Illinois General Assembly - Full Text of SB1872
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Full Text of SB1872  102nd General Assembly

SB1872eng 102ND GENERAL ASSEMBLY

  
  
  

 


 
SB1872 EngrossedLRB102 13519 JLS 18866 b

1    AN ACT concerning business.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Business Corporation Act of 1983 is amended
5by adding Article 1A as follows:
 
6    (805 ILCS 5/Art. 1A heading new)
7
ARTICLE 1A. RATIFICATION AND VALIDATION
8
OF DEFECTIVE CORPORATE ACTIONS

 
9    (805 ILCS 5/1A.05 new)
10    Sec. 1A.05. Definitions. In this Article:
11    "Board" means the board of directors.
12    "Corporate action" means any action taken by:
13        (1) or on behalf of a corporation;
14        (2) the incorporators;
15        (3) the board;
16        (4) a committee of the board;
17        (5) an officer or agent of the corporation; or
18        (6) the shareholders.
19    "Date of the defective corporate action" means the date
20(or the approximate date, if the exact date is unknown) the
21potentially defective corporate action was purported to have
22been taken.

 

 

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1    "Defective corporate action" means:
2        (1) any corporate action taken or purportedly taken
3    that is, and at the time such corporate action was taken or
4    purportedly taken would have been, within the power of the
5    corporation without regard to the failure of authorization
6    identified in item (3) of subsection (a) of Section 1A.15,
7    but with respect to which proper documentation is not
8    presently available, or that is or may be shown to have
9    been void or voidable due to a failure or possible failure
10    of authorization or of the documentation thereof; or
11        (2) an overissue.
12    "Failure of authorization" means the failure to authorize,
13approve, or otherwise effect a corporate action in compliance
14with this Act, the articles of incorporation or by-laws, a
15corporate resolution or any plan or agreement to which the
16corporation is a party, or the disclosure set forth in any
17proxy or consent solicitation statement, if and to the extent
18such failure would render such corporate action void or
19voidable.
20    "Overissue" means the purported issuance of:
21        (1) shares of a class or series in excess of the number
22    of shares of a class or series the corporation has the
23    power to issue under Section 6.05 at the time of such
24    issuance; or
25        (2) shares of any class or series that is not then
26    authorized for issuance by the articles of incorporation.

 

 

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1    "Putative shares" means the shares of any class or series
2(including shares issued upon exercise of rights, options,
3warrants, or other securities convertible into shares of the
4corporation, or interests with respect to such shares) that
5were created or issued as a result of a defective corporate
6action that:
7        (1) but for any failure of authorization would
8    constitute valid shares; or
9        (2) cannot be determined by the board to be valid
10    shares.
11    "Valid shares" means the shares of any class or series
12that have been duly authorized and validly issued in
13accordance with this Act, including as a result of
14ratification or validation under this Article.
15    "Validation effective time" with respect to any defective
16corporate action ratified or validated under this Article
17means the latest of:
18        (1) the time at which the ratification of the
19    defective corporate action is approved by the shareholders
20    or, if approval of shareholders is not required, the time
21    at which the notice required by Section 1A.25 becomes
22    effective;
23        (2) the time at which any articles of validation filed
24    in accordance with Section 1A.35 become effective; and
25        (3) if the corporation or any successor entity to the
26    corporation brings an application for validation under

 

 

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1    subsection (a) of Section 1A.40, the time at which the
2    circuit court determines such validity or at such other
3    time as the circuit court may determine in accordance with
4    subsection (b) of Section 1A.40.
5The validation effective time shall not be affected by the
6filing or pendency of a judicial proceeding under Section
71A.40 or otherwise unless the corporation or any successor
8entity to the corporation initiates the application for
9validation under subsection (a) of Section 1A.40 or unless
10otherwise ordered by the circuit court.
 
11    (805 ILCS 5/1A.10 new)
12    Sec. 1A.10. Defective corporate actions.
13    (a) A defective corporate action shall not be void or
14voidable if ratified in accordance with Section 1A.15 or
15validated in accordance with Section 1A.40.
16    (b) Ratification under Section 1A.15 or validation under
17Section 1A.40 shall not be deemed to be the exclusive means of
18ratifying or validating any defective corporate action and the
19absence or failure of ratification or validation in accordance
20with this Article shall not, of itself, affect the validity or
21effectiveness of any corporate action that was or may be shown
22to have been properly taken or ratified under common law or
23otherwise, nor shall it create a presumption that any such
24corporate action is or was a defective corporate action or
25void or voidable.

