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BILL AS PASSED BY HOUSE 2007-2008

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H.458

AN ACT RELATING TO DIGITAL CORPORATE TRANSACTIONS

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1.  11 V.S.A. § 3001 is amended to read:

§ 3001.  DEFINITIONS

As used in this chapter:

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(15)  “Operating agreement” means the agreement in writing any form of description of membership rights and obligations under section 3003 of this title, stored or depicted in any tangible or electronic medium, which is agreed to by the members, including amendments to the agreement.

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(19)  “Signed” includes any symbol or electronic schema that may be prescribed by the secretary of state that is executed or adopted by a person with the present intention to authenticate a record.

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(23)  “Document” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.    

(24)  “Writing” means written communications, including letters, faxes, e-mails, or other electronic formats that may be prescribed by the secretary of state.

(25)  “Delivery” means surface mail or methods of electronic transmission the secretary of state may prescribe.

(26)  “Meeting” means any structured communications conducted by participants in person or through the use of electronic or telecommunications medium permitting simultaneous or sequentially structured communications for the purpose of reaching a collective agreement.

Sec. 2.  11 V.S.A. § 3026(f) is added to read:

(f)  An original copy may consist of an electronic communication received by the secretary of state’s office, endorsement may consist of an attached electronic record, and the delivery of a duplicate may be done electronically.

Sec. 3.  11 V.S.A. § 3058(c) is amended to read:

(c)  A company may maintain its records in other than written form if such form is capable of conversion into written form within a reasonable time or into an electronic form that may be prescribed by the secretary of state.


Sec. 4.  11A V.S.A. § 1.20 is amended to read:

§ 1.20.  FILING REQUIREMENTS

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(d)  The document must be typewritten or printed or, if electronically transmitted, it must be in a format that can be retrieved or reproduced in typewritten or printed form or in an electronic format prescribed by the secretary of state.

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(h)  If the secretary of state has prescribed a mandatory form or electronic format for the document under section 1.21 of this title, the document must be in or on the prescribed form.

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(j)(1)  Any of the terms of a plan or filed documents may be made dependent on facts ascertainable outside the plan or filed documents as follows:

(A)  The manner in which the facts operate on the terms of the plan or filed document must be clearly and expressly set forth in the plan or filed document.

(B)  The facts may include without limitation actions or events within the control of, or determinations made by, a part to the plan or filing the filed document or a representative of a party to the plan or filing the filed document. 

(2)  As used in this section:

(A)  “Filed document” means a document filed with the secretary of state under any provision of this title, except chapter 15 or section 16.22 of this title.

(B)  “Plan” means a plan of merger or share exchange.

Sec. 5.  11A V.S.A. § 1.21(a) is amended to read:

(a)  The secretary of state may prescribe the form or electronic format of and furnish on request forms or specifications for formats for:

(1)  articles of incorporation. such form shall note the information required under subsection 2.02(a) of this title, together with a summary of such information or provisions as are permitted by this title;

(2)  an application for a certificate of good standing;

(3)  a foreign corporation’s application for a certificate of authority to transact business in this state;

(4)  a foreign corporation’s application for a certificate of withdrawal; and

(5)  the annual report.

Sec. 6.  11A V.S.A. § 1.23(a) is amended to read:

§ 1.23.  EFFECTIVE TIME AND DATE OF DOCUMENT

(a)  Except as provided in subsection (b) of this section, section subsection 1.24(c) of this title, and section 2.03 of this title, a document accepted for filing is effective at the time of filing on the date it is filed, as evidenced by the secretary of state’s date and time endorsement on the original document:

(1)  at the date and time of filing, as evidenced by such means as the secretary of state may use for the purpose of recording the date and time of filing; or

(2)  at the time specified in the document as its effective time on the date it is filed.

Sec. 7.  11A V.S.A § 1.24(a) is amended to read:

(a)  A domestic or foreign corporation may correct a document filed by the secretary of state if the document:

(1)  is incomplete;

(2)  contains an incorrect statement; or

(3)  was defectively executed, attested, sealed, verified, or acknowledged; or

(4)  the electronic transmission of which was defective.

