NRAI Compliance Updates

NRAI Compliance Updates - August 2006

Greetings,

This newsletter recaps in complete form the Delaware Legislation we sent out to you in a special release recently as well as brings to your attention several bills that have passed in other jurisdictions. Legislative activity is in the summer time lull.

Please note the following legislative acts:

Massachusetts HB 5195 – Financial institution names
Missouri SB 1208 – Corporate Amendments
New York AB 12035/SB 8416 Not-for-Profit Dissolution

Robert K. Rowell

New, Pending and Passed Legislation

Federal Legislation

SB 3777 Tax

A bill to amend the Internal Revenue Code of 1986 to ensure a fairer and simpler method of taxing controlled foreign corporations of United States shareholders, to treat certain foreign corporations managed and controlled in the United States as domestic corporations, to codify the economic substance doctrine, and to eliminate the top corporate income tax rate, and for other purposes.

Full Text available at: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_bills&docid=f:s3777is.txt.pdf

Current Bill Status: August 2, 2006 referred to the Committee on Finance.

California

HB 339 LP’s and LLC’s Asset sale

Limited partnerships and limited liability companies. This bill would revise and recast these provisions by enacting the Limited Partnership Act of 2008 and would repeal the existing provisions for limited partnerships on January 1, 2010. The bill would make other related changes.

Existing law authorizes a person who sells all or substantially all of the assets of, or the goodwill of, a business entity, including a limited liability company, to agree to refrain from carrying on a similar business within a specified geographic area, as specified. Existing law similarly authorizes a member of a limited liability company to make such an agreement upon or in anticipation of a dissolution of the company.

This bill would make a technical change to these provisions with respect to limited liability companies.

This bill would incorporate additional changes to Section 16101 of the Corporations Code, proposed by AB 2914, to be operative only if AB 2914 and this bill are both chaptered and become effective on or before January 1, 2007

Full Text available at: http://www.leginfo.ca.gov/pub/bill/asm/ab_0301-0350/ab_339_bill_20060808_amended_sen.pdf

Current Bill Status: August 8, 2006 in Senate Appropriations Committee.

SB 1207 Election of Directors

Existing law provides that, in any election of the members of the board of directors of a corporation, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them up to the number of directors to be elected by those shares are elected.

This bill would authorize a listed corporation to amend its articles of incorporation or bylaws to provide that in an uncontested election of a listed corporation, as defined, approval by a majority of the shares represented and voting would be required to
elect each director.

Full Text available at: http://www.leginfo.ca.gov/pub/bill/sen/sb_1201-1250/sb_1207_bill_20060628_amended_asm.pdf

Current Bill Status: July 29, 2006 to third reading.

Delaware

HB 414

An Act to amend Chapter 18, Title 6 of the Delaware Code relating to the creation, regulation, operation and dissolution of domestic limited liability companies and the registration and regulation of foreign limited liability companies.

This Bill continues the practice of amending periodically the Delaware Limited Liability Company Act (the “Act”) to keep it current and to maintain its national preeminence. The following is a section-by-section review of the proposed amendments of the Act.

Section 1. This Section amends § 18-101(12) of the Act to confirm the broad scope of the defined term “person”.

Sections 2 and 3. These Sections amend § 18-104 of the Act to expand the types of entities that may serve as registered agents; prescribe the duties of a registered agent; require that persons or entities serving as registered agent for more than fifty entities (a “Commercial Registered Agent”) be generally open during normal business hours and have a natural person present to operate such office and communicate with the Secretary of State on request; require Delaware limited liability companies to provide registered agents with a designated natural person to receive communications from the registered agent and require the registered agent to maintain in its records the identity of such persons; authorize the Secretary of State to issue regulations to enforce these provisions; authorize the Secretary of State to bring a lawsuit in the Court of Chancery to enjoin any person or entity from acting as a registered agent, or as an officer, or director or managing agent of a registered agent, any person or entity who fails to comply with the statutory requirements, who has been convicted of a felony or any crime involving dishonesty, fraud or moral turpitude, or who has used the office of registered agent in a manner intended to defraud the public; provide that the certificate of formation or registration of a domestic or foreign limited liability company will be cancelled if it fails, within a prescribed period, to obtain and designate a new registered agent if the Court of Chancery enjoins any person or entity from acting as a registered agent for such limited liability company; and authorize the Secretary of State to make a list of registered agents available to the public.

