This spring the Florida legislature passed the Revised Florida Business Corporation Act (the “New Chapter 607”) to govern Florida corporations and Governor DeSantis signed the New Chapter 607 into law in June. The New Chapter 607 is 700 pages and becomes effective as of January 1, 2020. Here are nine things you should know about the New Chapter 607 if your business is organized or will be organized as a for profit corporation in Florida:
- The New Chapter 607 should not have any substantial effects upon your federal or state corporate taxes.
- Articles of Correction, starting January 1, 2020, can be filed at anytime and is no longer limited to the first 30 days after you file your Articles of Incorporation. This means you can correct your Articles even if you discover the error after 30 days rather than having to amend the Articles upon the discovery of an error.
- The New Chapter 607 also expands the ability of Florida corporations to use electronic transmissions and electronic signatures. This allows for electronic notice and virtual meetings. This includes the authorization of purely virtual shareholder meetings. Note that to take advantage of the new electronic options, Florida corporations may need to amend their bylaws. Further, consents may still be required in some situations.
- Currently, the current Chapter 607 Florida Corporation Act does not allow a Florida corporation to maintain or defend an action in Florida. The New Chapter 607 provides a Florida corporation the ability to defend an action even if the Florida corporation fails to identify a registered agent. Under the New Chapter 607, a Florida corporation must still have a registered agent to maintain an action in Florida. The change here allows for the defense against an action, where the current Chapter 607 does not have such a provision.
- The New Chapter 607 allows the Board of Directors to delegate, without limits, to a board committee and/or officers the right to make grants of share rights, options, warrants, and awards. Directors may still place limits and good governance would suggest some limits are desirable.
- The New Chapter 607 modifies derivative actions by shareholders. Notably, the demand provisions for derivative shareholder actions have been modified. The New Chapter 607 changes Florida’s universal demand approach, which means all shareholder suits must first make demand to the Board of Directors. Now, Florida will utilize a modified futility model, which allows shareholders to skip the demand to the Board if the claim involves a breach of fiduciary duties of the Directors and the Board would be unlikely to take action on behalf of the Shareholder. Such a demand would be consider futile and may not be required.
- The New Chapter 607 provides for two non-judicial remedies for deadlocks in corporate governance. The New Chapter 607 provides for the appointment of receiver(s) or custodian(s) in the case of a deadlock or a fraudulent action or irrevocable injury. In addition, the New Chapter 607 provides for the appointment of a provisional director in the case of a deadlock between the members of the Board of Directors.
- The New Chapter 607 also clarifies that officers of a Florida corporation have the same standards of conduct, i.e. fiduciary duties, as the Directors. The New Chapter 607 adds reporting obligations known as “up the line” reporting obligations, meaning officers have a duty to report to the directors when standards of conduct are breached.
- Finally, the New Chapter 607 includes extensive modifications to the conflict of interest provisions for directors. No long can a conflict of interest be remedied by an approval of a majority of qualified directors (i.e. disinterested directors) or disinterested shareholders. Under the New Chapter 607, the approval of a conflict of interest by the qualified directors or disinterested shareholders merely shifts the burden of proof as to whether such a transaction was fair. The presumption will be that the transaction was fair if approved by the qualified directors or disinterested shareholders, but that presumption is subject to rebuttal.
The above merely highlights some of the changes in the New Chapter 607 that may be of interest to existing Florida corporations. As the end of the year approaches, Florida corporations may want to review these changes with their legal counsel and consider the efficacy of amending their bylaws in anticipation of the provisions in the New Chapter 607.
Blockchain Application: The language in the New Chapter 607 regarding electronic transmission and electronic signatures leaves open the question regarding the use of distributed ledger technology for director and shareholder votes and the tracking of stock certificate and the maintenance of corporate capitalization tables. This is an area that could be advanced by the newly formed Florida Blockchain Task Force and proposed to the committee and the legislature. The ability to vote and record those votes on a blockchain and the authority to issue digital certificates tracked on distributed ledger technology would be a welcome amendment to the New Chapter 607 in the coming legislative session.Dislaimer: A Deeper Dive with DLT and each blog post is not intended as legal advice, nor should you consider any part of this blog or website as such. Nothing herein acts to create any attorney client relationship with the lawyers at DLT Law Group. The blog is designed to provide general information and thoughts from the lawyers at DLT Law Group. You should not act upon any information contained in this website without first seeking professional advice from a lawyer licensed in your state or country.