This week's corporate law news roundup includes discussions of the American Bar Association's release of its first complete revision to the Model Business Corporation Act since 1984; the continued adoption (or consideration) by U.S. states of legislation allowing the incorporation of benefit corporations (for-profit corporations that voluntarily meet higher standards of corporate purpose, accountability and transparency by enabling directors to consider the interests of workers, society and the environment as well as those of stockholders), with 31 U.S. states now having benefit corporation legislation and another 8 states considering such legislation; and the unlikelihood that the proposed U.S. Consumer Financial Protection Bureau (CFPB) rules prohibiting mandatory arbitration clauses in consumer contracts will be finalized in the near or medium term now that the anti-consumer regulation Trump administration has come into office.
IN FIRST COMPLETE REVISION TO MODEL BUSINESS CORPORATION ACT SINCE 1984, AMERICAN BAR ASSOCIATION RELEASES 2016 MODEL BUSINESS CORPORATION ACT
The American Bar Association announced in December 2016 that it has published its first complete revision to the Model Business Corporation Act (2016 Revision) since 1984. The MBCA is a free-standing business corporation statute that may be enacted in its entirety by a state legislature, and is the basis for the business corporation statute in 32 states (notably excluding Delaware, New York and California) and the District of Columbia (and the source for many provisions in other states' general corporation statutes). The MBCA also is an important and often-cited reference for courts, lawyers and scholars. The new publication includes all amendments to the MBCA and its Official Comment through September 2016 and is a compilation of work in progress from the ABA Business Law Section's "Corporate Laws Committee" since 2010. Some notable changes since 2013 are provisions enabling ratification of defective corporate actions, permitting corporations to include in their articles provisions that limit or eliminate a director's or officer's duty to present a business opportunity to the corporation, and clarifying the scope and operation of qualifications for nomination and election as directors. There are also amendments to procedures for approving fundamental corporate changes, quorum and voting requirements and liquidating distributions, and revised language regarding oversight duties for "public corporation" directors. The new publication may be of particular value to states that have adopted the MBCA as the basis for their corporation law. The ABA Corporate Laws Committee is also encouraging state legislators to consider adopting the updated MBCA in full so as to bring their corporate statues in line with recent corporate developments and for corporate law uniformity across all U.S. states. For more information, see http://www.americanbar.org/publications/blt/2016/12/10_mbca.html and https://apps.americanbar.org/dch/committee.cfm?com=CL270000.
growth of Benefit Corporations, ALLOWING TRIPLE BOTTOM LINE CORPORATE PURPOSE
As of early 2017, a total of 31 U.S. states now allow corporations to be formed as benefit corporations, and an additional 8 states are considering such legislation. With a traditional for-profit corporation, corporate directors are required to act in the best interests of the corporation and its stockholders in connection with their fiduciary duty of care. Benefit corporations seek to allow corporations to voluntarily meet higher standards of corporate purpose, accountability and transparency, by enabling directors to consider the interests of workers, society and the environment as well as stockholders. In addition, they are required to issue annual or biennial reports assessing their social and environmental performance, and usually are required to procure third-party certification (or follow a third party standard) as to compliance with their public benefit goals (notably excluding Delaware, which makes third party involvement voluntary). States allowing benefit corporations (called "public benefit corporations" in Delaware) include California (2012), Connecticut (2014), Delaware (2013), Florida (2014), Illinois (2013), Maryland (2010), Massachusetts (2012), Minnesota (2015), New Jersey (2015), New York (2012), Oregon (2014), Pennsylvania (2013), Vermont (2011) and Virginia (2011). The states considering benefit corporation legislation are Alaska (2016), Georgia (2016), Iowa (2016), Kentucky (2013, 2016), Michigan (2016), Ohio (2015-2016) and Oklahoma (2016). States that do not have current or pending benefit corporation legislation include (a) Alabama, Kansas, Mississippi and North Carolina; (b) Maine, Missouri, New Mexico, North Dakota and South Dakota (which along with two-thirds of the states have constituency statutes, permitting management to consider non-financial, non-shareholder interests when making business decisions); (c) Texas (which allows social purpose to be included in the charter); and (d) Washington (which has "social purpose corporation" legislation instead). In addition, at least three states (Illinois, Maryland and Oregon) allow "benefit LLCs", and over 15 states (e.g., Alabama, Delaware, Kansas, Maine, Wyoming) do not require a limited liability company to have a for-profit purpose (allowing triple bottom line goals to be baked into the organizational documents). For more information on nationwide trends, see http://benefitcorp.net/policymakers/state-by-state-status.
Proposed Consumer Financial Protection Bureau (CFPB) rules prohibitING mandatory arbitration clauses IN CONSUMER CONTRACTS UNLIKELY TO BE ADOPTED POST-INAUGURATION
With the new U.S. administration taking office on January 20, 2017, the U.S. Consumer Financial Protection Bureau (CFPB) is unlikely to finalize in the near or medium term a set of rules that it had proposed in May 2016 prohibiting financial companies from including mandatory arbitration clauses in consumer contracts. The CFPB concluded that the clauses effectively blocked class-action lawsuits, since it found that consumers are successful in only 20% of cases forced into arbitration. The rules would cover credit cards, checking and deposit accounts, prepaid cards, money transfer services, certain auto and auto title loans, payday and installment loans and student loans. Under the proposed rules, companies would still be allowed to include arbitration clauses in their contracts, but the clauses would need to say explicitly that they may not be used to stop consumers from being part of a class action. If adopted, the rules would include other compliance requirements allowing the CFRB to monitor consumer finance arbitrations. For more information, see http://www.forbes.com/sites/legalnewsline/2016/12/26/cfpb-will-likely-issue-rule-targeting-arbitration-before-trump-takes-over-attorney-says/#ae66b41bcf07.
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