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March 2015
THE NEW LOUISIANA BUSINESS CORPORATION
ACT – TOP 15 CHANGES TO CONSIDER
By: Zonnie Breckinridge
[email protected]
(512) 583-5911
As you may already know, effective January 1 of this year (2015), the Louisiana state
legislature adopted an entirely new business corporation statute, the Louisiana Business
Corporation Act (LBCA), in an effort to align Louisiana’s corporate laws with the provisions
of the Model Business Corporation Act (Model Act), which is the source of the corporate laws
in 30 other states. This new statutory scheme applies to all Louisiana domestic corporations
with some limited applicability to foreign corporations doing business in Louisiana. Having
knowledge of the new LBCA will be important to most of the financial institutions in
Louisiana because the vast majority of these institutions operate as subsidiaries of holding
companies that are subject to this new legislation.
Because the new act completely replaces the previous regime, one should become
familiar with the entire statutory scheme. Nonetheless, there are a few changes and additions
that are particularly noteworthy.
1. Shareholder vote - The threshold vote required for approval of an amendment to a
corporation’s articles of incorporation, or a merger, share exchange or sale of
substantially all of a corporation’s assets outside of the ordinary course of business has
been changed. Under the LBCA the vote required is a majority of the shares entitled to
vote on the issue (unless the corporation’s articles require a greater vote), rather than
2/3rds of the voting power present at a meeting at which the issue is considered, the
threshold under the old law. As noted, a Louisiana corporation may increase the
statutory vote requirement for approval of these types of corporate actions by
providing for the higher requirement in its articles of incorporation. However, a
corporation is no longer permitted to lower the vote requirement below the majority
threshold noted above.
2. Shareholder approval to issue 20% of shares - There is a new provision under the
LBCA regarding shareholder approval for issuing shares. It provides that unless the
corporation obtains the approval of a majority of its shares entitled to vote, a
corporation may not issue shares for consideration other than cash or cash equivalents
if the shares issuable as a result of the transaction will comprise more than 20% of the
voting power of the corporation’s shares that were outstanding immediately before the
transaction.
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3. Appraisal rights of dissenting shareholders - The LBCA has eliminated the “80%
rule” under the old LBCL whereby if a merger, share exchange or sale of assets was
approved by at least 80% of the total voting power of the corporation, dissenting
shareholders would not have appraisal rights. Under the LBCA, appraisal rights for
dissenting shareholders who perfect such rights are mandatory in all such transactions
that are subject to shareholder approval.
4. Oppression of minority shareholders - A new provision relating to oppression of
minority shareholders has been added by the LBCA. The statute provides that if a
corporation “engages in oppression of a shareholder,” the shareholder may withdraw
from the corporation and require the corporation to buy all of the shareholder’s shares
at their fair value. What constitutes engaging in oppression of a shareholder is quite
vague under the statute. It provides that a corporation “engages in oppression of a
shareholder if the corporation’s distribution, compensation, governance, and other
practices, considered as a whole over an appropriate period of time, are plainly
incompatible with a genuine effort on the part of the corporation to deal fairly and in
good faith with the shareholder.” While the notes in the LBCA attempt to explain the
concept by reference to case law outside of Louisiana, it will clearly be up to the
Louisiana courts to flesh out the definition.
5. Unanimous governance agreements - The LBCA permits the shareholders of a
corporation to enter into a “unanimous governance agreement” that governs the
exercise of corporate powers or the management of the business and affairs of the
corporation or the relationship among the shareholders, the directors, and the
corporation, or any of them. These agreements may contain provisions that would
override inconsistent statutory provisions that would otherwise be mandatory in the
absence of such an agreement. For a unanimous governance agreement to be effective,
among other things, it must be signed by all of the shareholders who are shareholders
at the time the agreement is entered into.
6. Consideration for issuance of shares - Under the LBCL, a corporation could not
issue its shares for promissory notes or contracts for future services. This prohibition
has been eliminated in the LBCA, and so these forms of consideration for the issuance
of corporate stock are now permitted.