 

 

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1    (c) In the case of an overissue, putative shares shall be
2valid shares effective as of the date originally issued or
3purportedly issued upon:
4        (1) the effectiveness under this Article 1A and under
5    Article 10 of an amendment to the articles of
6    incorporation authorizing, designating or creating such
7    shares; or
8        (2) the effectiveness of any other corporate action
9    under this Article 1A ratifying or validating the
10    authorization, designation or creation of such shares.
 
11    (805 ILCS 5/1A.15 new)
12    Sec. 1A.15. Ratification of defective corporate actions.
13    (a) To ratify a defective corporate action under this
14Section (other than the ratification of an election or
15designation of the initial directors under subsection (b)),
16the board shall take action ratifying the action in accordance
17with Section 1A.20, stating:
18        (1) the defective corporate action to be ratified and,
19    if the defective corporate action involved the issuance of
20    putative shares, the number and type of putative shares
21    purportedly issued;
22        (2) the date of the defective corporate action;
23        (3) the nature of the failure of authorization with
24    respect to the defective corporate action to be ratified,
25    and

 

 

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1        (4) that the board approves the ratification of the
2    defective corporate action.
3    (b) If a defective corporate action to be ratified relates
4to the election or designation of the initial directors of the
5corporation, regardless of whether the initial directors are
6set forth in the articles of incorporation pursuant to item
7(1) of subsection (b) of Section 2.10, a majority of the
8persons who, at the time of the ratification, are exercising
9the powers of directors may take an action stating:
10        (1) the name of the person or persons who first took
11    action in the name of the corporation as the initial
12    directors of the corporation;
13        (2) the earlier of the date on which such person or
14    persons first took such action or were purported to have
15    been elected or designated as the initial directors; and
16        (3) that the ratification of the election or
17    designation of such person or persons as the initial
18    directors is approved.
19    (c) If:
20        (1) any provision of this Act, the articles of
21    incorporation or by-laws, any corporate resolution or any
22    plan or agreement to which the corporation is a party in
23    effect at the time action under subsection (a) is taken
24    requires shareholder approval or would have required
25    shareholder approval at the date of the occurrence of the
26    defective corporate action or

 

 

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1        (2) the action under subsection (a) is to ratify a
2    defective corporate action due to a failure to comply with
3    either or both of Sections 7.85 and 11.75,
4then the ratification of the defective corporate action
5approved in the action taken by the board under subsection (a)
6shall be submitted to the shareholders for approval unless, as
7of the record date for determining the shareholders entitled
8to vote on the ratification of such defective corporate
9action, there are no valid shares outstanding and entitled to
10vote thereon, regardless of whether there then exist any
11putative shares.
12    (d) Unless otherwise provided in the action taken by the
13board under subsection (a), after the action by the board has
14been taken and, if required, approved by the shareholders, the
15board may abandon the ratification at any time before the
16validation effective time without further action of the
17shareholders.
 
18    (805 ILCS 5/1A.20 new)
19    Sec. 1A.20. Action on ratification.
20    (a) The quorum and voting requirements applicable to a
21ratifying action by the board under subsection (a) of Section
221A.15 shall be the quorum and voting requirements applicable
23to the corporate action proposed to be ratified at the time
24such ratifying action is taken; provided, however, that if the
25articles of incorporation or by-laws of the corporation, any

 

 

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1plan or agreement to which the corporation was a party, or any
2provision of this Act, in each case as in effect as of the time
3of the defective corporate action, would have required a
4larger number or portion of directors or of specified
5directors for a quorum to be present or to approve the
6defective corporate action, such larger number or portion of
7such directors or such specified directors shall be required
8for a quorum to be present or to adopt the resolutions to
9ratify the defective corporate action, as applicable, except
10that the presence or approval of any director elected,
11appointed, or nominated by holders of any class or series of
12which no shares are then outstanding, or by any person who is
13no longer a shareholder, shall not be required.
14    (b) If the ratification of the defective corporate action
15requires approval by the shareholders under subsection (c) of
16Section 1A.15, and if the approval is to be given at a meeting,
17the corporation shall notify each holder of valid and putative
18shares, regardless of whether entitled to vote as of:
19        (1) the record date for notice of the meeting and
20        (2) the date of the occurrence of the defective
21    corporate action (or, in the case of any defective
22    corporate action that involved the establishment of a
23    record date for notice of or voting at any meeting of
24    shareholders, for informal action by shareholders in lieu
25    of a meeting, or for any other purpose, the record date for
26    notice of or voting at such meeting, the record date for