Section 4. This Section amends § 18-203 of the Act to conform to new § 18-104(i)(4) of the Act which provides for the cancellation of a certificate of formation in the circumstances therein provided.

Section 5. This Section amends § 18-206(b) of the Act to conform to new § 18-104(i)(4) of the Act which provides for the cancellation of a certificate of formation in the circumstances therein provided.

Section 6. This Section amends § 18-209(b) of the Act to correct words used in the subsection.

Sections 7-32. Sections 7 through 32 of the Bill make technical changes to §18-212 (domestication of non-US entities), § 18-213 (transfer or continuance of domestic limited liability companies), § 18-214 (conversion of certain entities to a limited liability company) and § 18-216 (approval of conversion of a limited liability company) of the Act to conform these Sections to the parallel provisions in the Delaware General Corporation Law adopted in 2005.

Section 33. This Section amends § 18-302(d) of the Act to clarify that meetings of members of a Delaware limited liability company may be held by conference telephone or similar communications equipment unless otherwise provided in a limited liability company agreement.

Section 34. This Section amends § 18-404(d) of the Act to clarify that meetings of managers of a Delaware limited liability company may be held by conference telephone or similar communications equipment unless otherwise provided in a limited liability company agreement.

Section 35. This Section amends § 18-906 of the Act to conform to the provisions of § 18-904(e) and new § 18-104(i)(4) of the Act which provide for the cancellation of the registration of a foreign limited liability company under the circumstances therein provided.

Sections 36 and 37. These Sections amend § 18-1109 of the Act to permit the revival of a certificate of formation of a limited liability company whose certificate of formation has been cancelled pursuant to new § 18-104(i)(4).

Section 38. This Section provides that the proposed amendments in Section 1 and Sections 6 through 34 of this Bill shall become effective August 1, 2006 and that the proposed amendments in Sections 2 through 5 and Sections 35, 36 and 37 of this Bill shall become effective on January 1, 2007.

Full Text available at: http://www.legis.state.de.us/LIS/lis143.nsf/vwLegislation/HB+414/$file/legis.html?open

Current Bill Status: June 28, 2006 Signed By Governor

HB 415

An Act to amend Chapter 17, Title 6 of the Delaware Code relating to the creation, regulation, operation and dissolution of domestic limited partnerships and the registration and regulation of foreign limited partnerships

This bill continues the practice of amending periodically the Delaware Revised Uniform Limited Partnership Act (the “Act”) to keep it current and to maintain its national preeminence. The following is a section-by-section review of the proposed amendments of the Act.

Section 1. This Section amends § 17-101(14) of the Act to confirm the broad scope of the defined term “person”.

Section 2. This Section amends § 17-102(1) of the Act to confirm that the name of a limited liability limited partnership shall contain the words, abbreviation or designation required under § 17-214(a) of the Act (e.g., “LLLP”) rather than those required under § 17-102(1) (e.g., “LP”).

Sections 3 and 4. These Sections amend § 17-104 of the Act to expand the types of entities that may serve as registered agents; prescribe the duties of a registered agent; require that persons or entities serving as registered agent for more than fifty entities (a “Commercial Registered Agent”) be generally open during normal business hours and have a natural person present to operate such office and communicate with the Secretary of State on request; require Delaware limited partnerships to provide registered agents with a designated natural person to receive communications from the registered agent and require the registered agent to maintain in its records the identity of such persons; authorize the Secretary of State to issue regulations to enforce these provisions; authorize the Secretary of State to bring a lawsuit in the Court of Chancery to enjoin any person or entity from acting as a registered agent, or as an officer, or director or managing agent of a registered agent, any person or entity who fails to comply with the statutory requirements, who has been convicted of a felony or any crime involving dishonesty, fraud or moral turpitude, or who has used the office of registered agent in a manner intended to defraud the public; provide that the certificate of limited partnership or registration of a domestic or foreign limited partnership will be cancelled if it fails, within a prescribed period, to obtain and designate a new registered agent if the Court of Chancery enjoins any person or entity from acting as a registered agent for such limited partnership; and authorize the Secretary of State to make a list of registered agents available to the public.

