The New Massachusetts Business Corporation Statute: Chapter 156D of the Massachusetts General Laws

2004

The first comprehensive revision of the Massachusetts business corporation statute since the adoption of Chapter 156B in 1964 — 40 years ago — will become effective on July 1, 2004. As of that date, every corporation that had been subject to Chapter 156B will instead automatically be subject to Chapter 156D.

Chapter 156D is patterned on the Model Business Corporation Act, currently the basis for the corporation statutes of more than 30 other states. While choosing the Model Act as the reference point, however, the draftsmen and the General Court made numerous changes to preserve existing policy and practice in Massachusetts. For example:

The Donahue protections for minority shareholders of closely held corporations will continue to apply;
Fundamental transactions will continue to require the approval of the holders of two-thirds of the corporation’s outstanding capital stock (unless otherwise provided in the articles of organization); and
The unique Massachusetts’ anti-takeover statutes will continue to apply to publicly traded companies.

For this reason among others, we do not believe that Chapter 156D fundamentally alters the analysis of whether corporations should be organized under Massachusetts law or under Delaware law. Nevertheless, Chapter 156D is a welcome development for a number of reasons:

Reflecting the architecture of the Model Act, Chapter 156D codifies existing case law and provides statutory answers to questions that have vexed lawyers and clients for years because they simply weren’t addressed by Chapter 156B.
In several areas, Chapter 156D provides Massachusetts corporations with more flexibility than they currently have under Chapter 156B. For example:

The types of consideration for which capital stock may be issued will be liberalized;
Actions by shareholders without formal meetings will no longer need to be unanimous (if permitted by the articles of organization and subject to the caveat that notice must be given to shareholders who do not consent to the action at least seven days before the action pursuant to the consent is taken);
The requirement that corporations have at least as many directors as stockholders (up to a maximum requirement of three directors) will be eliminated (if permitted by the articles of organization);
Electronic communications among a corporation and its directors and stockholders, and meetings of shareholders of closely held corporations solely by remote electronic communications, will be permitted; and
A corporation may provide in its articles of organization for cumulative voting by shareholders in the election of directors.

Chapter 156D specifically states that, in the absence of controlling precedent, “significant weight shall be given to the interpretations of courts of other jurisdictions of substantially equivalent provisions of the corporate laws of such other jurisdictions.” Thus, we might expect over time that interpretations of the statute will be consistent with interpretations of the statutes adopted in other states.
Further, the draftsmen of Chapter 156D have provided extensive Comments explaining the statute’s provisions and the policies underlying them. Although the Comments were not formally adopted by the General Court, the Comments themselves state that the draftsmen “intend that the Courts and practitioners will use the Comments to construe and apply the Act.”

Recommendation

Massachusetts corporations need not do anything to prepare themselves for Chapter 156D. Nevertheless, corporations will be required to amend their articles of organization and/or bylaws to take advantage of some new provisions. We urge clients to discuss Chapter 156D with their counsel to determine whether these amendments are appropriate for their companies.

Analysis

Below is an analysis of selected provisions of Chapter 156B, with comparisons to the corresponding provisions of both Chapter 156D and the General Corporation Law of the State of Delaware. This is, by definition, an incomplete summary and is not intended as legal advice. While there can be no substitute for studying the new statute itself (the text of which can be found at http://www.state.ma.us/legis/laws/seslaw03/sl030127.htm), we hope that this outline will provide practitioners and clients with a general understanding of some of the changes ahead.

To view the full article with the side-by-side analysis, download the full article. Or for more information, please contact the author Carl F. Barnes.

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