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.