 

 

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1    informal action by written consent, or the record date for
2    such other action, as the case may be),
3provided that in each case notice shall not be required to be
4given to holders of valid or putative shares whose identities
5or addresses for notice cannot be determined from the records
6of the corporation. The notice must state that the purpose, or
7one of the purposes, of the meeting, is to consider
8ratification of a defective corporate action and must be
9accompanied by:
10        (A) either a copy of the action taken by the board in
11    accordance with subsection (a) of Section 1A.15 or the
12    information required by items (1) through (4) of
13    subsection (a) of Section 1A.15 and
14        (B) a statement that any claim that the ratification
15    of such defective corporate action and any putative shares
16    issued as a result of such defective corporate action
17    should not be effective, or should be effective only on
18    certain conditions, shall be brought within 120 days from
19    the applicable validation effective time.
20    (c) The quorum and voting requirements applicable to the
21approval by the shareholders required by subsection (c) of
22Section 1A.15 shall be the quorum and voting requirements
23applicable to the corporate action proposed to be ratified at
24the time of such shareholder approval; provided, however,
25that:
26        (1) If the articles of incorporation or by-laws of the

 

 

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1    corporation, any plan or agreement to which the
2    corporation was a party, or any provision of this Act in
3    effect as of the time of the defective corporate action
4    would have required a larger number or portion of stock or
5    of any class or series thereof or of specified
6    shareholders for a quorum to be present or to approve the
7    defective corporate action, the presence or approval of
8    such larger number or portion of stock or of such class or
9    series thereof or of such specified shareholders shall be
10    required for a quorum to be present or to approve the
11    ratification of the defective corporate action, as
12    applicable, except that the presence or approval of shares
13    of any class or series of which no shares are then
14    outstanding, or of any person that is no longer a
15    shareholder, shall not be required.
16        (2) The approval by shareholders to ratify the
17    election of a director requires the affirmative vote of
18    the majority of the votes of the shares which are
19    represented at a meeting at which a quorum is present and
20    entitled to vote on the matter, except that if the
21    articles of incorporation or by-laws of the corporation
22    then in effect or in effect at the time of the defective
23    election require or required a larger number or portion of
24    stock or of any class or series thereof or of specified
25    shareholders to elect such director, the affirmative vote
26    of such larger number or portion of stock or of any class

 

 

SB1872 Engrossed- 11 -LRB102 13519 JLS 18866 b

1    or series thereof or of such specified shareholders shall
2    be required to ratify the election of such director,
3    except that the presence or approval of shares of any
4    class or series of which no shares are then outstanding,
5    or of any person that is no longer a shareholder, shall not
6    be required.
7        (3) In the event of a failure of authorization
8    resulting from a failure to comply with the provisions of
9    Section 7.85, the ratification of the defective corporate
10    action shall require the vote of shareholders set forth in
11    subsection B of Section 7.85, regardless of whether such
12    vote would have otherwise been required. In the event of a
13    failure of authorization resulting from a failure to
14    comply with Section 11.75, the ratification of the
15    defective corporate action shall require the vote of
16    shareholders set forth in clause (3) of subsection (a) of
17    Section 11.75, regardless of whether such vote would have
18    otherwise been required.
19    (d) Putative shares on the record date for determining the
20shareholders entitled to vote on any matter submitted to
21shareholders under subsection (c) of Section 1A.15 (and
22without giving effect to any ratification of putative shares
23that becomes effective as a result of such vote) shall neither
24be entitled to vote nor counted for quorum purposes in any vote
25to approve the ratification of any defective corporate action.
26    (e) If the approval under this Section of putative shares

 

 

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1would result in an overissue, in addition to the approval
2required by Section 1A.15, approval of an amendment to the
3articles of incorporation under Article 10 to increase the
4number of shares of an authorized class or series or to
5authorize the creation of a class or series of shares so there
6would be no overissue shall also be required.
 