Sections 5. This Section amends § 17-203 of the Act to conform to new § 17-104(i)(4) of the Act which provides for the cancellation of a certificate of limited partnership in the circumstances therein provided.

Section 6. This Section amends § 17-206(b) of the Act to conform to new § 17-104(i)(4) of the Act which provides for the cancellation of a certificate of limited partnership in the circumstances therein provided.

Sections 7-8. These Sections amend § 17-214 of the Act to confirm that a limited partnership may be formed from its inception as a limited liability limited partnership.

Sections 9-27 and 33-39. Sections 9 through 27 and Sections 33 through 39 of the bill make technical changes to §17-215 (domestication of non-US entities), § 17-216 (transfer or continuance of domestic limited partnerships), § 17-217 (conversion of certain entities to a limited partnership) and § 17-219 (approval of conversion of a limited partnership) of the Act to conform these Sections to the parallel provisions in the Delaware General Corporation Law adopted in 2005.

Sections 28-32. These Sections amend § 17-217 of the Act to clarify the procedures for converting an other entity to a domestic limited liability limited partnership.

Section 40. This Section amends § 17-302(e) of the Act to clarify that meetings of limited partners of a Delaware limited partnership may be held by conference telephone or similar communications equipment unless otherwise provided in a partnership agreement.

Section 41. This Section amends § 17-405(d) of the Act to clarify that meetings of general partners of a Delaware limited partnership may be held by conference telephone or similar communications equipment unless otherwise provided in a partnership agreement.

Section 42. This Section amends § 17-906 of the Act to conform to the provisions of § 17-904(e) and new § 17-104(i)(4) of the Act which provide for the cancellation of the registration of a foreign limited partnership under the circumstances therein provided.
Sections 43 and 44. These Sections amend § 17-1111 of the Act to permit the revival of a certificate of limited partnership of a limited partnership whose certificate of limited partnership has been cancelled pursuant to new § 17-104(i)(4).

Section 45. This Section provides that the proposed amendments in Sections 1 and 2 and Sections 7 through 41 of this bill shall become effective August 1, 2006 and that the proposed amendments in Sections 3 through 6 and Sections 42, 43 and 44 of this bill shall become effective January 1, 2007.

Full Text available at: http://www.legis.state.de.us/LIS/lis143.nsf/vwLegislation/HB+415/$file/legis.html?open

Current Bill Status: Signed by Governor on July 10, 2006

HB 424

An Act to amend Chapter 15, Title 6 of the Delaware Code relating to the creation, regulation, operations and dissolution of domestic partnerships and the registration and regulation of foreign limited liability partnerships.

This bill continues the practice of amending periodically the Delaware Revised Uniform Partnership Act (the “Act”) to keep it current and to maintain its national preeminence. The following is a Section-by-Section review of the proposed amendments of the Act.
Section 1. This Section amends § 15-101(16) of the Act to confirm the broad scope of the defined term “person”.

Section 2. This Section amends § 15-105(d) of the Act to conform to new § 15-111(i)(4) of the Act which provides for the cancellation of a statement of partnership existence in the circumstances therein provided.

