- Report Published -
|The Revision of Chapters 1 and 2 of Title 13.1 of the Code of Virginia|
|Virginia Code Commission|
|HJR 3 (Regular Session, 1983)|
|House Joint Resolution No. 3 of the 1983 Acts of Assembly directed the Virginia Code Commission to make a careful study of Chapters 1 and 2 of Title 13.1 of the Code of Virginia and report its findings in the form of a revision of such chapters to the Governor and General Assembly. Pursuant to such mandate, the study has been completed and a revision of those chapters is included in this report.|
The study resolution was initially brought to the attention of the 1983 General Assembly by Mr. Speaker Philpott and Delegate Morrison, who were both interested in "The 1983 Revised Model Business Corporation Act" that was being proposed by The Committee on Corporate Laws of the American Bar Association's Section of Corporation, Banking and Business Law. The Virginia study pursuant to House Joint Resolution No. 3 was continued from 1983 to 1984 in order to allow the Code Commission and interested parties the opportunity to review additional changes that were being made by the American Bar Association to its model bill.
Mr. Allen C. Goolsby, Jr., Esq. served as the chief draftsman of the revision of the Stock Corporation Act and was advised by Mr. George B. Gibson, Esq. and Mr. John W. Riely, Esq., all three of whom are with the Richmond law firm of Hunton and Williams. C William Crammé, III, Esq., Senior Attorney with the Division of Legislative Services, provided the staff support for this project, assisted Mr. Goolsby in his drafting, and drafted the revision to the Virginia Non-Stock Act. Joan W. Smith, of the Division provided administrative and technical support.
Those responsible for preparing the drafts were assisted by representatives of the following: the State Corporation Commission, the Virginia State Bar and the Virginia Bar Association; Mr. F. Claiborne Johnston, Jr., Esq., Mr. Stephen R. Larson, Esq., and Mr. Thomas C Brown, Jr., Esq., representing the bar associations, assisted the Commission in its efforts. These representatives and many others regularly attended Commission meetings and further advised the Commission. Copies of proposed chapter drafts were liberally distributed to and comments requested from, the groups and individuals having substantial interest in the corporation laws of the Commonwealth.
The revision of Chapters 1 and 2 of Title 13 1 of the Code of Virginia, which was referred to as the "Virginia Draft" throughout the Commission's meetings in order to distinguish the revision from current law, follows this text as Appendix 1. While the Virginia Draft represents a complete rewrite of the Stock Corporation Act with conforming amendments to the Non-Stock Corporation Act, the principal changes include:
1. The adoption of a statutory standard of conduct for directors.
2. A new article requiring a special shareholder vote for significant transactions between a corporation and any holder of more than ten percent of its voting shares unless the transaction has been approved by an independent board of directors or the other shareholders will receive a "fair price" for their shares.
3. For corporations with more than thirty-five shareholders, only the Chairman of the Board, the President and the Board of Directors may call a special meeting of the shareholders unless the articles of incorporation or bylaws provide otherwise. For closely held corporations, the holders of twenty percent of the outstanding shares may call a special meeting unless otherwise provided in the articles of incorporation.
4. For major corporate transactions, the affirmative vote of more than two-thirds of the outstanding shares will still be required. A corporation will have the authority to amend the articles of incorporation to reduce the required vote to any level which shall not be less than a simple majority of those present and entitled to vote at a meeting at which a quorum exists.
5. A corporation will be allowed to provide in its articles of incorporation that directors may be removed only for cause.
6. Par value, stated capital, capital surplus and treasury shares are some of the traditional concepts that are eliminated.
7. The role of the Clerk of the State Corporation Commission is essentially unchanged and the limited review of any order entered by the Commission will remain intact.
8. Approval by the shareholders of the surviving corporation in a merger will no longer be required if the increase in the number of outstanding voting shares is less than twenty percent.
9. In a derivative suite, the court will have statutory authority to appoint a committee of two or more disinterested directors or other disinterested persons to determine whether continuation of the suit is in the best interest of the corporations. On the basis of the committee's report, the court may elect to dismiss the proceeding.
Cross-reference tables follow the Virginia Draft, appearing as Appendix 2 to this report, and indicate the equivalent sections in the proposed new chapters of Title 13.1 to those m present Chapters 1 and 2 of Title 13.1 and vice versa.
Because the concept of par value was eliminated by the Virginia Draft, changes In Title 58.1 were necessary. Traditionally, charter, entrance and annual registration fees and annual franchise taxes of stock corporations had been based on the amount of maximum authorized capital stock. The Virginia Draft changes that concept and bases those fees and taxes on number of authorized shares of a stock corporation. This change necessitated amendments to Chapter 28 of Title 58.1 of the Code of Virginia and those changes are reflected in a separate draft which appears in Appendix 3 of this report.
The last attachment to this report, Appendix 4, is the Virginia Bar Association's and the Virginia State Bar's comments to the Virginia Code Commission's proposed revision of the Virginia Stock Corporation Act. The Code Commission has included this joint bar committee review of the proposed revision without comment.
The Virginia Code Commission recommends that the General Assembly enact legislation at the 1985 Session to effect this revision.