7    (805 ILCS 5/1A.25 new)
8    Sec. 1A.25. Notice requirements.
9    (a) Unless (1) shareholder approval is required under
10subsection (c) of Section 1A.15 and (2) shareholder approval
11is to be given at a meeting of shareholders in accordance with
12subsection (b) of Section 1A.20, rather than by informal
13action of shareholders pursuant to Section 7.10, prompt notice
14of an action taken under Section 1A.15 shall be given to each
15holder of valid and putative shares, regardless of whether
16entitled to vote, as of:
17        (A) the date of such action by the board; and
18        (B) the date of the defective corporate action
19    ratified (or, in the case of any defective corporate
20    action that involved the establishment of a record date
21    for notice of or voting at any meeting of shareholders,
22    for informal action by shareholders in lieu of a meeting,
23    or for any other purpose, the record date for notice of or
24    voting at such meeting, the record date for informal
25    action by written consent, or the record date for such

 

 

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1    other action, as the case may be);
2provided that in each case notice shall not be required to be
3given to holders of valid and putative shares whose identities
4or addresses for notice cannot be determined from the records
5of the corporation.
6    (b) The notice must contain:
7        (1) either a copy of the action taken by the board in
8    accordance with subsection (a) or (b) of Section 1A.15 or
9    the information required by items (1) through (4) of
10    subsection (a) or items (1) through (3) of subsection (b)
11    of Section 1A.15, as applicable, and
12        (2) a statement that any claim that the ratification
13    of the defective corporate action and any putative shares
14    issued as a result of such defective corporate action
15    should not be effective, or should be effective only on
16    certain conditions, shall be brought within 120 days from
17    the applicable validation effective time.
18    (c) No notice under this Section is required with respect
19to any action required to be submitted to shareholders for
20approval under subsection (c) of Section 1A.15 if notice is
21given in accordance with subsection (b) of Section 1A.20.
22    (d) A notice required by this Section may be given in any
23manner permitted by the by-laws of the corporation or, if the
24by-laws are silent, this Act. In addition, for any corporation
25subject to the reporting requirements of Section 13 or Section
2615(d) of the Securities Exchange Act of 1934, or the

 

 

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1corresponding provisions of any subsequent federal securities
2laws, rules, or regulations, a notice required by this Section
3or by subsection (b) of Section 1A.20 may be given by means of
4a filing or furnishing of such notice with the United States
5Securities and Exchange Commission.
 
6    (805 ILCS 5/1A.30 new)
7    Sec. 1A.30. Effect of ratification and validation. From
8and after the validation effective time, and without regard to
9the 120-day period during which a claim may be brought under
10Section 1A.40:
11        (1) each defective corporate action ratified in
12    accordance with Section 1A.15 shall not be void or
13    voidable as a result of the failure of authorization
14    identified in the action taken under subsection (a) or (b)
15    of Section 1A.15 and shall be deemed a valid corporate
16    action effective as of the date of the defective corporate
17    action;
18        (2) the issuance of each putative share or fraction of
19    a putative share purportedly issued pursuant to a
20    defective corporate action identified in the action taken
21    under Section 1A.15 shall not be void or voidable and each
22    such putative share or fraction of a putative share shall
23    be deemed to be an identical share or fraction of a share
24    that was duly authorized and validly issued as of the time
25    it was purportedly issued; and

 

 

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1        (3) any corporate action taken subsequent to and in
2    direct or indirect reliance on any defective corporate
3    action that is ratified or validated in accordance with
4    this Article and all corporate actions, including any
5    subsequent defective corporate action, resulting directly
6    or indirectly therefrom shall be valid as of the time
7    taken.
 
