Minnesota Session Laws - 2000, Regular Session

                            CHAPTER 264-S.F.No. 2692 
                  An act relating to business organizations; business 
                  corporations and limited liability companies; 
                  regulating the rights of shareholders and members; 
                  clarifying notice of director and governor conflicts 
                  of interest; regulating the issuing of and right to 
                  purchase shares; regulating contribution allowance 
                  agreements; amending Minnesota Statutes 1998, sections 
                  302A.135, subdivision 2; 302A.181, subdivision 3; 
                  302A.255, subdivision 1; 302A.405, subdivision 3; 
                  302A.409, subdivision 3; 302A.471, subdivision 3; 
                  302A.521, subdivision 6; 302A.613, subdivision 2; and 
                  322B.699, subdivision 6; Minnesota Statutes 1999 
                  Supplement, sections 302A.471, subdivision 1; 322B.43, 
                  subdivision 1; 322B.666, subdivision 1; and 322B.72, 
                  subdivision 2. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
           Section 1.  Minnesota Statutes 1998, section 302A.135, 
        subdivision 2, is amended to read: 
           Subd. 2.  [SUBMISSION TO SHAREHOLDERS.] A resolution 
        approved by the affirmative vote of a majority of the directors 
        present, or proposed by a shareholder or shareholders holding 
        three percent or more of the voting power of the shares entitled 
        to vote, that sets forth the proposed amendment shall be 
        submitted to a vote at the next regular or special meeting of 
        the shareholders of which notice has not yet been given but 
        still can be timely given.  Any number of amendments may be 
        submitted to the shareholders and voted upon at one meeting, but 
        the same or substantially the same amendment proposed by a 
        shareholder or shareholders need not be submitted to the 
        shareholders or be voted upon at more than one meeting during a 
        15-month period, except that if a corporation is registered or 
        reporting under the federal securities laws, the provisions of 
        this sentence do not apply to the extent that those provisions 
        are in conflict with the federal securities laws or rules 
        adopted under those laws.  The resolution may amend the articles 
        in their entirety to restate and supersede the original articles 
        and all amendments to them.  The provisions of this subdivision 
        regarding shareholder-proposed amendments do not apply to a 
        corporation registered or reporting under the federal securities 
        laws, to the extent that those provisions are in conflict with 
        the federal securities laws or rules promulgated thereunder, in 
        which case the federal securities laws or rules promulgated 
        thereunder shall govern. 
           Sec. 2.  Minnesota Statutes 1998, section 302A.181, 
        subdivision 3, is amended to read: 
           Subd. 3.  [POWER OF SHAREHOLDERS; PROCEDURE.] If a 
        shareholder or shareholders holding three percent or more of the 
        voting power of the shares entitled to vote propose a resolution 
        for action by the shareholders to adopt, amend, or repeal bylaws 
        adopted, amended, or repealed by the board and the resolution 
        sets forth the provision or provisions proposed for adoption, 
        amendment, or repeal, the limitations and procedures for 
        submitting, considering, and adopting the resolution are the 
        same as provided in section 302A.135, subdivisions 2 to 4, for 
        amendment of the articles.  The provisions of this subdivision 
        regarding shareholder-proposed amendments shall not apply to a 
        corporation registered or reporting under the federal securities 
        laws, to the extent that those provisions are in conflict with 
        the federal securities laws or rules promulgated thereunder, in 
        which case the federal securities laws or rules promulgated 
        thereunder shall govern. 
           Sec. 3.  Minnesota Statutes 1998, section 302A.255, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [CONFLICT; PROCEDURE WHEN CONFLICT ARISES.] 
        A contract or other transaction between a corporation and one or 
        more of its directors, or between a corporation and an 
        organization in or of which one or more of its directors are 
        directors, officers, or legal representatives or have a material 
        financial interest, is not void or voidable because the director 
        or directors or the other organizations are parties or because 
        the director or directors are present at the meeting of the 
        shareholders or the board or a committee at which the contract 
        or transaction is authorized, approved, or ratified, if:  
           (a) The contract or transaction was, and the person 
        asserting the validity of the contract or transaction sustains 
        the burden of establishing that the contract or transaction was, 
        fair and reasonable as to the corporation at the time it was 
        authorized, approved, or ratified; 
           (b) The material facts as to the contract or transaction 
        and as to the director's or directors' interest are fully 
        disclosed or known to the shareholders holders of all 
        outstanding shares, whether or not entitled to vote, and the 
        contract or transaction is approved in good faith by (1) the 
        holders of two-thirds of the voting power of the shares entitled 
        to vote which are owned by persons other than the interested 
        director or directors, or (2) the unanimous affirmative vote of 
        the holders of all outstanding shares, whether or not entitled 
        to vote; 
           (c) The material facts as to the contract or transaction 
        and as to the director's or directors' interest are fully 
        disclosed or known to the board or a committee, and the board or 
        committee authorizes, approves, or ratifies the contract or 
        transaction in good faith by a majority of the board or 
        committee, but the interested director or directors shall not be 
        counted in determining the presence of a quorum and shall not 
        vote; or 
           (d) The contract or transaction is a distribution described 
        in section 302A.551, subdivision 1, or a merger or exchange 
        described in section 302A.601, subdivision 1 or 2.  
