Recently-enacted legislation makes a number of important changes to the Ohio General Corporation Law and the Ohio Limited Liability Company Act that financial institutions and their executives should consider. The bill will become effective May 4, 2012.
Here are some key points:
Dissenting Shareholder Rights: The bill substantially changes our statutes, which have not been substantively amended since 1970, to make Ohio dissenting shareholder processes similar to those followed in other major commercial states, such as Delaware. The significant provisions are:
- The bill clarifies and simplifies the process by which shareholders are notified of their right to dissent and exercise that right, and by allowing the corporation to require this process to be substantially completed prior to the shareholder vote, which simplifies and expedites the completion of transactions.
- For corporations with shares listed on a stock exchange, it confirms Ohio Supreme Court precedent that the fair value of the corporation’s shares is the market price on the stock exchange where they trade.
- Further, if a shareholder of such a company will receive other exchange traded shares in the transaction, the bill would dispense with the need for a court appraisal process.
- For companies without exchange listed shares, the bill confirms (consistent with Ohio Supreme Court precedent) that fair value of the corporation’s shares is to be determined without the application of premiums or discounts for control or marketability.
- Since most shareholders now hold their shares indirectly through brokers or other intermediaries, the bill would make it easier for them to exercise dissenter’s rights.
Corporate Dissolutions: Ohio’s current procedures for dissolving corporations are out of date, having not changed substantially since 1955, leaving us out of step with other major commercial states. Sub. House Bill 48 adopts changes to these procedures that will make them more efficient and less burdensome to implement. The significant changes are:
- The bill creates a liquidation process that will expedite the determination and payment of creditor claims. If claims are not disputed, the liquidation and payment process can proceed without court involvement, although the right of creditors and shareholders to obtain court intervention is preserved.
- It establishes time limits for the presentation of claims, providing certainty regarding the time period in which directors, officers and shareholders of the corporation face exposure to potential claims.
- It clarifies the standards to be followed by directors in determining the existence and amount of claims, and providing for their payment.
- It modernizes the process of notifying creditors and the public of the pending dissolution of a corporation by requiring the Secretary of State to list on its website the corporations that are being dissolved, while retaining for a five-year transition period the current requirement for publication of notice in a newspaper of general circulation.
Indemnification Provision. The bill contains a provision making make it clear that rights of corporate directors and officers to indemnification under the corporation’s articles of incorporation or regulations cannot be abrogated retroactively as to past acts by a later amendment of these provisions. Delaware recently adopted a statutory amendment to the same effect.
Limited Liability Company Amendments: The bill makes a number of changes to the LLC Act. The bill:
- clarifies the provisions of ORC §1705.61, which was enacted in 2006, to insert language inadvertently omitted from this section in the legislative process;
- make it express in the statute that a limited liability company is bound by its operating agreement;
- confirms that the only remedy of a judgment creditor of a member with respect to his membership interest is to obtain a charging order (even for single member LLCs);
- confirms the power of the operating agreement to vary statutory default rules, subject to certain non-waivable provisions (based on what is now in Chapter 1776 for partnerships);
- defines the fiduciary duties of members and managers;
- expressly allows members to agree to arbitration (based on comparable provisions of Chapter 1776 for partnerships); and
- gives courts more guidance on when judicial dissolution would be appropriate (also based on Chapter 1776).