7. Distributions to shareholders - The LBCA abolishes the old corporate capital system
of stated capital, capital surplus and retained earnings accounts based on the par value
of a corporation’s shares. The prohibition in the LBCL against the payment of
dividends from other than capital surplus or net profits has also been eliminated. The
LBCA now permits a corporation to make distributions to its shareholders to the full
extent of the corporation’s net worth, subject only to the limitation that the corporation
retain an amount sufficient to pay its debts and to satisfy the payment upon dissolution
2 812 San Antonio Street, Suite 600│Austin, Texas 78701│(512) 583-5900
1000 Walnut Street, Suite 1400│Kansas City, Missouri 64106│(816) 292-8141
www.fkhfpartners.com of any preferential rights of shareholders whose rights are superior to those receiving
the distribution.
8. Monetary liability of directors and officers - The old LBCL provided for the
limitation of monetary liability of directors and officers of a corporation to the
corporation and its shareholders, but only if the corporation’s articles of incorporation
contained such a provision. The LBCA now makes the protection against monetary
liability the default provision. However, the LBCA requires the corporation’s articles
to include a statement whether the corporation accepts or rejects this limitation of
liability provision. It is unclear whether the limitation of liability provision would be
applicable if the corporation’s articles are silent on the issue. The articles can also
provide limitations on the statutory provision, but they must be explicit to be effective.
It should be noted that Louisiana’s banking code (Title 6) also has a limitation of
liability provision and provides that it is to be the exclusive provision regarding the
relationship of a director or officer of a bank holding company to the corporation and
its shareholders. Thus, the new LBCA provision may not be applicable to directors
and officers of bank holding companies.
9. Director’s conflicting interest transactions - The LBCA provides a comprehensive
process for validating a transaction between a corporation and one or more of its
directors, known under the statute as a “director’s conflicting interest transaction.”
These new provisions will serve to resolve questions about the uncertain effects of
measures employed under the earlier regime for eliminating director liability when the
director had a personal interest in a transaction involving the corporation.
10. Personal liability following dissolution by affidavit - Under the previous statutory
scheme as well as the new LBCA, a corporation that is not (or no longer) doing
business, has no debts and does not own any immovable property may be dissolved by
a filing with the Secretary of State setting forth these facts. In such circumstances, the
LBCL provided that the shareholders (or the incorporator if no shares had been issued)
would be personally liable for any debts or claims against the dissolved corporation.
This personal liability provision has been removed in the LBCA.
11. Shareholder derivative suits - The LBCA includes rules for shareholder derivative
actions that were not part of the LBCL. These rules should provide greater certainty
in the process governing these suits.
12. Procedures for shareholders’ meetings - In the LBCA there are a number of new
provisions that specifically address matters relating to the conduct of a corporation’s
shareholders’ meetings, including those relating to the selection and authority of the
presiding officer, the appointment and authority of inspectors of election and the kinds
of signatures that can be considered valid by the corporation on a shareholder consent
form, waiver or proxy.
3 812 San Antonio Street, Suite 600│Austin, Texas 78701│(512) 583-5900
1000 Walnut Street, Suite 1400│Kansas City, Missouri 64106│(816) 292-8141
www.fkhfpartners.com 13. Electronic notices and communications - Included in the LCBA is a provision that
addresses with specificity the requirements for and effectiveness of electronic notices
and other communications between a corporation and its shareholders, directors and
other constituents.
14. Corporate records - The LCBA also expands the list of documents and records that
a corporation is required to maintain at its principal office and allows for these records
to be maintained in electronic or other form capable of conversion into paper form
within a reasonable period of time.
15. Grace period for filing annual reports - The grace period for filing annual reports
with the Secretary of State has been substantially shortened from three years to 90 days
under the LCBA to discourage what has become the practice of many Louisiana
corporations of filing the report only every third year.
As noted, the foregoing is a brief synopsis of only some of the changes to the Louisiana
corporate law regime. In addition to referencing the LBCA whenever a corporation is
considering any future action or transaction, Louisiana business corporations may want to
review their corporate governance documents in light of the new provisions to determine if
amendments or restatements might be warranted. Don’t hesitate to contact us if we can be
of assistance.
4 812 San Antonio Street, Suite 600│Austin, Texas 78701│(512) 583-5900
1000 Walnut Street, Suite 1400│Kansas City, Missouri 64106│(816) 292-8141
www.fkhfpartners.com