On April 25, 2014, Governor Mark Dayton signed House Bill H.F. No. 2190, which makes a number of changes to Chapter 302A of the Minnesota Statutes, the Minnesota Business Corporation Act (the “MBCA”). These changes will go into effect on August 1, 2014 and will be applicable to all for-profit corporations incorporated in Minnesota. Among the more noteworthy changes are the following:
- Cross-Border Conversions. The MBCA currently permits a Minnesota corporation to convert into a Minnesota limited liability company (“LLC”) and vice versa. It does not permit a Minnesota corporation to convert into a foreign corporation or into a foreign LLC. The 2014 amendments will permit Minnesota corporations to re-incorporate in another state or become a foreign LLC using the one-step conversion process so long as the relevant law of the other state also provides for such cross-border conversions. The Delaware General Corporation Law, among other state corporation statutes, already authorizes such cross-border conversions. This change will substantially simplify cross-border re-incorporations and conversions into foreign LLCs, which may require multiple mergers under current law. In addition, the entity resulting from a conversion is deemed to be a continuation of the same entity as the converting entity for all purposes.
- Dissenters’ Rights in Reverse Stock Split Cash-Outs. In U.S. Bank v. Cold Spring Granite Co. (2011), the Minnesota Supreme Court held that a reverse stock split followed by a cash-out of fractional shares does not trigger dissenters’ rights of appraisal under the MBCA. The court ruled that the only remedy for shareholders being cashed out in such cases was to prove that the board valuation of the fractional shares was fraudulent. The 2014 amendments explicitly add a cash-out of fractional shares following a reverse stock split to the list of triggers of dissenters’ rights in Section 302A.471 of the MBCA. When such changes go into effect, cashed-out shareholders following a reverse split will be able to seek the “fair value” of their fractional shares in court, instead of having to prove a fraudulent valuation by the board.
- Class and Series Voting. The MBCA requires that classes and series of stock have the statutory right to vote separately as a class or series, regardless of the voting rights provided in their terms, when certain amendments to the articles of incorporation are put to a shareholder vote. Currently, those separate class and series statutory voting rights apply even where multiple classes and series are affected in the same way by the proposed amendment to the articles. The 2014 amendments permit a Minnesota corporation to add a provision to its articles of incorporation that would treat classes and series affected similarly as a single group for purposes of this statutory voting requirement.
- Officer Standard of Conduct. Section 302A.361 of the MBCA sets out the standard of conduct for an officer of a Minnesota corporation. It currently provides in pertinent part that: “An officer shall discharge the duties of an office in good faith, in a manner the officer reasonably believes to be in the best interests of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.” The analogous standard of conduct for a director of a Minnesota corporation is set out in the first sentence of Section 302A.251, subdivision 1. But the director provision is followed by a second sentence that does not currently appear in Section 302A.361: “A person who so performs those duties is not liable by reason of being or having been a director of the corporation.” The 2014 amendments add an officer version of this sentence to Section 302A.361 to parallel the director standard of conduct language in Section 302A.251.
- Parent-Subsidiary Mergers. Section 302A.621 of the MBCA permits “short-form” mergers between a corporate parent and subsidiaries in which the parent has 90% or higher ownership interest. The short-form merger process offers procedural efficiencies over mergers completed under other sections of the MBCA and is frequently used to complete the second-step transaction in acquisitions of public companies structured as “two-step” tender offers when a 90% or greater interest in the public company target is acquired in a first-step tender offer. Currently, Section 302A.621 requires that the articles of merger for a short-form merger set forth the precise number of shares owned by the parent. In a tender offer for a public company target, the acquiring company may not know the precise number of shares it has acquired in the first step even though it is confident that it has achieved significantly more than the 90% necessary to complete the second-step merger. The 2014 amendments eliminate the requirement of stating the precise number and permit the parent simply to state that it owns at least 90% of the outstanding shares of the merging subsidiary.
- Prefiling Document Review by the Minnesota Secretary of State. The staff of the Office of the Minnesota Secretary of State has historically provided informal pre-clearance of filings when time permitted. The 2014 amendments provide a formal process for prefiling document review for a fee of $250. If a document is pre-cleared under the new process, it may be filed (with payment of the appropriate filing fee) with no further substantive review by the Secretary of State within six months of the pre-clearance.
Bryn Vaaler, Robert Rosenbaum and Jonathan Van Horn are members of the committee of the Minnesota State Bar Association that drafted the 2014 amendments discussed in this eUpdate. For further information on the 2014 amendments and their potential impact on your business, please contact one of them or any member of Dorsey’s Corporate Group in Minneapolis.