Changes to the Oklahoma General Corporation Act
By Nicole Cawood-Anderson and Chantelle Hickman-Ladd
The 2017 Oklahoma legislative term wielded many changes to Title 18 of the Oklahoma Statutes on corporate regulation. These additions and redactions to the Oklahoma General Corporation Act passed with overwhelming support.1 Adjustments were made to the interpretation and enforcement of corporate instruments, indemnification in lawsuits, issuance of stock, ratification of defective corporate acts, determination of record stockholders, mergers, consolidations, dissolutions and appraisal rights.
This article is designed to outline and briefly summarize the significant amendments and new statutes signed into law by the governor on May 17, 2017, and took effect on Nov. 1, 2017.
The first amendment to the Corporation Act provides leeway for incorporators who are acting on behalf of others. Section 1012 added a provision that allows “any person for whom or on whose behalf [an] incorporator was acting ... as employee or agent [to] take any action that such incorporator would have been authorized to take.”2 However, any instrument signed by the actor, or record of a meeting the actor participated in, must state that the incorporator is unavailable and why; that the incorporator was acting as an employee or agent for, or on behalf, of the actor; and the actor’s “signature on such instrument or participation in such meeting is otherwise authorized and not wrongful.”3
Shareholders have also been given more leeway in examining corporate documents. Section 1014.1, now titled Interpretation and Enforcement of Corporate Instruments and Provisions of this Title, permits a shareholder, member or director to inquire into the validity of any instrument, document, agreement relating to the selling of stock or leasing or exchanging property or assets.4 Documents involving the “restrictions on the transfer, registration of transfer or ownership of securities under Section 1055;” “any proxy under Section 1057 or 1060; any voting trust under Section 1063; any agreement, certificate of merger or consolidation, or certificate of ownership and merger governed by Sections 1081 through 1087, or Section 1090.2;” and certificates of conversion under Section 1090.4 or 1090.5 may also be reviewed.5 If after reviewing such documents a cause of action has been deemed necessary, a suit may be brought in the district court unless exclusive jurisdiction is specified elsewhere.6 Beyond this, the Oklahoma Legislature created a new law, Section 1014.2, allowing the certificate of incorporation or bylaws of a corporation to contain a provision stating that all internal corporate claims must be brought in an Oklahoma court.7 However, this section prohibits a corporation from making regulations against a suit being brought in an Oklahoman court.8
REGISTERED OFFICE AND REGISTERED AGENT
The amendments to Section 1022 seem to clarify and fill in gaps of the unrevised statute. Section 1022(B)(2) provides that a foreign corporation must maintain the secretary of state as its registered agent, but may list an additional registered agent, aside from itself, that process can be served on.9 Furthermore, Section 1022 now contains a provision requiring all corporations to provide its registered agent with general contact information for an “employee or designated agent ... who is ... authorized to receive communications from the registered agent.”10 More interestingly, the registered agent is allowed to resign, pursuant to Section 1026, if the corporation “fails to provide the registered agent with a current communications contact.”11
DIRECTORS AND OFFICERS
Under Section 1031, an officer or director may receive an advancement of expenses from a corporation, including attorney’s fees, to defend a criminal, civil or administrative or investigative action prior to a final disposition.12 The director or officer is also protected from the corporation taking steps to prevent them from receiving indemnification or advance funds by precluding the corporation from “eliminate[ing] or impair[ing] … the certificate of incorporation or the bylaw[s] after the occurrence of an act or omission.”13 However, the certificate of incorporation or bylaws may permit the elimination or impairment of indemnification or the advancement of funds so long as “the provision in effect at the time of [the] act or omission” explicitly authorizes it.14
STOCKS AND DIVIDENDS
Capital stock could already be exchanged for consideration, excluding services. Section 1033 now provides the Board of Directors with the discretion to create a formula that will establish the amount of consideration needed for that exchange.15 Furthermore, the certificates of stock may now be signed by any two authorized officers, instead of specific board members as previously required under Section 1039.16
One of the more interesting changes to the General Corporations Act is the addition of Sections 1055.1 and 1055.2, which give corporations a way to remedy defective corporate acts. A defective corporate act is defined as “an overissue, an election or appointment of directors that is void or voidable, or any act or transaction purportedly taken by or on behalf of the corporation that is, … [or] would have been, within the power of a corporation under subchapter II of Title 18 of the Oklahoma Statutes, but is void or voidable due to a failure of authorization.”17
Section 1055.1 governs the ratification of defective corporate acts and stocks.18 To ratify a defective corporate act, the Board of Directors is required to, among other things, adopt a resolution stating: “the [specific] defective corporate act … to be ratified, the date of [the] defective corporate act …, if such defective corporate act ... involved the issuance of shares of putative stock …, the nature of the failure of authorization …, and that the board of directors approves the ratification of the defective corporate act.”19 For the ratification of an election of the initial Board of Directors, the resolution must state “the name of the person[(s)] who [were] … the initial board of directors of the corporation, the earlier of the date on which such persons first took such action or were purported to have been elected as the initial board of directors, and that the ratification of the election of such person[(s)] as the initial board of directors is approved.”20 Unless otherwise determined under Section 1055.2, “each defective corporate act ratified in accordance with this section shall no longer be deemed void or voidable as a result of the failure of authorization.”21 Critically, the ratification will retroactively take effect to the time of the defective corporate act.22
Section 1055.2 governs proceedings regarding the validity of defective corporate acts and stock.23 This section allows for anyone claiming to be “substantially and adversely affected by a ratification” to apply to the district court who may, among other things: “determine the validity and effectiveness of any defective corporate act ratified pursuant to Section [1055.1] ...; determine the validity and effectiveness of the ratification of any defective corporate act pursuant to Section [1055.1] ...; and modify or waive any of the procedures set forth in Section [1055.1].”24 The district court may also look to factors, such as what harm may be caused by ratifying or validating the defective act or by not ratifying or validating the corporate act, whether the defective act was treated as valid or “[a]ny other factors or considerations the court deems just and equitable.”25
MEETINGS, ELECTIONS, VOTING AND NOTICE
Another interesting addition is the amendment to Section 1058. Section 1058(A) now provides the record date for shareholders entitled to notice and the record date for shareholders entitled to vote at a meeting may be different days.26 However, the Board of Directors must specify that the record dates will be different, or it will be presumed to be the same date.27 The stock ledger of a corporation must still be updated prior to each and every meeting of the shareholders, however, when the record date establishing those entitled to vote and receive notice is less than 10 days before the scheduled shareholder meeting, the established ledger is deemed to reflect those eligible to vote.28 Furthermore, if an adjournment is requested at a meeting, the record date from the original meeting will be presumed to be the same for the reconvening of the adjourned meeting, unless the Board of Directors establish a new record date.29 If a new record date has been established that sets out the shareholders who are entitled to notice and to vote in the reconvened adjournment meeting, the Board of Directors must give notice of such a meeting in accordance with §1058(A).30
The Legislature also relaxed written consent requirements for corporations that have “a class of voting stock listed or traded on a national securities exchange or registered under 12(g) of the Securities Exchange Act of 1934 …, and [one thousand] or more shareholders of record.”31 Section 1073(B), requiring actions by the shareholders approved by written consent to be approved by holders of all outstanding stock entitled to vote was removed, leaving Section 1073(A) to govern consent of shareholders in lieu of a meeting.32 Furthermore, Section 1073(D) now permits “any person executing a consent” to authorize that his consent “will be effective at a future time” or after some triggering event.33 The future time will then serve as the time of signature for the purpose of this statute.34 However, with all extensions comes some regulation. This future time or triggering event can be no later than 60 days after the future consent is instructed or made.35 Critically, the future consent may be revoked “prior to it [ever] becoming effective.”36
Section 1065.1 regulates proxy solicitation material and reimbursements for the use of any proxy materials prior to a meeting.37 The bylaws of a corporation may now require proxy materials used to elect Board of Directors to include, not only the individual(s) selected by the current Board of Directors, but also “one or more individuals nominated by a shareholder.”38 Consequently, the corporation may include provisions requiring the nominating shareholder to list the number and type of shares belonging to him, provide information regarding the shareholder and his nominees, require that a “nominating shareholder undertake to indemnify the corporation … [for] any loss arising as a result of any false or misleading information … submitted by the nominating shareholder” and more.39 A reimbursement for any expenses incurred in soliciting a proxy may be given to a shareholder, if provided for in the bylaws.40 However, limitations may be placed on the requesting shareholder’s ability to collect a reimbursement such as, basing the reimbursement amount off the number of persons nominated, the number of votes cast for a nominee or “whether [the] shareholder previously sought reimbursement for similar expenses.”41 However, the bylaws cannot “apply to elections for which any record date precedes its adoption.”42