Sec. 8.  11A V.S.A. § 1.25(b) is amended to read:

(b)  The secretary of state files a document by stamping or otherwise endorsing recording it as “Filed” together with his or her name and official title and on the date and time of receipt, on both the original and the document copy document and on the record of the receipt for the filing fee.  After filing a document, except as provided in sections 5.03 and 15.10 of this title, the secretary of state shall deliver a copy of the document copy, with the and filing fee receipt (or acknowledgement of receipt if no fee is required) attached, to the domestic or foreign corporation or its representative.

Sec. 9.  11A V.S.A. § 1.27 is amended to read:

§ 1.27.  EVIDENTIARY EFFECT OF COPY OF FILED DOCUMENT

(a)  A certificate attached to a copy of a document filed by the secretary of state, bearing his or her signature (which may be in facsimile) and the seal of this state, is conclusive evidence that the original document is on file with the secretary of state.

(b)  A certificate by the secretary of state that a diligent search has failed to locate documents claimed to be filed with the secretary of state shall be taken and received in all courts, public offices, and official bodies as prima facie evidence of the absence of those documents in the files of the secretary of state.

(c)  The secretary of state’s filing of the articles of incorporation is conclusive proof that the incorporators satisfied all conditions precedent to incorporation except in a proceeding by the state to cancel or revoke the incorporation or involuntarily dissolve the corporation

A certificate from the secretary of state delivered with a copy of a document filed by the secretary of state is conclusive evidence that the document is on file with the secretary of state.

Sec. 10.  11A V.S.A. § 1.40 is amended to read:

§ 1.40.  DEFINITIONS

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(5)  “Deliver” includes mail or “delivery” means any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery, and electronic transmission.

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(25)  “Electronic transmission” or “electronically transmitted” means a process of communication not directly involving the physical transfer of paper that is suitable for the retention, retrieval, and reproduction of information by the recipient.

(26)  “Meeting” means any structured communications conducted by participants in person or through the use of electronic or telecommunications medium permitting simultaneous or sequentially structured communications for the purpose of reaching a collective agreement.

(27)  “Sign” or “signature” includes any manual, facsimile, conformed, or electronic signature.

Sec. 11.  11A V.S.A. § 141(b) and (c) are amended to read:

(b)  Notice may be communicated in person; by telephone, voice mail, telegraph, teletype, facsimile, or other form of wire or, wireless, or electronic communication; or by mail or private carrier or other method of delivery.  If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published; or by radio, television, or other form of public broadcast communication.

(c)  Notice to shareholders.  Written notice by a domestic or foreign corporation to its shareholder, if in a comprehensible form, is effective when: 

(1)  mailed first class postpaid and correctly addressed to the shareholder’s address as shown in the corporation’s current record of shareholders; or 

(2)  electronically transmitted to the shareholder in a manner authorized by the shareholder.

Sec. 12.  11A V.S.A. § 6.01 is amended to read:

§ 6.01.  AUTHORIZED SHARES

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(d)  The description of the designations, preferences, limitations, and relative rights of share classes in subsection (c) of this section is not exhaustive  Terms of shares may be made dependent upon facts objectively ascertainable outside the articles of incorporation in accordance with subsection 1.20(k) of this title.

(e)  Any of the terms of shares may vary among holders of the same class or series so long as such variations are expressly set forth in the articles of incorporation.

(f)  The description of the designations, preferences, limitations, and relative rights of share classes in subsection (c) of this section is not exhaustive.

Sec. 13.  11A V.S.A. § 6.21 is amended to read:

§ 6.21.  ISSUANCE OF SHARES

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(b)  The board of directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services performed, or other securities of the corporation.  Future services shall not constitute payment or part payment for shares of a corporation.

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(e)  The corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the note is paid, or the benefits are received.  If the services are not performed, the note is not paid, or the benefits are not received, the shares escrowed or restricted and the distributions credited may be cancelled in whole or part. 


Sec. 14.  11A V.S.A. § 6.24 is amended to read:

§ 6.24.  SHARE OPTIONS

A corporation may issue rights, options, or warrants for the purchase of shares of the corporation.  The board of directors shall determine the terms upon which the rights, options, or warrants are issued, their form and content, and the consideration for which the shares are to be issued.  The provisions of sections 8.60 through 8.63 of this title apply in accordance with their terms in the case of transactions involving the issuance of rights, options, or warrants for the purchase of shares to directors.  Any transactions involving the issuance of options for the purchase of shares to directors, as such, shall be subject to the approval of the shareholders.

(a)  A corporation may issue rights, options, or warrants for the purchase of shares or other securities of the corporation.  The board of directors shall determine:

(1)  the terms upon which the rights, options, or warrants are issued; and

(2)  the terms, including the consideration for which the shares or other securities are to be issued. 

(b)  The authorization by the board of directors for the corporation to issue such rights, options, or warrants constitutes authorization of the issuance of the shares or other securities for which the rights, options, or warrants are exercisable. 

(c)  The terms and conditions of such rights, options, or warrants, including those outstanding on the effective date of this section, may include, without limitation, restrictions or conditions that: 

(1)  preclude or limit the exercise, transfer, or receipt of such rights, options, or warrants by any person or persons owning or offering to acquire a specified number or percentage of the outstanding shares or other securities of the corporation or by any transferee or transferees of any such person or persons; or

(2)  invalidate or void such rights, options, or warrants held by any such person or persons or any such transferee or transferees.

Sec. 15.  11A V.S.A. § 7.01 is amended to read:

§ 7.01.  ANNUAL MEETING

(a)  A corporation shall hold a meeting of shareholders annually at a time stated in or fixed in accordance with the bylaws.

(b)  Annual shareholders’ meetings shall be held in this state, unless permitted in the bylaws of the corporation to be held out of this state.  Annual meetings shall be held at the place stated in or fixed in accordance with the bylaws.  If no place is stated in or fixed in accordance with the bylaws, annual meetings shall be held at the corporation’s principal office.  An annual meeting may be conducted by means of any telecommunications mechanism, including video-conference telecommunication.

(c)  The failure to hold an annual meeting at the time stated in or fixed in accordance with a corporation’s bylaws does not affect the validity of any corporate action, and shall result not in a forfeiture or dissolution of the corporation

Annual shareholders’ meetings shall be held in this state, unless permitted in the bylaws of the corporation to be held outside this state.  Annual meetings shall be held at the place stated in or fixed in accordance with the bylaws.  If no place is stated in or fixed in accordance with the bylaws, annual meetings shall be held at the corporation’s principal office.  An annual meeting may be conducted by means of any electronic or telecommunications mechanism, including video-conference telecommunication.  The failure to hold an annual meeting at the time stated or fixed in accordance with a corporation’s bylaws does not affect the validity of any corporate action.

Sec. 16.  11A V.S.A. § 7.02(c) is amended to read:

(c)  Special shareholders’ meetings shall be held in this state, unless permitted in the bylaws of the corporation to be held out of this state.  Meetings shall be held at the place stated in or fixed in accordance with the bylaws.  If no place is stated in or fixed in accordance with the bylaws, annual meetings shall be held at the corporation’s principal office.  A special meeting may be conducted by means of any electronic or telecommunications mechanism, including video-conference telecommunication.

Sec. 17.  11A V.S.A. § 7.04(a) is amended to read:

(a)  Unless the articles of incorporation preclude the taking of action required or permitted by this title without a shareholders’ meeting, action required or permitted by this title to be taken at a shareholders’ meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action.  Each action must be evidenced by one or more written consents describing the action taken, signed by all the shareholders entitled to vote on the action, and delivered to the corporation for inclusion in the minutes or filed with the corporate records.  For purposes of this section, consent evidenced by electronic communications or an electronic record is written consent.

Sec. 18.  11A V.S.A. § 7.32 is added to read:

§ 7.32.  SHAREHOLDER AGREEMENTS

(a)  An agreement among the shareholders of a corporation that complies with this section is effective among the shareholders and the corporation even though it is inconsistent with one or more other provisions of this title in that it:

(1)  eliminates the board of directors or restricts the discretion or powers of the board of directors; 

(2)  governs the authorization or making of distributions whether or not in proportion to ownership of shares, subject to the limitations in section 6.40 of this title; 

(3)  establishes who shall be directors or officers of the corporation, or

their terms of office or manner of selection or removal;

(4)  governs, in general or in regard to specific matters, the exercise or division of voting power by or between the shareholders and directors or by or among any of them, including the use of weighted voting rights or director proxies;

(5)  establishes the terms and conditions of any agreement for the transfer or use of property or the provision of services between the corporation and any shareholder, director, officer, or employee of the corporation or among any of them; 

(6)  transfers to one or more shareholders or other persons all or part of the authority to exercise the corporate powers or to manage the business and affairs of the corporation, including the resolution of any issue about which there exists a deadlock among directors or shareholders; 

(7)  requires dissolution of the corporation at the request of one or more of the shareholders or upon the occurrence of a specified event; or 

(8)  otherwise governs the exercise of the 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 among any of them, and is not contrary to public policy.

(b)  An agreement authorized by this section shall be: 

(1)  set forth:

(A)  in the articles of incorporation or bylaws and approved by all persons who are shareholders at the time of the agreement; or

(B)  in a written agreement that is signed by all persons who are shareholders at the time of the agreement and is made known to the corporation; 

(2)  subject to amendment only by the holders of a majority of each class of the corporation’s issued and outstanding capital stock, with each class voting as a separate group, unless the agreement provides otherwise; and

(3)  valid for 10 years, unless the agreement provides otherwise.

(c)  The existence of an agreement authorized by this section shall be noted conspicuously on the front or back of each certificate for outstanding shares or on the information statement required by subsection 6.26(b) of this title.  If at the time of the agreement the corporation has shares outstanding represented by certificates, the corporation shall recall the outstanding certificates and issue substitute certificates that comply with this subsection.  The failure to note the existence of the agreement on the certificate or information statement shall not affect the validity of the agreement or any action taken pursuant to it.  Any purchaser of shares who, at the time of purchase, did not have knowledge of the existence of the agreement shall be entitled to rescission of the purchase.  A purchaser shall be deemed to have knowledge of the existence of the agreement if its existence is noted on the certificate or information statement for the shares in compliance with this subsection and, if the shares are not represented by a certificate, the information statement is delivered to the purchaser at or prior to the time of the purchase of the shares.  An action to enforce the right of rescission authorized by this subsection must be commenced within the earlier of 90 days after discovery of the existence of the agreement or two years after the time of the purchase of the shares. 

(d)  An agreement authorized by this section shall cease to be effective when the corporation becomes a public corporation.  If the agreement ceases to be effective for any reason, the board of directors may, if the agreement is contained or referred to in the corporation’s articles of incorporation or bylaws, adopt an amendment to the articles of incorporation or bylaws, without shareholder action, to delete the agreement and any references to it. 

(e)  An agreement authorized by this section that limits the discretion or powers of the board of directors shall relieve the directors of, and impose upon the person or persons in whom such discretion or powers are vested, liability for acts or omissions imposed by law on directors to the extent that the discretion or powers of the directors are limited by the agreement. 

(f)  The existence or performance of an agreement authorized by this section shall not be a ground for imposing personal liability on any shareholder for the acts or debts of the corporation, even if the agreement or its performance treats the corporation as if it were a partnership or results in failure to observe the corporate formalities otherwise applicable to the matters governed by the agreement. 

(g)  Incorporators or subscribers for shares may act as shareholders with respect to an agreement authorized by this section if no shares have been issued when the agreement is made.

Sec. 19.  11A V.S.A. § 8.03(a) amended to read:

(a)  A board of directors of a corporation which is not a close corporation dispensing with a board of directors pursuant to section 20.08 of this title must consist of three one or more individuals, with the number specified in or fixed in accordance with the articles of incorporation or bylaws.  If the number of shareholders in any corporation is less than three, the The number of directors may be as few as the number of shareholders increased or decreased from time to time by amendment to, or in the manner provided in, the articles of incorporation or the bylaws.


Sec. 20.  11A V.S.A. § 8.20 is amended to read:

§ 8.20.  MEETINGS

(a)  The board of directors may hold regular or special meetings, as defined in subdivision 1.40(26) of this title, in or out of outside this state.

(b)  The board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication, including an electronic, telecommunications, and video- or audio‑conferencing conference telephone call, by which all directors participating may simultaneously hear communicate with each other during the meeting.  A director participating in a meeting by this means is deemed to be present in person at the meeting.

Sec. 21.  11A V.S.A. § 8.40 is amended to read:

§ 8.40.  REQUIRED OFFICERS

(a)  A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws, provided that a corporation shall have a president and a secretary.  Any two or more offices may be held by the same person, except the offices of president and secretary, unless the corporation is a professional corporation organized under chapter 3 or 4 of Title 11.

(b)  A duly appointed The board of directors may elect individuals to fill one or more offices of the corporations.  An officer may appoint one or more officers or assistant officers if authorized by the bylaws or the board of directors.

(c)  The bylaws or the board of directors shall delegate assign to one of the officers responsibility for preparing the minutes of the directors’ and shareholders’ meetings and for authenticating and maintaining the records of the corporation required to be kept under subsections 16.01(a) and 16.10(e) of this title.

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(e)  An individual who holds more than one office may execute, acknowledge or verify in more than one capacity any document required to be executed, acknowledged or verified by the holders of two or more officers.

Sec. 22.  11A V.S.A. § 8.60 is amended to read:

§ 8.60.  DEFINITIONS

For purposes of this subchapter:

(1)  “Conflicting interest” with respect to a corporation means the interest a director of the corporation has respecting a transaction effected or proposed to be effected by the corporation (or by a subsidiary of the corporation or any other entity in which the corporation has a controlling interest) if

(A)  whether or not the transaction is brought before the board of directors of the corporation for action, the director knows at the time of commitment that he or she or a related person is a party to the transaction or has a beneficial financial interest in or so closely linked to the transaction and of such financial significance to the director or a related person that the interest would reasonably be expected to exert an influence on the director’s judgment if he or she were called upon to vote on the transaction; or

(B)  the transaction is brought (or is of such character and significance to the corporation that it would in the normal course be brought) before the board of directors of the corporation for action, and the director knows at the time of commitment that any of the following persons is either a party to the transaction or has a beneficial financial interest in or so closely linked to the transaction and of such financial significance to the person that the interest would reasonably be expected to exert an influence on the director’s judgment if he or she were called upon to vote on the transaction:

(i)  an entity (other than the corporation) of which the director is a director, general partner, agent, or employee;

(ii)  a person that controls one or more of the entities specified in subdivision (i) of this subdivision or an entity that is controlled by, or is under common control with, one or more of the entities specified in subdivision (i); or

(iii)  an individual who is a general partner, principal, or employer of the director.

(2)  “Director’s conflicting interest transaction” with respect to a corporation means a transaction effected or proposed to be effected by the corporation (or by a subsidiary of the corporation or any other entity in which the corporation has a controlling interest) respecting which a director of the corporation has a conflicting interest.

(3)  “Related person” of a director means (A) the spouse (or a parent or sibling thereof) of the director, or a child, grandchild, sibling, parent (or spouse of any thereof) of the director, or an individual having the same home as the director, or a trust or estate of which an individual specified in this subdivision (A) is a substantial beneficiary; or (B) a trust, estate, incompetent, conservatee, or minor of which the director is a fiduciary.

(4)  “Required disclosure” means disclosure by the director who has a conflicting interest of (A) the existence and nature of his or her conflicting interest, and (B) all facts known to him or her respecting the subject matter of the transaction that an ordinarily prudent person would reasonably believe to be material to a judgment about whether or not to proceed with the transaction.

(5)  “Time of commitment” respecting a transaction means the time when the transaction is consummated or, if made pursuant to contract, the time when the corporation (or its subsidiary or the entity in which it has a controlling interest) becomes contractually obligated so that its unilateral withdrawal from the transaction would entail significant loss, liability, or other damage.

(1)  “Control” including the term “controlled by” means:

(A)  having the power, directly or indirectly, to elect or remove a majority of the members of the board of directors or other governing body of an entity whether through the ownership of voting shares or interests, by contract, or otherwise; or

(B)  being subject to a majority of the risk of loss from the entity’s activities or entitled to receive a majority of the entity’s residual returns.

(2)  “Director’s conflicting interest transaction” means a transaction effected or proposed to be effected by the corporation or by an entity controlled by the corporation that at the relevant time the director:

(A)  was a party to; or

(B)  had knowledge of and a material financial interest known to the director; or

(C)  knew that a related person was a party or had a material financial interest. 

(3)  “Fair to the corporation” means, for purposes of subdivision 8.61(b)(3) of this title, that the transaction as a whole was beneficial to the corporation, taking into appropriate account whether it was:

(A)  fair in terms of the director’s dealings with the corporation; and

(B)  comparable to what might have been obtainable in an arm’s length transaction, given the consideration paid or received by the corporation. 

(4)  “Material financial interest” means a financial interest in a transaction that would reasonably be expected to impair the objectivity of the director’s judgment when participating in action on the authorization of the transaction. 

(5)  “Related person” means: 

(A)  the director’s spouse;

(B)  a child, stepchild, grandchild, parent, stepparent, grandparent, sibling, step sibling, half sibling, aunt, uncle, niece, or nephew (or spouse of any thereof) of the director or of the director’s spouse; 

(C)  an individual living in the same home as the director;

(D)  an entity, other than the corporation or an entity controlled by the corporation, controlled by the director or any person specified in this subdivision; 

(E)  a domestic or foreign:

(i)  business or nonprofit corporation (other than the corporation or an entity controlled by the corporation) of which the director is a director;

(ii)  unincorporated entity of which the director is a general partner or a member of the governing body; or

(iii)  individual, trust, or estate for whom or of which the director is a trustee, guardian, personal representative, or like fiduciary; or

(F)  a person that is, or an entity that is controlled by, an employer of the director.

(6)  “Relevant time” means:

(A)  the time at which the directors’ action respecting the transaction is taken in compliance with section 8.62 of this title; or

(B)  if the transaction is not brought before the board of directors of the corporation or its committee for action under section 8.62 of this title, at the time the corporation, or an entity controlled by the corporation, becomes legally obligated to consummate the transaction. 

(7)  “Required disclosure” means disclosure of:

(A)  the existence and nature of the director’s conflicting interest; and

(B)  all facts known to the director respecting the subject matter of the transaction that a director free of such conflicting interest would reasonably believe to be material in deciding whether to proceed with the transaction.

Sec. 23.  11A V.S.A. § 8.61 is amended to read:

§ 8.61.  JUDICIAL ACTION

(a)  A transaction effected or proposed to be effected by a corporation (or by a subsidiary of the corporation or any other entity in which the corporation has a controlling interest) that is not a director’s conflicting interest transaction may not be enjoined, set aside, or give rise to an award of damages or other sanctions, in a proceeding by a shareholder or by or in the right of the corporation, because a director of the corporation, or any person with whom or which he or she has a personal, economic, or other association, has an interest in the transaction.

(b)  A director’s conflicting interest transaction may not be enjoined, set aside, or give rise to an award of damages or other sanctions, in a proceeding by a shareholder or by or in the right of the corporation, because the director, or any person with whom or which he or she has a personal, economic, or other association, has an interest in the transaction, if:

(1)  directors’ action respecting the transaction was at any time taken in compliance with section 8.62 of this subchapter;

(2)  shareholders’ action respecting the transaction was at any time taken in compliance with section 8.63 of this subchapter; or

(3)  the transaction, judged according to the circumstances at the time of commitment, is established to have been fair to the corporation.

(a)  A transaction effected or proposed to be effected by the corporation, or by an entity controlled by the corporation may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against a director of the corporation, in a proceeding by a shareholder or by or in the right of the corporation, on the ground that the director has an interest respecting the transaction, if it is not a director’s conflicting interest transaction. 

(b)  A director’s conflicting interest transaction may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against a director of the corporation, in a proceeding by a shareholder, or by or in the right of the corporation, on the ground that the director has an interest respecting the transaction, if:

(1)  the directors’ action respecting the transaction was taken in compliance with section 8.62 of this title at any time; or 

(2)  the shareholders’ action respecting the transaction was taken in compliance with section 8.63 of this title at any time; or 

(3)  the transaction, judged according to the circumstances at the relevant time, is established to have been fair to the corporation.

Sec. 24.  11A V.S.A. § 8.62 is amended to read:

§ 8.62.  DIRECTORS’ ACTION

(a)  Directors’ action respecting a transaction is effective for purposes of section 8.61(b)(1) of this subchapter if the transaction received the affirmative vote of a majority (but no fewer than two) of those qualified directors on the board of directors or on a duly empowered committee of the board who voted on the transaction after either required disclosure to them (to the extent the information was not known by them) or compliance with subsection (b) of this section; provided that action by a committee is so effective only if:

(1)  all its members are qualified directors; and

(2)  its members are either all the qualified directors on the board or are appointed by the affirmative vote of a majority of the qualified directors on the board.