Sections 3 and 5. These Sections amend § 15-111 of the Act to expand the types of entities that may serve as registered agents; prescribe the duties of a registered agent; require that persons or entities serving as registered agent for more than fifty entities (a “Commercial Registered Agent”) be generally open during normal business hours and have a natural person present to operate such office and communicate with the Secretary of State on request; require Delaware partnerships to provide registered agents with a designated natural person to receive communications from the registered agent and require the registered agent to maintain in its records the identity of such persons; authorize the Secretary of State to issue regulations to enforce these provisions; authorize the Secretary of State to bring a lawsuit in the Court of Chancery to enjoin any person or entity from acting as a registered agent, or as an officer, or director or managing agent of a registered agent, any person or entity who fails to comply with the statutory requirements, who has been convicted of a felony or any crime involving dishonesty, fraud or moral turpitude, or who has used the office of registered agent in a manner intended to defraud the public; provide that the statement of partnership existence and statement of qualification (in each case as applicable) or statement of foreign qualification will be cancelled if it fails, within a prescribed period, to obtain and designate a new registered agent if the Court of Chancery enjoins any person or entity from acting as a registered agent for such partnership; and authorize the Secretary of State to make a list of registered agents available to the public.

Section 4. This Section amends § 15-111(d) of the Act to clarify that a partnership’s statement of partnership existence and statement of qualification (in each case as applicable) will be cancelled if such partnership fails to obtain and designate a new registered agent prior to the expiration of 30 days after the filing by the registered agent of the certificate of resignation.

Section 6. This Section amends § 15-407(d) of the Act to clarify that meetings of partners of a Delaware partnership may be held by conference telephone or similar communications equipment unless otherwise provided in a partnership agreement.

Sections 7-32. Sections 7 through 32 of the bill make technical changes to § 15-901 (conversion of certain entities to a domestic partnership), § 15-903 (approval of conversion of a domestic partnership), §15-904 (domestication of non-US entities) and § 15-905 (transfer or continuance of domestic partnerships) of the Act to conform these Sections to the parallel provisions in the Delaware General Corporation Law adopted in 2005.

Section 33. This Section amends the Act to add a new § 15-1004 of the Act to permit the reinstatement of a statement of qualification or a statement of foreign qualification of a partnership whose statement of qualification or statement of foreign qualification has been cancelled pursuant to § 15-111(d) or new § 15-111(i)(4).

Section 34. This Section amends § 15-1102(b) of the Act to conform to the provisions of § 15-111(d) and new § 15-111(i)(4) of the Act which provide for the cancellation of the registration of a foreign limited liability partnership under the circumstances therein provided.

Sections 35 and 36. These Sections amend § 15-1210 of the Act to permit the revival of a statement of partnership existence of a partnership whose statement of partnership existence has been cancelled pursuant to new § 15-111(i)(4).

Section 37. This Section provides that the proposed amendments in Sections 1 and 4 and Sections 6 through 32 of this bill shall become effective August 1, 2006 and that the proposed amendments in Sections 2, 3 and 5 and Sections 33 through 36 of this bill shall become effective January 1, 2007.

Full Text available at: http://www.legis.state.de.us/LIS/lis143.nsf/vwLegislation/HB+424/$file/legis.html?open

Current Bill Status: Signed by Governor on July 10, 2006

HB 445

An Act to amend Chapter 38, Title 12 of the Delaware Code relating to statutory trusts.

This Bill continues the practice of amending periodically the Delaware Statutory Trust Act (the “Act”) to keep it current and to maintain its national preeminence. The following is a Section by Section review of the amendments of the Act.

Section 1. This Bill restores language that was inadvertently deleted by a prior amendment.

Section 2. This Bill confirms the broad scope of the defined term “person”.

Section 3. This Bill confirms that beneficial owners and trustees are bound by governing instruments whether or not executed by them.

Section 4. This Bill deletes a subsection that is duplicative of the new § 3863 of the Act added hereby.

Section 5. This Bill clarifies that duties (including fiduciary duties) may be expanded, restricted and eliminated in a governing instrument. This Bill confirms that a governing instrument may not eliminate the implied contractual covenant of good faith and fair dealing.

Section 6. This Bill clarifies the default exculpation provision in the Act by providing that it only applies with respect to breaches of fiduciary duties.