If an elected Board of Directors has committed a felony in connection with the director(s) duties to a corporation or breached his duty of loyalty to any corporation, a corporation or a shareholder “derivatively in the right of the corporation,” may bring a subsequent action to the district court to remove said director(s).43 The district court may remove the director(s) if it determines “that the [director(s)] did not act in good faith in performing the acts resulting in the prior conviction or judgment and judicial removal is necessary to avoid irreparable harm to the corporation.”44
AMENDMENT OF CERTIFICATE OF INCORPORATION; CHANGES IN CAPITAL AND CAPITAL STOCK
Section 1077 permits a corporation to amend its certificate of incorporation after receiving capital stock or after a nonstock corporation receives members.45 A corporation may now delete the named incorporator(s), the initial Board of Directors and the original subscribers of shares.46 It may also delete any amendments that “effect a change, exchange, reclassification, subdivision, combination or cancellation of stock,” if such an amendment has already become effective.47 “[U]nless otherwise expressly required by the certificate of incorporation,” a meeting or vote of the shareholders is not required to effectuate any of these changes, or a change to the corporate name.48 For all other amendments to the certificate of incorporation, notice in accordance with Section 1067 must be provided prior to the annual meeting or a special meeting being called, “unless such notice constitutes a notice of Internet availability of proxy materials under the rules promulgated under the Securities Exchange Act of 1934.”49
MERGER OR CONSOLIDATION
The Legislature amended Section 1081 to include a new form of merger to be effectuated without a shareholder vote. To qualify under this new merger provision, a corporation must “consummate50 an offer for all of the outstanding stock of [a] constituent corporation,” aside from any excluded stock.51,52 The agreement of merger must expressly “permit or require such merger to be effected under” Section 1081(H), and the merger must be “effected as soon as practicable following the consummation of the offer.”53 The tender offer may be conditioned on a minimum amount of shares purchased to effectuate a merger, but the consummating corporation must accept enough shares for purchase that, “together with the stock otherwise owned by the consummating corporation or its affiliates and any rollover stock,”54 would equal a majority vote on the merger.55 After the consummating corporation gains a majority of the shares, the merger must actually occur.56 Once the merger has occurred, the consummating corporation must give “the same amount in kind of cash, property, rights or securities” as the original tender for the constituent corporation’s shares.57 It should be noted that if the merger is approved, “[a]ny shareholder entitled to appraisal rights may, ... within the later of the consummation of [the] offer contemplated … and [twenty] days after the date of mailing of [his appraisal rights] notice, demand in writing from the surviving or resulting corporation the appraisal of the holder’s shares.”58
When a parent entity wishes to merge with a subsidiary corporation, the Legislature has provided in Section 1083.1 that, similar to Section 1083, where “at least [90%] of the outstanding shares of each class of the stock of a corporation[(s)]” is owned by an entity,59 the entity “may either merge the corporation[(s)] into itself and assume all of its or their obligations, or merge itself ... into one of the other corporations” if “one or more of such corporations is a corporation of this state.”60 Under this section, Sections 1088, 1090 and 1127 shall apply to the merger, and Sections 1089 and 1081(E) “shall apply to a merger ... in which the surviving constituent party is a corporation of this state.”61 “If the surviving constituent party exists under the laws of the District of Columbia or any state or jurisdiction other than this state,” Section 1082(D) “shall also apply to a merger under this section.”62
Once a merger has occurred, pursuant to Section 1091(D)(1), shareholders “who [were] such on the record date for notice” prior to a merger approval meeting shall receive notice of which shares are available for appraisal rights.63 The notice to said shareholders must “include in the notice a copy of [Section 1091] and, if one of the constituent corporations is a nonstock corporation, a copy of Section 1004.1.”64 Please note that Section 1004.1 is nonexistent under Title 18 of the Oklahoma Statutes, leaving this cross-reference unclear.
If a shareholder decides to bring an appraisal rights suit, the district court may now dismiss the suit if the stock of the constituent corporation is listed on a national securities exchange. However, the suit may not be dismissed if: “(1) the total number of shares entitled to appraisal exceeds [1%] of the outstanding shares of the class or series eligible for appraisal, (2) the value of the consideration provided in the merger or consolidation for such total number of shares exceed [$1 million], or (3) the merger was approved pursuant to Section 1083 or Section 1083.1.”65 Shareholders that have demanded appraisal rights are not “entitled to vote the[ir] stock for any purposes or to receive payment of dividends or other distributions” pursuant to Section 1090(K).66 However, the Legislature clarified that this section shall not affect the shareholders’ rights to withdraw their “demand for appraisal [rights] and to accept the terms offered upon the merger or consolidation within [sixty] days after the effective date of the merger or consolidation” if they did “not commence an appraisal proceeding or joined that proceeding as a named party.”67 If the shareholder is involved in the suit and appraisal rights are granted, the Legislature provided that “unless the court in its discretion determines otherwise for good cause shown, ... interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at [5%] over the Federal Reserve discount rate.”68 Nevertheless, the corporation may avoid interest payments by paying a lump sum to each shareholder entitled to appraisal rights prior to an entry of judgment.69
SALES OF ASSETS, DISSOLUTION AND WINDING UP
Section 1099 was amended to include that Sections 1100 through 1100.3 will now also apply to any corporation that has expired by its own limitation.70 To accomplish this goal, the Legislature also provided that all references to a dissolved corporation or dissolution in Sections 1100 through 1100.3 will include a corporation that has expired by its own limitations and to that expiration.71
RENEWAL, REVIVAL, EXTENSION AND RESTORATION OF CERTIFICATE OF INCORPORATION OR CHARTER
Section 1119 is now extended to include the restoration of expired certificates of incorporation.72 This has left Section 1120 to address only the revival of “any corporation whose certificate of incorporation has become forfeited by law for nonpayment of taxes or whose certificate of incorporation has been revived, but, through failure to comply strictly with the provisions of the Oklahoma General Corporation Act” has brought the validity of the revival into question.73 However, the Legislature made expressly clear that Section 1120 will not apply to “a corporation whose certificate of incorporation has been revoked or forfeited pursuant to Section 1104.”74
“A corporation may [now] revoke [a] dissolution ... or restore its certificate of incorporation after it has expired by its own limitations ” by having the Board of Directors adopt a resolution to revoke the dissolution or adopt a resolution that restores an expired certificate of incorporation.75 The Board of Directors must then “submit [the resolution] to a vote at a special meeting of the shareholders.”76 Notice of the special meeting to the shareholders is required, and during this meeting the shareholders shall vote whether or not to accept the resolution.77 A nonstock corporation may also revoke a dissolution or restore a certificate of incorporation by a vote of the eligible members, and by filing a certificate of revocation or of restoration.78
