United States: NJ Legislature Passes Three New Laws Amending The NJBCA

The New Jersey legislature recently passed three new pieces of legislation amending the New Jersey Business Corporation Act (the "NJBCA"). The legislation will now be sent to Gov. Chris Christie, who is expected to sign each of the bills. The legislation was drafted by the New Jersey Corporate and Business Law Study Commission, a legislative commission formed to study and review New Jersey corporate law, with the goal of modernizing these laws and making New Jersey a more attractive state within which to incorporate. [1]

The legislation:

  • Creates a new section regarding shareholder derivative litigation that, if adopted in the certificate of incorporation, allows independent board members greater flexibility to move to dismiss litigation that they deem is not in the best interests of the corporation and implements fee shifting and other provisions in the context of derivative and shareholder class action proceedings;
  • Amends the Shareholders' Protection Act (the "SPA") to make all New Jersey corporations subject to the SPA and to allow certain business transactions to take place that previously would have been prohibited under the SPA, if the requisite approvals are obtained;
  • Amends the dissenters' rights section to provide that such section is the exclusive remedy absent fraud or material misrepresentation; and
  • Allows remote participation by shareholders in annual or special shareholders' meetings.

Please note that, in response to certain of these amendments, New Jerseycorporations may need to take certain actions, in one instance before a statutorily mandated deadline, as noted below.

Summary of Amendments

Shareholder Derivative and Class Actions. This bill repeals former N.J.S.A. § 14A:3-6, governing procedural requirements in connection with shareholder derivative actions, and replaces it in its entirety. This new statute enhances the substantive provisions of the former statute and makes certain provisions applicable to shareholder class actions but only applies if so provided in a company's certificate of incorporation.

The new statute is designed to allow New Jersey corporations a greater ability to move to dismiss shareholder derivative suits. It provides that a derivative proceeding will be dismissed if the court finds that independent directors, shareholders or court-appointed professionals have determined that the derivative proceeding is not in the best interests of the corporation. In addition, the statute requires the shareholder plaintiff to hold the shares of the corporation not only at the time of the act or omission complained of, but also to continue to hold the shares throughout the derivative proceeding.

The statute also makes certain provisions, which formerly applied only in the context of a derivative suit, applicable in class actions brought by a shareholder arising out of breach of duty imposed by New Jersey law. These provisions include a requirement that settlements be approved by a court.

The new statute also includes an important fee-shifting provision. A court may require a plaintiff shareholder to pay the corporation's expenses in the event the court determines the proceeding was brought without reasonable cause or for an improper purpose.

The prior statute required shareholders with less than $25,000 in holdings to post a bond for potential fee shifting in a derivative suit. For both derivative and shareholder class action proceedings, the value of plaintiffs' shareholdings required to avoid the need to post a bond has been increased from $25,000 to $250,000.

The provisions of new N.J.S.A. § 14A:3-6 apply only if they are expressly made applicable to the corporation by the certificate of incorporation. Accordingly, a corporation seeking to take advantage of this section must submit to its shareholders for approval an amendment making new section 3-6 applicable to the corporation.

Shareholders' Protection Act. This bill amends certain provisions of the New Jersey Shareholders' Protection Act, N.J.S.A. § 14A:10A-1 et seq. to make it applicable to all New Jersey corporations and to make it easier in certain circumstances to exempt a board-approved transaction from the SPA.

Previously, the SPA was applicable to New Jersey corporations that had either their principal executive offices or "significant business operations" in New Jersey. Corporations often had difficulty determining the meaning of "significant business operations." The amendments remove this uncertainty by expanding the scope of the SPA to define a "resident domestic corporation" to include all New Jersey corporations. However, those corporations not previously subject to the SPA (because they do not have either their principal executive offices or "significant business operations" in New Jersey) that will now be covered under the amended definition of "resident domestic corporation" will be able to opt out of the SPA by amending their bylaws within 90 days of the effective date of the amendments.

The amendments also make it easier for corporations to exempt board-approved transactions from the scope of the SPA. The SPA prohibits a "resident domestic corporation" from engaging in business combinations with a shareholder that beneficially owns 10 percent or more of the resident domestic corporation's outstanding voting stock ("interested shareholder") for a period of five years from the date the interested shareholder crossed that 10 percent ownership threshold (the "stock acquisition date") unless that business combination was approved by the resident domestic corporation's board of directors before that interested shareholder's stock acquisition date. This provision had proved difficult to navigate because a business combination often would not have been contemplated at the time the stock was acquired and often would not occur until years later.

Under the amended SPA, a resident domestic corporation may engage in a business combination if the original stock acquisition was previously approved and the subsequent business combination is approved (which approval can be subsequent to the stock acquisition date) by (1) the board of directors (or a committee thereof consisting solely of persons who are not employees, officers, directors, shareholders, affiliates, or associates of that interested shareholder) and (2) the affirmative vote of the holders of a majority of the voting stock not beneficially owned by such interested shareholder at a meeting called for such purpose.

Finally, the amendments provide that a beneficial holder of 5 percent or more of the voting power of the outstanding voting stock of the resident domestic corporation on the effective date of the amended SPA is exempt from the amended SPA if the resident domestic corporation did not have its principal executive offices or significant business operations located in New Jersey as of that date. The intent of this amendment is to "grandfather" 5 percent shareholders newly subject to the SPA (which holders, in the case of public companies, would be required to report their holdings under the Securities Exchange Act by virtue of this 5 percent ownership) because such shareholders would not have expected the SPA to apply to them.

Dissenters' Rights as Sole Remedy. This bill amends N.J.S.A. § 14A:11-1 to provide that, if a shareholder is entitled to dissent from a corporate action (typically a merger or other acquisition transaction), then that shareholder is prohibited from challenging such corporate action (regardless of whether the shareholder actually exercised the right to dissent) unless the corporate action in question was (1) not effectuated in accordance with the applicable provisions under the NJBCA or the corporation's certificate of incorporation or (2) procured as a result of fraud, material misrepresentation, or other deceptive means. The intent of this amendment is to prevent shareholders from "double-dipping" and reflects the belief that the dissenters' rights statute is an adequate protection for shareholders who believe they are not being paid fair value for their shares.

Remote Participation in Shareholders' Meetings. This bill amends N.J.S.A. § 14A:5-1 to expressly permit shareholders to participate in a shareholders' meeting by means of remote communication to the extent authorized by the corporation's board of directors. This amendment is designed to reflect the fact that much of modern-day communication takes place electronically. Because of our rapidly changing system of communication, the commission, in drafting the legislation, declined to precisely define what constitutes remote communication. Accordingly, participation by remote communication will be subject to guidelines and procedures adopted by the board, provided that each shareholder can see and hear the proceedings contemporaneously and can vote and participate in the meeting.

Action Items

Management and the boards of directors of New Jersey corporations should consider the following potential action items in response to these amendments:

  • Consider the new statute governing shareholder derivative and class actions and determine whether to "opt in" to coverage under that statute. If the decision is made to opt in, the corporation's certificate of incorporation will need to be amended, which will necessitate shareholder approval.
  • Consider whether the SPA will now apply to the corporation as a result of the revised definition of "resident domestic corporation" and, if necessary, determine whether to "opt out" of the statute.
  • Consider the advisability of permitting participation in shareholders' meetings by means of remote communication, including the feasibility, logistics, and implications of implementation of remote participation. Adopt any bylaw amendments or board resolutions that may be needed to authorize remote participation.


[1] Michael T. Rave is Chairman of the Commission; Ronald H. Janis is attorney to the Commission; Ellen S. Knarr is Secretary to the Commission.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions