PA 10-35—HB 5530

Judiciary Committee

AN ACT CONCERNING THE CONNECTICUT BUSINESS CORPORATION ACT

SUMMARY: This act makes changes to the laws governing business corporations. It requires written notices sent to a corporation to be addressed to its secretary. The act allows corporations to provide equivalent financial information to shareholders exercising appraisal rights when the appropriate financial statement is unavailable. It also requires financial information to be provided to shareholders before they exercise their appraisal rights (i. e. , with the notices of corporate action that trigger those rights. )

It allows the board of directors to authorize one or more of its officers to make certain decisions regarding the recipients of the corporation's rights, options, or warrants for the purchase of shares or other securities. The act also allows a corporation to agree to submit a matter to a vote of its shareholders even if the board of directors, after approving the matter, determines it no longer recommends it. It makes conforming changes to effect this change.

The act allows, rather than requires, the director of a corporation to consider certain factors in determining what he or she reasonably believes to be in the corporation's best interests.

EFFECTIVE DATE: October 1, 2010

FINANCIAL STATEMENTS

Accompanying Payments

By law, a corporation must pay shareholders exercising their appraisal rights the estimated fair value of their shares, plus interest. Under prior law, the payment had to be accompanied by a financial statement consisting of (1) a balance sheet as of the end of the fiscal year ending no more than 16 months before the date of the payment, (2) an income statement for that year, (3) a statement of changes in shareholders' equity for that year, and (4) the latest available interim financial statements, if any. The act instead requires a corporation to provide its annual financial statement to shareholders covering the fiscal year ending within the 16-month period before payment. The statement must comply with the existing law on financial statements for shareholders, which generally require the same components as prior law, except they do not require the interim statements. However, the act requires the corporation to furnish its latest available quarterly financial statements, if any. If the annual financial statements are not reasonably available, the act requires corporations to provide reasonably equivalent financial information.

The act also requires a financial statement to comply with the existing law on documents accompanying financial statements. If a public accountant reports a statement, that report must accompany the statements. If there is no public accountant report, the statements must be accompanied by a statement of the president or the person responsible for the corporation's accounting records (1) stating his or her reasonable belief as to whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation and (2) describing any ways in which the statements were not prepared on a basis of accounting consistent with the preceding year's statements.

Notices of Certain Corporate Actions

When a merger is effected or the types of mergers, share exchanges, disposition of assets, or certificate of incorporation amendments that trigger shareholder appraisal rights are proposed, the act requires the requisite notice to be accompanied by a financial statement that complies with the requirements for financial statements accompanying payment described above. However, the act allows the shareholder to waive the requirement in writing, before or after the applicable corporate action.

ISSUANCE OF RIGHTS, OPTIONS, WARRANTS, OR OTHER EQUITY COMPENSATION AWARDS

By law, a corporation may issue rights, options, or warrants for the purchase of its shares or other securities, and the board of directors determines the terms of issuance. The act allows the board to authorize one or more officers to (1) designate the recipients of rights, options, warrants, or other equity compensation awards that involve the issuance of shares and (2) determine, within an amount and subject to any other limitations established by the board and, if applicable, the shareholders, the number and terms of such rights, options, warrants, or other equity compensation awards to be received. However, an officer cannot use this authority to designate himself or herself, or any other people the board may specify, as a recipient.

BEST INTERESTS OF THE CORPORATION

The act allows, rather than requires as under prior law, the director of a corporation with a class of voting stock registered under the Securities Exchange Act of 1934 to consider the following factors in determining what he or she reasonably believes to be in the best interests of the corporation:

1. the long- and short-term interests of the corporation;

2. the long- and short-term interests of the shareholders, including the possibility that those interests may be best served by the continued independence of the corporation;

3. the interests of the corporation's employees, customers, creditors, and suppliers; and

4. community and societal considerations, including those of any community in which any corporate office or facility is located.

OLR Tracking: SC: SS: PF: DF