Any corporation, with or without stock, that has revoked a dissolution agreement or reinstates a certificate of incorporation, must “file all annual franchise tax reports that the corporation would have had to file if it had not dissolved or expired.”79 The corporation must also “pay all franchise taxes that the corporation would have had to pay if it had not dissolved or expired.”80
Section 1136 states that when a foreign corporation has agreed, in writing, to be a subject within Oklahoma jurisdiction and does not designate a manner of service, the corporation will be “deemed to have … appointed … the Secretary of State [of Oklahoma] … [as] its agent for the acceptance of legal process in any ... proceeding against [the corporation].”81 Under Section 1135, when the secretary of state is served in accordance with Oklahoma Title 12 Section 2004, the corporation must be notified immediately by letter, certified mail or return receipt requested at the appropriate corporate address.82 It is the plaintiff’s duty to deliver duplicates during service, “to notify the Secretary of State that service is being effected pursuant to [Section 1135(D)],” and to pay a fee required by Section 1142(7).83 The secretary of state can only be required to keep the record of such service for five years.84
The 2017 legislative session impacted Oklahoma incorporations by making significant changes to the Oklahoma General Corporation Act. The Legislature implemented new laws on forum selection provisions within a corporation’s certificate of incorporation and bylaws; the ratification of and proceedings regarding the validity of defective corporate acts and stock; access to proxy solicitation materials and reimbursements; and the merger of parent entities with subsidiary corporation(s). Thirty-three sections of Title 18 were partly or substantially amended. These amendments modified several laws affecting the formation of a corporation; indemnification of directors and officers in lawsuits; the merging, consolidating or dissolving of a corporation; and appraisal rights.
Authors’ note: Special thanks to Associate Dean Paula J. Dalley for her guidance and support.
ABOUT THE AUTHORS
Nicole Cawood-Anderson graduated from the University of Central Oklahoma with a Bachelors in Criminal Justice and from Baylor University with a Bachelors in Political Science. She is currently a 2L at the OCU School of Law.
Chantelle Hickman-Ladd graduated from the University of Central Oklahoma with a Bachelors in Business Administration. She is currently a 2L at the OCU School of Law, where she is a member of the OCU Law Review.
1. “Bus. Entities; authorizing actions to determine validity of certain corp. instruments: RCS # 729.” Okla. Legis. S. (May 17, 2017) p. SB769, “Bus. Entities; authorizing actions to determine validity of certain corp. instruments: RCS # 667.” Okla. Legis. HR. (April 27, 2017) p. SB769 (bill passed 89 to 1 in the House of Representatives, and 36 to 4 in the Senate).
2. Okla. Stat. Tit. 18, §1012(D) (Supp. 2017).
4. Tit. 18, §1014.1(A)(2).
5. Tit. 18, §1014.1(A)(3), (5)-(7).
6. Tit. 18, §1014.1(B) (Supp. 2017).
7. Okla. Stat. Tit. 18, §1014.2 (Supp. 2017).
9. Tit. 18, §1022(B)(2).
10. Tit. 18, §1022(D).
12. Okla. Stat. Tit. 18, §1031(E) (Supp. 2017).
13. Tit. 18, §1031(F).
15. Tit. 18, §1033(A).
16. Tit. 18, §1039.
17. Okla. Stat. Tit. 18, §1055.1(H)(1) (Supp. 2017).
18. Tit. 18, §1055.1(A).
19. Tit. 18, §1055.1(B)(1)(a)-(e).
20. Tit. 18, §1055.1(B)(2)(a)-(c).
21. Tit. 18, §1055.1(F)(1).
22. Okla. Stat. Tit. 18, §1055.1(F)(1) (Supp. 2017).
23. Tit. 18, §1055.2.
24. Tit. 18, §1055.2(A)(1)-(5), (B)(1)-(10).
25. Tit. 18, §1055.2(D)(1)-(5).
26. Tit. 18, §1058(A).
27. Okla. Stat. Tit. 18, §1058(A) (Supp. 2017).
28. Tit. 18, §1064(A).
29. Tit. 18, §1058(A).
30. 18 O.S. 2011 §1067(C).
