Minnesota Session Laws - 1983, Regular Session

  

                         Laws of Minnesota 1983 

                        CHAPTER 368--S.F.No. 964
           An act relating to corporations; providing for the 
          determination of eligibility for the indemnification 
          of certain persons; prohibiting the use of corporate 
          information obtained improperly; authorizing the use 
          of protective orders and other relief to prevent the 
          premature disclosure of certain confidential 
          information or the use of corporate information 
          obtained improperly; permitting the use of corporate 
          names of corporations not filing the active status 
          report; restricting the right of a corporation to deny 
          cumulative voting; protecting preemptive rights of 
          shareholders; clarifying when equitable relief is 
          available to minority stockholders; providing for the 
          retention of cumulative voting and preemptive rights 
          after incorporation; amending Minnesota Statutes 1982, 
          sections 300.083, subdivision 6; 302A.011, by adding a 
          subdivision; 302A.115, by adding a subdivision; 
          302A.215; 302A.413, by adding a subdivision; 302A.461, 
          subdivision 6, and by adding a subdivision; 302A.521, 
          subdivision 6; and 302A.751, subdivisions 1, 2, and by 
          adding a subdivision. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
    Section 1.  Minnesota Statutes 1982, section 300.083, 
subdivision 6, is amended to read: 
    Subd. 6.  [DETERMINATION OF ELIGIBILITY.] (a) All 
determinations whether indemnification of a person is required 
because the criteria set forth in subdivision 2 have been 
satisfied and whether a person is entitled to payment or 
reimbursement of expenses in advance of the final disposition of 
a proceeding as provided in subdivision 3 shall be made:  
    (a) (1) By the board by a majority of a quorum.  Directors 
who are at the time parties to the proceeding shall not be 
counted for determining either a majority or the presence of a 
quorum;  
    (b) (2) If a quorum under clause (a) (1) cannot be 
obtained, by a majority of a committee of the board, consisting 
solely of two or more directors not at the time parties to the 
proceeding, duly designated to act in the matter by a majority 
of the full board including directors who are parties;  
    (c) (3) If a determination is not made under clause (a) (1) 
or (b) (2), by special legal counsel, selected either by a 
majority of the board or a committee by vote pursuant to clause 
(a) (1) or (b) (2) or, if the requisite quorum of the full board 
cannot be obtained and the committee cannot be established, by a 
majority of the full board including directors who are parties;  
    (d) (4) If a determination is not made under clauses (a) 
(1) to (c) (3), by the shareholders, excluding the votes of 
shares held by parties to the proceeding; or 
    (e) (5) If an adverse determination is made under clauses 
(a) (1) to (d) (4), or if no determination is made under clauses 
(a) (1) to (d) (4) within 60 days after the termination of a 
proceeding or after a request for an advance of expenses, as the 
case may be, by a court in this state, which may be the same 
court in which the proceeding involving the person's liability 
took place, upon application of the person and any notice the 
court requires.  
    (b) With respect to a person who is not, and was not at the 
time of the acts or omissions complained of in the proceedings, 
a director, officer, or person possessing, directly or 
indirectly, the power to direct or cause the direction of the 
management or policies of the corporation, the determination 
whether indemnification of this person is required because the 
criteria set forth in subdivision 2 have been satisfied and 
whether this person is entitled to payment or reimbursement of 
expenses in advance of the final disposition of a proceeding as 
provided in subdivision 3 may be made by an annually appointed 
committee of the board, having at least one member who is a 
director.  The committee shall report at least annually to the 
board concerning its actions.  
    Sec. 2.  Minnesota Statutes 1982, section 302A.011, is 
amended by adding a subdivision to read: 
    Subd. 6a.  [CLOSELY HELD CORPORATION.] "Closely held 
corporation" means a corporation which does not have more than 
35 shareholders.  