           Sec. 4.  Minnesota Statutes 1998, section 302A.405, 
        subdivision 3, is amended to read: 
           Subd. 3.  [PAYMENT; LIABILITY; CONTRIBUTION; STATUTE OF 
        LIMITATIONS.] (a) A corporation shall issue only shares that are 
        nonassessable or that are assessable but are issued with the 
        unanimous consent of the shareholders.  "Nonassessable" shares 
        are shares for which the agreed consideration has been fully 
        paid, delivered, or rendered to the corporation.  Consideration 
        in the form of a promissory note, a check, or a written 
        agreement to transfer property or render services to a 
        corporation in the future is fully paid when the note, check, or 
        written agreement is delivered to the corporation, and 
        consideration in the form of services to be rendered to the 
        corporation is fully paid when the issuance of the shares is 
        authorized or approved pursuant to subdivision 1, paragraph (a). 
           (b) If shares are issued in violation of paragraph (a), the 
        following persons are jointly and severally liable to the 
        corporation for the difference between the agreed consideration 
        for the shares and the consideration actually received by the 
        corporation:  
           (1) A director or shareholder who was present and entitled 
        to vote but who failed to vote against the issuance of the 
        shares knowing of the violation; 
           (2) The person to whom the shares were issued; and 
           (3) A successor or transferee of the interest in the 
        corporation of a person described in clause (1) or (2), 
        including a purchaser of shares, a subsequent assignee, 
        successor, or transferee, a pledgee, a holder of any other 
        security interest in the assets of the corporation or shares 
        granted by the person described in clause (1) or (2), or a legal 
        representative of or for the person or estate of the person, 
        which successor, transferee, purchaser, assignee, pledgee, 
        holder, or representative acquired the interest knowing of the 
        violation.  
           (c)(1) A pledgee or holder of any other security interest 
        in all or any shares that have been issued in violation of 
        paragraph (a) is not liable under paragraph (b) if all those 
        shares are surrendered to the corporation.  The surrender does 
        not impair any rights of the pledgee or holder of any other 
        security interest against the pledgor or person granting the 
        security interest.  
           (2) A pledgee, holder of any other security interest, or 
        legal representative is liable under paragraph (b) only in that 
        capacity.  The liability of the person under paragraph (b) is 
        limited to the assets held in that capacity for the person or 
        estate of the person described in clause (1) or (2) of paragraph 
        (b).  
           (3) Each person liable under paragraph (b) has a full right 
        of contribution on an equitable basis from all other persons 
        liable under paragraph (b) for the same transaction.  
           (4) An action shall not be maintained against a person 
        under paragraph (b) unless commenced within two years from the 
        date on which shares are issued in violation of paragraph (a).  
           Sec. 5.  Minnesota Statutes 1998, section 302A.409, 
        subdivision 3, is amended to read: 
           Subd. 3.  [ISSUANCE PERMITTED.] A corporation may issue 
        rights to purchase after the terms, provisions, and conditions 
        of the rights to purchase to be issued, including the conversion 
        basis or the price at which securities may be purchased or 
        subscribed for, are fixed by the board, or by an officer 
        pursuant to board authorization, subject to any restrictions in 
        the articles.  Notwithstanding any provision of this chapter, a 
        corporation may issue rights to purchase or amend the instrument 
        or agreement fixing the terms, provisions, and conditions of the 
        rights to purchase to include terms and conditions that prevent 
        the holder of a specified percentage of the outstanding shares 
        of the corporation, including subsequent transferees of the 
        holder, from exercising those rights to purchase. 
