2014 Amendments to the Minnesota Business Corporation Act

On April 25, 2014, Governor Dayton signed into law a number of amendments to the Minnesota Business Corporation Act (MBCA), affecting all for-profit entities incorporated in the state. The amendments, which are designed to ensure that Minnesota corporate law reflects current best practices in corporate governance while providing flexibility for private ordering, take effect on August 1, 2014.

Highlights of the amendments include:

• Cross-Border Conversions
  Currently, the MBCA permits one-step conversions between domestic corporations and LLCs only. The amendments expand that authority to permit cross-border conversions and reincorporations. This move streamlines what was formerly a cumbersome process, and the entity resulting from a statutory conversion or reincorporation is deemed to be the same entity as the pre-transaction entity for all purposes.

• Dissenters' Rights
  In 2011, the Minnesota Supreme Court decided in the Cold Spring Granite case that a reverse stock split followed by a cash-out of fractional shares does not trigger dissenters' rights. In those circumstances, the court ruled, the sole remedy for a shareholder cashed out in this manner is to prove that the board's valuation of the fractional shares was fraudulent. The amendments legislatively overrule that decision, granting dissenters' rights to a shareholder in the event of a reverse split that reduces the shareholder's holdings to a fraction of a share, if the corporation exercises its statutory right to repurchase the fraction.

• Class Voting
  The MBCA mandates class and series voting for certain categories of amendments to the articles of incorporation. For corporations with a number of different classes or series of stock, this requirement creates multiple class and series voting groups even when two or more classes or series would be affected in the same way by the proposed amendment to the articles. The MBCA amendments permit the articles to group similarly affected classes and series together in the same voting group.

• Official Pre-Clearance of Filings
  For years, the staff of the Office of the Secretary of State has informally "pre-cleared" documents for filing, time permitting. The amendments formalize that process, add a fee for the service, and define the effect of pre-clearance when the document is presented for filing.

Mike Stanchfield is the chair of the committee of the Minnesota State Bar Association that drafted the statutory amendments. Together with Professor John Matheson of the University of Minnesota Law School and FaegreBD attorney Phil Garon, Mike is co-author of Minnesota Corporation Law and Practice, the definitive treatise on Minnesota corporate law, published by Thomson Reuters.