    Sec. 3.  Minnesota Statutes 1982, section 302A.115, is 
amended by adding a subdivision to read:  
    Subd. 7.  [LOST NAMES; USE BY OTHERS.] Each corporation 
formed before July 1, 1979 which has not filed the active status 
report required by Minnesota Statutes 1982, section 301.511 and 
which has not elected to become governed by chapter 302A before 
January 1, 1984 shall file that report with the secretary of 
state accompanied by a filing fee of $10.  
    Each corporation which has not filed that report on August 
1, 1983 loses its right to the exclusive use of its name.  The 
corporation may reacquire the right to use that name by filing 
the report and paying the fee required by this subdivision, 
unless the name has been adopted for use or reserved by another 
person, in which case the report will be rejected unless the 
report can be accepted pursuant to subdivision 1, clause (d).  A 
corporation which cannot reacquire the use of its corporate name 
shall adopt a new corporate name which complies with the 
provisions of section 302A.115.  
    Sec. 4.  Minnesota Statutes 1982, section 302A.215, is 
amended to read:  
    302A.215 [CUMULATIVE VOTING FOR DIRECTORS.] 
    Subdivision 1.  [VOTING RIGHTS.] Unless the articles 
provide that there shall be no cumulative voting, and except as 
provided in section 302A.223, subdivision 5, each shareholder 
entitled to vote for directors has the right to cumulate those 
votes in the election of directors by giving written notice of 
intent to cumulate those votes to any officer of the corporation 
before the meeting, or to the presiding officer at the meeting 
at which the election is to occur at any time before the 
election of directors at the meeting, in which case:  
    (a) The presiding officer at the meeting shall announce, 
before the election of directors, that shareholders shall 
cumulate their votes; and 
    (b) Each shareholder shall cumulate those votes either by 
casting for one candidate the number of votes equal to the 
number of directors to be elected multiplied by the number of 
votes represented by the shares, or by distributing all of those 
votes on the same principle among any number of candidates.  
    Subd. 2.  [MODIFICATIONS.] No amendment to the articles or 
bylaws which has the effect of denying, limiting, or modifying 
the right to cumulative voting for directors provided in this 
section shall be adopted if the votes of a proportion of the 
voting power sufficient to elect a director at an election of 
the entire board under cumulative voting are cast against the 
amendment.  
    Sec. 5.  Minnesota Statutes 1982, section 302A.413, is 
amended by adding a subdivision to read:  
    Subd. 9.  [MODIFICATION.] No amendment to the articles 
which has the effect of denying, limiting, or modifying the 
preemptive rights provided in this section shall be adopted if 
the votes of a proportion of the voting power sufficient to 
elect a director at an election of the entire board under 
cumulative voting are cast against the amendment.  
    Sec. 6.  Minnesota Statutes 1982, section 302A.461, is 
amended by adding a subdivision to read: 
    Subd. 4a.  [PROTECTIVE ORDERS.] On application of the 
corporation, a court in this state may issue a protective order 
permitting the corporation to withhold portions of the records 
of proceedings of the board for a reasonable period of time, not 
to exceed 12 months, in order to prevent premature disclosure of 
confidential information which would be likely to cause 
competitive injury to the corporation.  A protective order may 
be renewed for successive reasonable periods of time, each not 
to exceed 12 months and in total not to exceed 36 months, for 
good cause shown.  In the event a protective order is issued, 
the statute of limitations for any action which the shareholder, 
beneficial owner, or holder of a voting trust certificate might 
bring as a result of information withheld automatically extends 
for the period of delay.  If the court does not issue a 
protective order with respect to any portion of the records of 
proceedings as requested by the corporation, it shall award 
reasonable expenses, including attorney's fees and 
disbursements, to the shareholder, beneficial owner, or holder 
of a voting trust certificate.  