           Sec. 6.  Minnesota Statutes 1999 Supplement, section 
        302A.471, subdivision 1, is amended to read: 
           Subdivision 1.  [ACTIONS CREATING RIGHTS.] A shareholder of 
        a corporation may dissent from, and obtain payment for the fair 
        value of the shareholder's shares in the event of, any of the 
        following corporate actions:  
           (a) An amendment of the articles that materially and 
        adversely affects the rights or preferences of the shares of the 
        dissenting shareholder in that it:  
           (1) alters or abolishes a preferential right of the shares; 
           (2) creates, alters, or abolishes a right in respect of the 
        redemption of the shares, including a provision respecting a 
        sinking fund for the redemption or repurchase of the shares; 
           (3) alters or abolishes a preemptive right of the holder of 
        the shares to acquire shares, securities other than shares, or 
        rights to purchase shares or securities other than shares; 
           (4) excludes or limits the right of a shareholder to vote 
        on a matter, or to cumulate votes, except as the right may be 
        excluded or limited through the authorization or issuance of 
        securities of an existing or new class or series with similar or 
        different voting rights; except that an amendment to the 
        articles of an issuing public corporation that provides that 
        section 302A.671 does not apply to a control share acquisition 
        does not give rise to the right to obtain payment under this 
        section; 
           (b) A sale, lease, transfer, or other disposition of all or 
        substantially all of the property and assets of the corporation, 
        but not including a transaction permitted without shareholder 
        approval in section 302A.661, subdivision 1, or a disposition in 
        dissolution described in section 302A.725, subdivision 2, or a 
        disposition pursuant to an order of a court, or a disposition 
        for cash on terms requiring that all or substantially all of the 
        net proceeds of disposition be distributed to the shareholders 
        in accordance with their respective interests within one year 
        after the date of disposition; 
           (c) A plan of merger, whether under this chapter or under 
        chapter 322B, to which the corporation is a constituent 
        organization, except as provided in subdivision 3; 
           (d) A plan of exchange, whether under this chapter or under 
        chapter 322B, to which the corporation is a party as the 
        corporation whose shares will be acquired by the acquiring 
        corporation, if the shares of the shareholder are entitled to be 
        voted on the plan except as provided in subdivision 3; or 
           (e) Any other corporate action taken pursuant to a 
        shareholder vote with respect to which the articles, the bylaws, 
        or a resolution approved by the board directs that dissenting 
        shareholders may obtain payment for their shares. 
           Sec. 7.  Minnesota Statutes 1998, section 302A.471, 
        subdivision 3, is amended to read: 
           Subd. 3.  [RIGHTS NOT TO APPLY.] (a) Unless the articles, 
        the bylaws, or a resolution approved by the board otherwise 
        provide, the right to obtain payment under this section does not 
        apply to a shareholder of (1) the surviving corporation in a 
        merger, if the shares of the shareholder are not entitled to be 
        voted on the merger with respect to shares of the shareholder 
        that are not entitled to be voted on the merger and are not 
        canceled or exchanged in the merger or (2) the corporation whose 
        shares will be acquired by the acquiring corporation in a plan 
        of exchange with respect to shares of the shareholder that are 
        not entitled to be voted on the plan of exchange and are not 
        exchanged in the plan of exchange. 
           (b) If a date is fixed according to section 302A.445, 
        subdivision 1, for the determination of shareholders entitled to 
        receive notice of and to vote on an action described in 
        subdivision 1, only shareholders as of the date fixed, and 
        beneficial owners as of the date fixed who hold through 
        shareholders, as provided in subdivision 2, may exercise 
        dissenters' rights. 
           Sec. 8.  Minnesota Statutes 1998, 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:  
           (1) by the board by a majority of a quorum, if the 
        directors who are at the time parties to the proceeding are not 
        counted for determining either a majority or the presence of a 
        quorum; 
           (2) if a quorum under clause (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; 
           (3) if a determination is not made under clause (1) or (2), 
        by special legal counsel, selected either by a majority of the 
        board or a committee by vote pursuant to clause (1) or (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; 
           (4) if a determination is not made under clauses (1) to 
        (3), by the shareholders affirmative vote of the shareholders 
        required by section 302A.437, but the shares held by parties to 
        the proceeding must not be counted in determining the presence 
        of a quorum and are not considered to be present and entitled to 
        vote on the determination; or 
           (5) if an adverse determination is made under clauses (1) 
        to (4) or under paragraph (b), or if no determination is made 
        under clauses (1) to (4) or under paragraph (b) within 60 days 
        after (i) the later to occur of the termination of a proceeding 
        or a written request for indemnification to the corporation or 
        (ii) a written 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.  The person seeking indemnification or payment or 
        reimbursement of expenses pursuant to this clause has the burden 
        of establishing that the person is entitled to indemnification 
        or payment or reimbursement of expenses.  