8    (805 ILCS 5/1A.35 new)
9    Sec. 1A.35. Filings.
10    (a) If the defective corporate action ratified under this
11Article would have required under any other Section of this
12Act a filing in accordance with this Act, then, regardless of
13whether a filing was previously made in respect of such
14defective corporate action and in lieu of a filing otherwise
15required by this Act, the corporation shall file articles of
16validation in accordance with this Section, and such articles
17of validation shall serve to amend or substitute for any other
18filing with respect to such defective corporate action
19required by this Act.
20    (b) The articles of validation must set forth:
21        (1) the defective corporate action that is the subject
22    of the articles of validation (including, in the case of
23    any defective corporate action involving the issuance of
24    putative shares, the number and type of putative shares
25    issued and the date or dates upon which such putative

 

 

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1    shares were purported to have been issued);
2        (2) the date of the defective corporate action;
3        (3) the nature of the failure of authorization in
4    respect of the defective corporate action;
5        (4) a statement that the defective corporate action
6    was ratified in accordance with Section 1A.15, including
7    the date on which the board ratified such defective
8    corporate action and the date, if any, on which the
9    shareholders approved the ratification of such defective
10    corporate action; and
11        (5) the information required by subsection (c).
12    (c) The articles of validation must also contain the
13following information:
14        (1) if a filing was previously made in respect of the
15    defective corporate action and no changes to such filing
16    are required to give effect to the ratification of such
17    defective corporate action in accordance with Section
18    1A.15, the articles of validation must set forth (i) the
19    name, title, and filing date of the filing previously made
20    and any statement of correction to that filing and (ii) a
21    statement that a copy of the filing previously made,
22    together with any statement of correction to that filing,
23    is attached as an exhibit to the articles of validation;
24        (2) if a filing was previously made in respect of the
25    defective corporate action and such filing requires any
26    change to give effect to the ratification of such

 

 

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1    defective corporate action in accordance with Section
2    1A.15, the articles of validation must set forth (i) the
3    name, title and filing date of the filing previously made
4    and any statement of correction to that filing, (ii) a
5    statement that a filing containing all of the information
6    required to be included under the applicable Section or
7    Sections of this Act to give effect to such defective
8    corporate action is attached as an exhibit to the articles
9    of validation, and (iii) the date and time that such
10    filing is deemed to have become effective; or
11        (3) if a filing was not previously made in respect of
12    the defective corporate action and the defective corporate
13    action ratified under Section 1A.15 would have required a
14    filing under any other Section of this Act, the articles
15    of validation must set forth (i) a statement that a filing
16    containing all of the information required to be included
17    under the applicable Section or Sections of this Act to
18    give effect to such defective corporate action is attached
19    as an exhibit to the articles of validation, and (ii) the
20    date and time that such filing is deemed to have become
21    effective.
 
22    (805 ILCS 5/1A.40 new)
23    Sec. 1A.40. Judicial proceedings regarding validity of
24corporate actions.
25    (a) Upon application to the circuit court of the county in

 

 

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1which either the registered office or principal office of the
2corporation is located by the corporation, any successor
3entity to the corporation, a director of the corporation, any
4shareholder, beneficial shareholder or unrestricted voting
5trust beneficial owner of the corporation, including any such
6shareholder, beneficial shareholder or unrestricted voting
7trust beneficial owner as of the date of the defective
8corporate action ratified under Section 1A.15, or any other
9person claiming to be substantially and adversely affected by
10a ratification under Section 1A.15, the circuit court may:
11        (1) determine the validity and effectiveness of any
12    corporate action or defective corporate action;
13        (2) determine the validity and effectiveness of any
14    ratification under Section 1A.15;
15        (3) determine the validity of any putative shares; and
16        (4) modify or waive any of the procedures specified in
17    Section 1A.15 or Section 1A.20 to ratify a defective
18    corporate action.
19    (b) In connection with an action under this Section, the
20circuit court may make such findings or orders, and take into
21account any factors or considerations, regarding such matters
22as it deems proper under the circumstances.
23    (c) Service of process of the application under subsection
24(a) on the corporation may be made in any manner provided by
25statute of this State or by rule of the applicable court for
26service on the corporation, and no other party need be joined

 

 

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1in order for the court to adjudicate the matter. In an action
2filed by the corporation, the court may require notice of the
3action be provided to other persons specified by the court and
4permit such other persons to intervene in the action.
5    (d) Notwithstanding any other provision of this Section or
6otherwise under applicable law, any action asserting that the
7ratification of any defective corporate action, including any
8putative shares issued as a result of such defective corporate
9action, should not be effective, or should be effective only
10on certain conditions, shall be brought within 120 days of the
11validation effective time.