31. Tit. 18, §1073(B)(1)(a)-(b).
33. Okla. Stat. Tit. 18, §1073(D) (Supp. 2017).
37. Tit. 18, §1065.1.
38. Okla. Stat. Tit. 18, §1065(A) (Supp. 2017).
39. Tit. 18, §1065.1(A)(1)-(2), (5).
40. Tit. 18, §1065.1(B).
41. Tit. 18, §1065.1(B)(1)-(2).
42. Tit. 18, §1065.1(C).
43. Okla. Stat. Tit. 18, §1070(C) (Supp. 2017).
45. Tit. 18, §1077(A)(1).
46. Tit. 18, §1077(A)(1)(g), (B)(1).
48. Okla. Stat. Tit. 18, §1077(B)(1) (Supp. 2017).
50. Tit. 18, §1081(H)(6)(b) (defining consummate as “irrevocably accept[ing] for purchase or exchange stock tendered pursuant to an offer”).
51. Tit. 18, §1081(H)(6)(d) (defining excluded stock as “(1) stock of … [a] constituent corporation that is owned at the commencement of the offer ... by [the] constituent corporation, the corporation making the offer … any person that owns … all of the outstanding stock of the corporation making [the] offer, or any direct or indirect wholly owned subsidiary of any of the foregoing and (2) rollover stock”).
52. Tit. 18, §1081(H)(2).
53. Okla. Stat. Tit. 18, §1081(H)(1) (Supp. 2017).
54. Tit. 18, §1081(H)(6)(g) (defining rollover stock as “any share of stock of such constituent corporation that are the subject of a written agreement requiring such shares to be transferred, contributed or delivered to the consummating corporation or any of its affiliates in exchange for stock or other equity interests in such consummating corporation or an affiliate thereof; provided, however, that such shares of stock shall cease to be rollover stock...if, immediately prior to the time the merger becomes effective … such shares have not been transferred, contributed or delivered to the consummating corporation or any of its affiliates”).
55. Tit. 18, §1081(H)(2)-(3).
56. Tit. 18, §1081(H)(4).
57. Tit. 18, §1081(H)(5).
58. Okla. Stat. Tit. 18, §1091(D)(2) (Supp. 2017).
59. Tit. 18, §1083.1(E)(2) (defining entity as “a partnership, whether general or limited, and including a limited liability partnership and a limited liability limited partnership, a limited liability company, and any unincorporated nonprofit or for-profit association, trust or enterprise having members or having outstanding shares of stock or other evidence of financial, beneficial or membership interest therein, whether formed by agreement of under statutory authority or otherwise”).
60. Tit. 18, §1083.1(A)(1)-(3).
61. Tit. 18, §1083.1(B).
62. Tit. 18, §1083.1(A)(3).
63. Okla. Stat. Tit. 18, §1091(D)(1) (Supp. 2017).
65. Tit. 18, §1091(G)(2).
66. Tit. 18, §1091(K).
68. Okla. Stat. Tit. 18, §1091(H) (Supp. 2017).
70. Tit. 18, §1099.
72. Tit. 18, §1119.
73. Okla. Stat. Tit. 18, §1120(B) (Supp. 2017).
75. Tit. 18, §1119(A).
76. Tit. 18, §1119(A)(2).
77. Tit. 18, §1119(A)(3)-(4).
78. Okla. Stat. Tit. 18, §1119(F)(1)-(2) (Supp. 2017).
79. Tit. 18, §1119(G).
81. Tit. 18, §1136(B).
82. Tit. 18, §1135(D).
83. Okla. Stat. Tit. 18, §1135(D) (Supp. 2017).
Originally published in the Oklahoma Bar Journal -- OBJ 89 pg. 18 (February 2018)