    Sec. 7.  Minnesota Statutes 1982, section 302A.461, 
subdivision 6, is amended to read: 
    Subd. 6.  [COMPUTERIZED RECORDS.] The records maintained by 
a corporation, including its share register, financial records, 
and minute books, may utilize any information storage technique, 
including, for example, punched holes, printed or magnetized 
spots, or micro-images, even though that makes them illegible 
visually, if the records can be converted, by machine accurately 
and within a reasonable time, into a form that is legible 
visually and whose contents are assembled by related subject 
matter to permit convenient use by people in the normal course 
of business.  A corporation shall convert any of the records 
referred to in subdivision 4 upon the request of a person 
entitled to inspect them, and the expense of the conversion 
shall be borne by the person who bears the expense of copying 
pursuant to subdivision 5.  A copy of the conversion is 
admissible in evidence, and shall be accepted for all other 
purposes, to the same extent as the existing or original records 
would be if they were legible visually.  
    Sec. 8.  Minnesota Statutes 1982, section 302A.521, 
subdivision 6, is amended to read: 
    Subd. 6.  [DETERMINATION OF ELIGIBILITY.] (a) All 
determinations whether indemnification of a person is required 
because the criteria set forth in subdivision 2 have been 
satisfied and whether a person is entitled to payment or 
reimbursement of expenses in advance of the final disposition of 
a proceeding as provided in subdivision 3 shall be made:  
    (a) (1) By the board by a majority of a quorum.  Directors 
who are at the time parties to the proceeding shall not be 
counted for determining either a majority or the presence of a 
quorum;  
    (b) (2) If a quorum under clause (a) (1) cannot be 
obtained, by a majority of a committee of the board, consisting 
solely of two or more directors not at the time parties to the 
proceeding, duly designated to act in the matter by a majority 
of the full board including directors who are parties;  
    (c) (3) If a determination is not made under clause (a) (1) 
or (b) (2), by special legal counsel, selected either by a 
majority of the board or a committee by vote pursuant to clause 
(a) (1) or (b) (2) or, if the requisite quorum of the full board 
cannot be obtained and the committee cannot be established, by a 
majority of the full board including directors who are parties;  
    (d) (4) If a determination is not made under clauses (a) 
(1) to (c) (3), by the shareholders, excluding the votes of 
shares held by parties to the proceeding; or 
    (e) (5) If an adverse determination is made under clauses 
(a) (1) to (d) (4), or if no determination is made under clauses 
(a) (1) to (d) (4) within 60 days after the termination of a 
proceeding or after a request for an advance of expenses, as the 
case may be, by a court in this state, which may be the same 
court in which the proceeding involving the person's liability 
took place, upon application of the person and any notice the 
court requires.  
    (b) With respect to a person who is not, and was not at the 
time of the acts or omissions complained of in the proceedings, 
a director, officer, or person possessing, directly or 
indirectly, the power to direct or cause the direction of the 
management or policies of the corporation, the determination 
whether indemnification of this person is required because the 
criteria set forth in subdivision 2 have been satisfied and 
whether this person is entitled to payment or reimbursement of 
expenses in advance of the final disposition of a proceeding as 
provided in subdivision 3 may be made by an annually appointed 
committee of the board, having at least one member who is a 
director.  The committee shall report at least annually to the 
board concerning its actions.  
    Sec. 9.  Minnesota Statutes 1982, section 302A.751, 
subdivision 1, is amended to read:  
    Subdivision 1.  [WHEN PERMITTED.] A court may grant any 
equitable relief it deems just and reasonable in the 
circumstances or may dissolve a corporation and liquidate its 
assets and business:  
    (a) In a supervised voluntary dissolution pursuant to 
section 302A.741;  
    (b) In an action by a shareholder when it is established 
that:  
    (1) the directors or the persons having the authority 
otherwise vested in the board are deadlocked in the management 
of the corporate affairs and the shareholders are unable to 
break the deadlock;  
    (2) the directors or those in control of the corporation 
have acted fraudulently, illegally, or in a manner persistently 
unfair unfairly prejudicial toward one or more minority 
shareholders in their capacities as shareholders, directors, or 
officers, or as employees of a closely held corporation;  
    (3) the shareholders of the corporation are so divided in 
voting power that, for a period that includes the time when two 
consecutive regular meetings were held, they have failed to 
elect successors to directors whose terms have expired or would 
have expired upon the election and qualification of their 
successors;  
    (4) the corporate assets are being misapplied or wasted; or 
    (5) the period of duration as provided in the articles has 
expired and has not been extended as provided in section 
302A.801;  
    (c) In an action by a creditor when:  
    (1) the claim of the creditor has been reduced to judgment 
and an execution thereon has been returned unsatisfied; or 
    (2) the corporation has admitted in writing that the claim 
of the creditor is due and owing and it is established that the 
corporation is unable to pay its debts in the ordinary course of 
business; or 
    (d) In an action by the attorney general to dissolve the 
corporation in accordance with section 302A.757 when it is 
established that a decree of dissolution is appropriate. 
