power that would be required to take the same action at a shareholders' meeting at which all of the shareholders were present. Previously, shareholders could only take written action by a writing signed or consented to by all shareholders entitled to vote on that action.
- Dissenters' rights (which give shareholders the right to have their shares purchased at fair market value if they vote against certain statutorily specified major corporate actions) have been modified. Minnesota corporations may opt out of dissenters' rights in certain specified situations in their original Articles of Incorporation. Corporations that do not opt out in their original Articles must amend their Articles to opt out. Such an amendment itself does, however, trigger dissenters' rights. In addition, a "market out" from dissenters' rights applies to Minnesota corporations whose stock is listed on the New York Stock Exchange, American Stock Exchange or Nasdaq National Market. This change was based on the concept that if shares are so listed, a shareholder who votes against a major corporation action that would otherwise give rise to dissenters' rights has the ability to liquidate his or her investment at fair market value. This brings Minnesota in line with Delaware and a number of other jurisdictions.
- Under the MBCA, the sale or other transfer of all or substantially all of the assets of a corporation outside the usual and regular course of its business requires shareholder approval. The 2004 amendments provide that shareholder approval is not required if the corporation retains "a significant continuing business activity" and add a safe harbor for the retention of a business activity that represents at least 25 percent of the corporation's total assets and 25 percent of either pre-tax income or revenues from continuing operations.
- The amendments permit conversions of corporations into limited liability companies and limited liability companies into corporations. While this simplifies changes in entity form, it is important to first consider any tax consequences.
- Similar changes were made to analogous sections of the Minnesota Limited Liability Company Act.
We would be happy to talk to you in more detail about these changes and how they may affect your corporation or LLC.