(b)  If a director has a conflicting interest respecting a transaction, but neither he nor she nor a related person of the director specified in section 8.60(3) of this subchapter is a party to the transaction, and if the director has a duty under law or professional canon, or a duty of confidentiality to another person, respecting information relating to the transaction such that the director may not make the disclosure described in section 8.60(4), then disclosure is sufficient for purposes of subsection (a) of this section if the director (1) discloses to the directors voting on the transaction the existence and nature of his or her conflicting interest and informs them of the character and limitations imposed by that duty before their vote on the transaction, and (2) plays no part, directly or indirectly, in their deliberations or vote.

(c)  A majority (but no fewer than two) of all the qualified directors on the board of directors, or on the committee, constitutes a quorum for purposes of action that complies with this section. Directors’ action that otherwise complies with this section is not affected by the presence or vote of a director who is not a qualified director.

(d)  For purposes of this section, “qualified director” means, with respect to a director’s conflicting interest transaction, any director who does not have either (1) a conflicting interest respecting the transaction, or (2) a familial, financial, professional, or employment relationship with a second director who does have a conflicting interest respecting the transaction, which relationship would, in the circumstances, reasonably be expected to exert an influence on the first director’s judgment when voting on the transaction.

(a)  Directors’ action respecting a director’s conflicting interest transaction is effective for purposes of subdivision 8.61(b)(1) of this title if the transaction has been authorized by the affirmative vote of a majority, but no fewer than two of the qualified directors who voted on the transaction after required disclosure by the conflicted director of information not already known by such qualified directors, or after modified disclosure in compliance with subsection (b) of this section, provided that:

(1)  the qualified directors have deliberated and voted outside the

presence of and without the participation by any other director; and

(2)  where the action has been taken by a committee, all members of the committee were qualified directors, and either:

(A)  the committee was composed of all the qualified directors on the board of directors; or

(B)  the members of the committee were appointed by the affirmative vote of a majority of the qualified directors on the board. 

(b)  Notwithstanding subsection (a) of this section, when a transaction is a director’s conflicting interest transaction only because a related person described in subdivisions 8.60(5)(E) and (F) of this title is a party to or has a material financial interest in the transaction, the conflicted director is not obligated to make required disclosure to the extent that the director reasonably believes that doing so would violate a duty imposed under law, a legally enforceable obligation of confidentiality, or a professional ethics rule, provided that the conflicted director discloses to the qualified directors voting on the transaction:

(1)  all information required to be disclosed that is not so violative;

(2)  the existence and nature of the director’s conflicting interest; and

(3)  the nature of the conflicted director’s duty not to disclose the confidential information.

(c)  A majority, but no fewer than two, of all the qualified directors on the board of directors or on the committee constitutes a quorum for purposes of action that complies with this section. 

(d)  Where directors’ action under this section does not satisfy a quorum or voting requirement applicable to the authorization of the transaction by reason of the articles of incorporation, the bylaws, or a provision of law, independent action to satisfy those authorization requirements must be taken by the board of directors or a committee, in which action directors who are not qualified directors may participate.

Sec. 25.  11A V.S.A. § 8.63 is amended to read:

§ 8.63.  SHAREHOLDERS’ ACTION

(a)  Shareholders’ action respecting a transaction is effective for purposes of section 8.61(b)(2) of this subchapter if a majority of the votes entitled to be cast by the holders of all qualified shares was cast in favor of the transaction after (1) notice to shareholders describing the director’s conflicting interest transaction, (2) provision of the information referred to in subsection (d) of this section, and (3) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them).

(b)  For purposes of this section, “qualified shares” mean any shares entitled to vote with respect to the director’s conflicting interest transaction except shares that, to the knowledge, before the vote, of the secretary (or other officer or agent of the corporation authorized to tabulate votes), are beneficially owned (or the voting of which is controlled) by a director who has a conflicting interest respecting the transaction or by a related person of the director, or both.

(c)  A majority of the votes entitled to be cast by the holders of all qualified shares constitutes a quorum for purposes of action that complies with this section. Subject to the provisions of subsections (d) and (e) of this section, shareholders’ action that otherwise complies with this section is not affected by the presence of holders, or the voting, of shares that are not qualified shares.