Section 7. This Bill confirms the flexibility permitted in the Act regarding exculpation.

Section 8. This Bill clarifies that meetings of beneficial owners of a Delaware statutory trust may be held by conference telephone or similar communications equipment unless otherwise provided in a governing instrument.

Section 9. This Bill clarifies that meetings of trustees of a Delaware statutory trust may be held by conference telephone or similar communications equipment unless otherwise provided in a governing instrument.

Section 10. This Bill to add a new subsection (k) to § 3806 clarifies the circumstances under which trustees, beneficial owners or officers, employees, managers or other persons designated in accordance with § 3806(b)(7) may rely on the records of, or information relating to, the statutory trust.

Section 11. This Bill makes a technical change with respect to registered agents.

Sections 12 through 14. This Bill allows the beneficial owners to vote to continue the existence of the statutory trust notwithstanding the governing instrument provides for dissolution, makes some technical changes with respect to the winding up of the affairs of a statutory trust and confirms that a statutory trust’s existence continues until the cancellation of its certificate of trust.

Sections 15, 16 and 17. This Bill makes some technical and conforming changes to the sections of the Act relating to conversion of an entity into a statutory trust and domestication of non-U.S. entities.

Section 18. This Bill confirms the flexibility permitted in the Act with respect to transfer or continuance of domestic statutory trusts.

Section 19. This Bill deletes a subsection that is duplicative of the new § 3863 of the Act added hereby.

Section 20. This Bill adds a new § 3863 of the Act relating to activities not constituting doing business in Delaware.

Section 21. This Bill provides that the proposed amendments of the Act shall become effective on August 1, 2006.

Full Text available at: http://www.legis.state.de.us/LIS/lis143.nsf/vwLegislation/HB+445/$file/legis.html?open

Current Bill Status: Signed by Governor on July 10, 2006

SB 322

An Act to amend Title 8 of the Delaware Code relating to the General Corporation Law.

Section 1 Amends § 102(a)(1) to provide that the name of a Delaware corporation must be such as to distinguish it from the names (whether reserved or of record) of each other domestic or foreign corporation, partnership, limited partnership, limited liability company or statutory trust upon the records in the office of the Division of Corporations in the Department of State, except with the written consent of the person who has reserved such name or such other corporation, partnership, limited partnership, limited liability company or statutory trust.

Section 2 Amends § 102 to add new subsection (e), which clarifies who may reserve a name that is available for use by a domestic or foreign corporation and provides the procedures to be followed by the applicant and the Secretary of State to reserve such name.

Section 3 Amends § 141(b) to add a new provision that a resignation may be made effective upon the happening of a future event or events, coupled with authority granted in the same section to make certain resignations irrevocable. By permitting a corporation to enforce a director resignation conditioned upon the director failing to achieve a specified vote for reelection, e.g., more votes for than against, coupled with board acceptance of the resignation, these provisions permit corporations and individual directors to agree voluntarily, and give effect in a manner subsequently enforceable by the corporation, to voting standards for the election of directors which differ from the plurality default standard in Section 216. The new provisions of Section 141(b) do not, however, address whether resignations submitted in other contexts may be made irrevocable.

Section 4 Amends the first sentence of § 141(d) to clarify that the classified terms of directors commence after the classification of the board of directors becomes effective, thereby expressly permitting certificate of incorporation or bylaw provisions that provide for classification effective at a point in time after such provisions are adopted. The new sentence added to Section 141(d) permits the certificate of incorporation or bylaw provision that divides the directors into classes to include language authorizing the board of directors to assign members of the board already in office to the board classes at the time such classification becomes effective.

Section 5 Amends § 216 to provide that a bylaw adopted by a vote of stockholders that prescribes the required vote for the election of directors may not be altered or repealed by the board of directors. This amendment does not address any other situation in which the board of directors amends a bylaw adopted by stockholder vote.

