Amendments to the Connecticut Business Law Statutes

Effective October 1, 2015, Public Act No. 15-48, titled “An Act Concerning Revisions to the Connecticut Business Corporation Act, the Uniform Limited Partnership Act and the Connecticut Limited Liability Company Act” (the “Act”), has amended the Connecticut Business Corporation Act (“CBCA”), the Uniform Limited Partnership Act (“ULPA”), and the Connecticut Limited Liability Company Act (“CLLCA”). The Act amends the CBCA in the following areas: qualifications of directors, indemnification, shareholder agreements, proxies, and voting trusts. Further, the Act makes changes to provisions of the ULPA and CLLCA that relate to reinstatement of LLCs and LPs following dissolution by the Connecticut Secretary of the State. These changes are discussed in greater detail below.

Qualifications for Directors and Nominees

While the CBCA generally allows corporations, pursuant to its certificate of incorporation or bylaws, to prescribe qualifications for its directors or nominees for directors, the Act adds a few more requirements for such qualifications, including: (1) the Act mandates that any such qualifications must be “lawful and reasonable as applied to the corporation”; (2) the Act forbids requirements that could limit the ability of a director or nominee to discharge his or her duties; and (3) the Act permits corporations to include requirements that a director or nominee not have been subject to criminal, civil, or regulatory sanctions, or not have been removed as a director by judicial action or for cause. The Act also provides that a qualification for nomination as a director may only apply to a person if it is prescribed before he or she is nominated. Similarly, only a qualification for director that is prescribed before the start of a director’s term applies to that director. However, qualifications prescribed during a director’s term do not apply during that term.

Indemnification

The Act’s amendments concerning indemnification essentially (A) limit the benefit of indemnification to officers and directors only (removing employees and agents), (B) limit when business corporations can indemnify and advance expenses to officers, and (C) prevent an officer from enjoying corporate indemnification if the conduct at issue involves an officer's wrongful conduct.

Shareholder Agreements

The CBCA also allows shareholders to enter into agreements that are effective between and among shareholders and the corporation, on a variety of topics addressing the governance and operation of the corporation. Prior to this Act, the CBCA contained a default rule that these agreements were valid for a term of ten years unless provided otherwise. Now, per this Act, agreements entered into on or after October 1, 2015 may provide any time limit or may be perpetual.

Proxies

Under current Connecticut law, a shareholder of a corporation or his or her agent or attorney-in-fact may appoint a proxy to vote or otherwise act on their behalf. This may be done by either signing a form or by electronic transmission. The Act now further requires one of these electronic submissions to be accompanied by “information” which allows someone to determine that the shareholder or his or her agent or attorney-in-fact did authorize the transmission.

The Act also affects the revocability of an appointment of a proxy. Under existing law, the CBCA provides that any appointment of a proxy is revocable unless the appointment form or electronic submission states that it is irrevocable. However, someone who buys shares subject to an irrevocable appointment may revoke the appointment if the buyer did not know of the appointment when he acquired the shares and the appointment was not noted conspicuously on the certificate representing the shares. The Act specifies that irrevocable appointments of proxies continue after a transfer of shares unless the appointment of a proxy provides otherwise.

Voting Trusts

Prior to the passage of this Act, the CBCA conferred upon shareholders the right to create a voting trust that gives a trustee the right to vote on behalf of the shareholder. The CBCA limited the length of these trusts to ten years, but allowed parties to extend the trust for an additional ten years.

This Act establishes new rules regarding the length—or “validity”—of these trusts. In particular, the Act allows parties to set any time limit on voting trusts that become effective on or after October 1, 2015. For all voting trusts that were effective prior to October 1, 2015, the Act retains the old ten-year rule, but allows an extension of the ten-year limit under two circumstances: (1) the parties may unanimously agree to amend the ten-year limit of the trust for a longer limit, or (2) all or some of the parties may extend the trust an additional ten years by following the same extension procedures that already exist under the CBCA.

The ULPA and CLLCA Provisions: Reinstatement of LLCs or LPs

As previously mentioned, this Act also amends provisions relating to Connecticut’s ULPA and the CLLCA. Under current law, the Connecticut Secretary of the State may dissolve the legal assistance of an LLC or cancel the legal existence of an LP if either fails to maintain a statutory agent for service of process or fails to file an annual report for over one year. Following such a dissolution or cancellation, however, an LLC or LP may apply for reinstatement. This Act simply provides that, if said reinstatement of an LLC or LP occurs, the reinstatement shall relate back to and take effect as of the effective date of the dissolution or cancellation. Further, the Act provides that the reinstated LP or LLC shall resume its business as if the dissolution or cancellation had never occurred. Currently, when these entities are reinstated, reinstatement takes effect when the certificate of reinstatement is filed with the Office of the Secretary of the State.