    Sec. 10.  Minnesota Statutes 1982, section 302A.751, 
subdivision 2, is amended to read: 
    Subd. 2.  [BUY-OUT ON MOTION.] In an action under 
subdivision 1, clause (b), involving a corporation having 25 or 
fewer shareholders closely held corporation at the time the 
action is commenced and in which one or more of the 
circumstances described in that clause is established, the court 
may, upon motion of a corporation or a shareholder or beneficial 
owner of shares of the corporation, order the sale by a 
plaintiff or a defendant of all shares of the corporation held 
by the plaintiff or defendant to either the corporation or the 
moving shareholders, whichever is specified in the motion, if 
the court determines in its discretion that an order would be 
fair and equitable to all parties under all of the circumstances 
of the case.  
    The purchase price of any shares so sold shall be the fair 
value of the shares as of the date of the commencement of the 
action or as of another date found equitable by the court, 
provided that, if the shares in question are then subject to 
sale and purchase pursuant to the bylaws of the corporation, a 
shareholder control agreement, the terms of the shares, or 
otherwise, the court shall order the sale for the price and on 
the terms set forth in them, unless the court determines that 
the price or terms are unreasonable under all the circumstances 
of the case. 
     Within five days after the entry of the order, the 
corporation shall provide each selling shareholder or beneficial 
owner with the information it is required to provide under 
section 302A.473, subdivision 5, paragraph (a).  
     If the parties are unable to agree on fair value within 40 
days of entry of the order, the court shall determine the fair 
value of the shares under the provisions of section 302A.473, 
subdivision 7, and may allow interest or costs as provided in 
section 302A.473, subdivisions 1 and 8.  
     The purchase price shall be paid in one or more 
installments as agreed on by the parties, or, if no agreement 
can be reached within 40 days of entry of the order, as ordered 
by the court.  Upon entry of an order for the sale of shares 
under this subdivision and provided that the corporation or the 
moving shareholders post a bond in adequate amount with 
sufficient sureties or otherwise satisfy the court that the full 
purchase price of the shares, plus such additional costs, 
expenses, and fees as may be awarded, will be paid when due and 
payable, the selling shareholders shall no longer have any 
rights or status as shareholders, officers, or directors, except 
the right to receive the fair value of their shares plus such 
other amounts as might be awarded.  
    Sec. 11.  Minnesota Statutes 1982, section 302A.751, is 
amended by adding a subdivision to read:  
    Subd. 3a.  [CONSIDERATIONS IN GRANTING RELIEF INVOLVING 
CLOSELY HELD CORPORATIONS.] In determining whether to order 
equitable relief, dissolution, or a buy-out, the court shall 
take into consideration the duty which all shareholders in a 
closely held corporation owe one another to act in an honest, 
fair, and reasonable manner in the operation of the corporation 
and the reasonable expectations of the shareholders as they 
exist at the inception and develop during the course of the 
shareholders' relationship with the corporation and with each 
other.  
    Sec. 12.  [EFFECTIVE DATE.] 
    This act is effective the day following final enactment. 
    Approved June 14, 1983