Section 6 Amends § 371 to provide that before a foreign corporation shall have the right to do business in Delaware, the name of such foreign corporation must be such as to distinguish it from the names (whether reserved or of record) of each other domestic or foreign corporation, partnership, limited partnership, limited liability company or statutory trust upon the records in the office of the Division of Corporations in the Department of State, except with the written consent of the person who has reserved such name or such other corporation, partnership, limited partnership, limited liability company or statutory trust.

Section 7 Amends § 391 to provide that a fee of up to $75 shall be collected by and paid to the Secretary of State for accepting a corporate name reservation application as well as an application for renewal of a corporate name reservation or a notice of transfer or cancellation of a corporate name reservation.

Section 8 provides that the proposed amendments set forth in Sections 1 through 7 of this Act shall become effective on August 1, 2006.

Sections 9 and 10 Amend § 132 to expand the types of entities that may serve as registered agents; prescribe the duties of a registered agent; require that persons or entities serving as registered agent for more than 50 business entities be generally open during normal business hours and have a natural person present to operate such office and communicate with the Secretary of State on request; require Delaware corporations to provide registered agents with a designated natural person to receive communications from the registered agent and require the registered agent to maintain in its records the identity of such persons; authorize the Secretary of State to issue regulations to enforce these provisions; authorize the Secretary of State to bring a lawsuit in the Court of Chancery to enjoin from acting as a registered agent, or as an officer, or director, or managing agent of a registered agent, any person or entity who fails to comply with the statutory requirements, who has been convicted of a felony or any crime involving dishonesty, fraud or moral turpitude, or who has used the office of registered agent in a manner intended to defraud the public; and authorize the Secretary of State to make a list of registered agents available to the public.

Sections 11 through 16 are technical Amendments to § 312 to make it consistent with revisions to §§ 132, 502, 503, 510, 511, 514, and 517.

Section 17 provides that the proposed Amendments set forth in Sections 9 through 16 of this Act shall become effective on January 1, 2007.

Sections 18 through 26 Amend §§ 502, 503, 510, 511, 514, and 517 to require Delaware corporations to file a complete annual franchise tax report including, among other things, the names and addresses of all of the corporation’s directors as of the filing date of the report and the name and address of the officer who signs the report, and require the Secretary of State to declare void the charter of any corporation that fails to file a complete annual franchise tax report.

Section 27 provides that the proposed Amendments set forth in Sections 18 through 26 of this Act shall become effective on January 1, 2008.

Full Text available at: http://www.legis.state.de.us/LIS/lis143.nsf/vwLegislation/SB+322/$file/legis.html?open

Current Bill Status: Signed by Governor on June 27, 2006

Massachusetts

HB 5195 Financial Institutions

Relative to the use of the name of financial institutions.

Full Text available at: http://www.mass.gov/legis/laws/seslaw06/sl060209.htm

Current Bill Status: Signed by Governor on August 2, 2006 as Chapter 209 of the Acts of 2006

Missouri

SB 1208 Corporate Amendments

This act allows the board of directors of a corporation to directly submit to its shareholders, a proposed amendment to the corporation's articles of incorporation.

Full Text available at: http://www.senate.mo.gov/06info/pdf-bill/tat/SB1208.pdf

Current Bill Status: Signed by Governor July 10, 2006 with an effective date of August 28, 2006.

New York

AB 12035/SB 8416 Not-for Profit Corporations

Relates to the members, directors and officers, and dissolution of not-for-profit corporations.

Full Test available at: http://assembly.state.ny.us/leg/?bn=S08416&sh=t
Current Bill Status: Signed by Governor as Chapter 434 on July 26, 2006

North Carolina

SB 1479 Uniform Unincorporated Nonprofit Association Act

An Act to enact the Uniform Unincorporated Nonprofit Association Act and to make technical corrections and conforming changes to the general statutes, as recommended by the general statutes commission.

Full Text available at: http://www.ncga.state.nc.us/Sessions/2005/Bills/Senate/PDF/S1479v3.pdf

Current Bill Status: Presented to Governor on July 26, 2006

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