(d)  For purposes of compliance with subsection (a) of this section, a director who has a conflicting interest respecting the transaction shall, before the shareholders’ vote, inform the secretary (or other officer or agent of the corporation authorized to tabulate votes) of the number, and the identity of persons holding or controlling the vote, of all shares that the director knows are beneficially owned (or the voting of which is controlled) by the director or by a related person of the director, or both.

(e)  If a shareholders’ vote does not comply with subsection (a) of this section solely because of a failure of a director to comply with subsection (d), and if the director establishes that his or her failure did not determine and was not intended by him or her to influence the outcome of the vote, the court may, with or without further proceedings respecting section 8.61(b)(3) of this subchapter, take such action respecting the transaction and the director, and give such effect, if any, to the shareholders’ vote, as it considers appropriate in the circumstances.

(a)  Shareholders’ action respecting a director’s conflicting interest

transaction is effective for purposes of subdivision 8.61(b)(2) of this title if a majority of the votes cast by the holders of all qualified shares is in favor of the transaction after:

(1)  notice to shareholders describing the action to be taken respecting the transaction;

(2)  provision to the corporation of the information referred to in subsection (b) of this section; and

(3)  communication of the information that is the subject of required disclosure to the shareholders entitled to vote on the transaction, to the extent the information is not known by them.

(b)  A director who has a conflicting interest respecting the transaction shall, before the shareholders’ vote, inform the secretary or other officer or agent of the corporation authorized to tabulate votes, in writing, of the number of shares that the director knows are not qualified shares under subsection (c) of this section and the identity of the holders of those shares.  

(c)  For purposes of this section:

(1)  “Holder” means and “held by” refers to shares held by both a record shareholder, as defined in subdivision 13.01(7) of this title, and a beneficial shareholder, as defined in subdivision 13.01(2) of this title;

(2)  “Qualified shares” means all shares entitled to be voted with respect to the transaction except for shares that the secretary or other officer or agent of the corporation authorized to tabulate votes either knows, or under subsection (b) of this section is notified, are held by:

(A)  a director who has a conflicting interest respecting the transaction; or

(B)  a related person of the director, excluding a person described in subdivision 8.60(5)(F) of this title.

(d)  A majority of the votes entitled to be cast by the holders of all qualified shares constitutes a quorum for purposes of compliance with this section.  Subject to the provisions of subsection (e) of this section, shareholders’ action that otherwise complies with this section is not affected by the presence of holders, or by the voting, of shares that are not qualified shares. 

(e)  If a shareholders’ vote does not comply with subsection (a) of this section solely because of a director’s failure to comply with subsection (b) of this section, and if the director establishes that the failure was not intended to influence and did not in fact determine the outcome of the vote, the court may take such action respecting the transaction and the director, and may give such effect, if any, to the shareholders’ vote, as the court considers appropriate in the circumstances. 

(f)  Where shareholders’ action under this section does not satisfy a quorum or voting requirement applicable to the authorization of the transaction by reason of the articles of incorporation, the bylaws, or a provision of law, independent action to satisfy those authorization requirements must be taken by the shareholders, in which action shares that are not qualified shares may participate.

Sec. 26.  11A V.S.A. § 12.02(a) is amended to read:

(a)  A corporation may sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property (with or without the good will), otherwise than in the usual and regular course of business, on the terms and conditions and for the consideration determined by the corporation’s board of directors, if the board of directors proposes and its shareholders approve the proposed transaction A sale, lease, exchange, or other disposition of assets, other than a disposition described in subdivision 12.01 of this title, requires approval of the corporation’s shareholders if the disposition would leave the corporation without a significant continuing business activity.  If a corporation retains a business activity that represented at least 25 percent of the total assets at the end of the most recently completed fiscal year, and 25 percent of either income from continuing operations before taxes or revenues from continuing operations for that fiscal year, in each case of the corporation and its subsidiaries on a consolidated basis, the corporation will conclusively be deemed to have retained a significant continuing business activity.

Sec. 27.  11A V.S.A. § 16.01(d) and (e) are amended to read:

(d)  A corporation shall maintain its records in written form or in another form, including electronic form, capable of conversion into written form within a reasonable time.

(e)  A corporation shall keep a copy of the following records at its principal office (or, if none in this state, then the registered office):

* * *

(5)  all written or electronic communications to shareholders generally within the past three years, including the financial statements furnished for the past three years under section 16.20 of this title;

* * *



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us