           (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 1998, section 302A.613, 
        subdivision 2, is amended to read: 
           Subd. 2.  [APPROVAL BY OWNERS.] (a) At the meeting a vote 
        of the owners shall be taken on the proposed plan.  The plan of 
        merger or exchange is adopted when approved by the affirmative 
        vote of the holders of a majority of the voting power of all 
        shares entitled to vote and, if the merger or exchange is with a 
        domestic or foreign limited liability company, when approved in 
        the manner required by the laws of the state under which the 
        limited liability company is organized.  Except as provided in 
        paragraph (b), a class or series of shares of the corporation is 
        entitled to vote as a class or series if any provision of the 
        plan would, if contained in a proposed amendment to the 
        articles, entitle the class or series of shares to vote as a 
        class or series and, in the case of an exchange, if the class or 
        series is included in the exchange. 
           (b) A class or series of shares of the corporation is not 
        entitled to vote as a class or series solely because the plan of 
        merger or exchange effects a cancellation or exchange of the 
        shares of the class or series if the plan of merger or exchange 
        effects a cancellation or exchange of all shares of the 
        corporation of all classes and series that are outstanding 
        immediately prior to the merger or exchange and shareholders of 
        shares of that class or series are entitled to obtain payment 
        for the fair value of their shares under section 302A.471 in the 
        event of the merger or exchange. 
           Sec. 10.  Minnesota Statutes 1999 Supplement, section 
        322B.43, subdivision 1, is amended to read: 
           Subdivision 1.  [AGREEMENTS PERMITTED.] Subject to any 
        restrictions in the articles of organization or a member control 
        agreement, a limited liability company may enter into 
        contribution allowance agreements under the terms, provisions, 
        and conditions fixed by the board of governors or by a manager 
        pursuant to board authorization.  
           Sec. 11.  Minnesota Statutes 1999 Supplement, section 
        322B.666, subdivision 1, is amended to read: 
           Subdivision 1.  [CONFLICT AND PROCEDURE WHEN CONFLICT 
        ARISES.] A contract or other transaction between a limited 
        liability company and one or more of its governors, or between a 
        limited liability company and an organization in or of which one 
        or more of its governors are governors, directors, managers, 
        officers, or legal representatives or have a material financial 
        interest, is not void or voidable because the governor or 
        governors or the other organizations are parties or because the 
        governor or governors are present at the meeting of the members 
        or the board of governors or a committee at which the contract 
        or transaction is authorized, approved, or ratified, if:  
           (1) the contract or transaction was, and the person 
        asserting the validity of the contract or transaction sustains 
        the burden of establishing that the contract or transaction was, 
        fair and reasonable as to the limited liability company at the 
        time it was authorized, approved, or ratified; 
           (2) the material facts as to the contract or transaction 
        and as to the governor's or governors' interest are fully 
        disclosed or known to the members, whether or not entitled to 
        vote, and the contract or transaction is approved in good faith 
        by (i) the owners of two-thirds of the voting power of the 
        membership interests entitled to vote that are owned by persons 
        other than the interested governor or governors, or (ii) the 
        unanimous affirmative vote of all members, whether or not 
        entitled to vote; 
           (3) the material facts as to the contract or transaction 
        and as to the governor's or governors' interest are fully 
        disclosed or known to the board of governors or a committee, and 
        the board of governors or committee authorizes, approves, or 
        ratifies the contract or transaction in good faith by a majority 
        of the board of governors or committee, but the interested 
        governor or governors are not counted in determining the 
        presence of a quorum and must not vote; or 
           (4) the contract or transaction is a distribution described 
        in section 322B.54, subdivision 1, or a merger or exchange 
        described in section 322B.70, subdivision 1 or 2. 
           Sec. 12.  Minnesota Statutes 1998, section 322B.699, 
        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 must be made:  
           (1) by the board of governors by a majority of a quorum.  
        If the governors who are, at the time, parties to the proceeding 
        are not counted for determining either a majority or the 
        presence of a quorum; 
           (2) if a quorum under clause (1) cannot be obtained, by a 
        majority of a committee of the board of governors, consisting 
        solely of two or more governors not at the time parties to the 
        proceeding, duly designated to act in the matter by a majority 
        of the full board of governors including governors who are 
        parties; 
           (3) if a determination is not made under clause (1) or (2), 
        by special legal counsel, selected either by a majority of the 
        board of governors or a committee by vote pursuant to clause (1) 
        or (2) or, if the requisite quorum of the full board of 
        governors cannot be obtained and the committee cannot be 
        established, by a majority of the full board of governors 
        including governors who are parties; 
           (4) if a determination is not made under clauses (1) to 
        (3), by the affirmative vote of the members required by section 
        322B.346, but the membership interests held by parties to the 
        proceeding must not be counted in determining the presence of a 
        quorum and are not considered to be present and entitled to vote 
        on the determination; or 
           (5) if an adverse determination is made under clauses (1) 
        to (4) or under paragraph (b), or if no determination is made 
        under clauses (1) to (4) or under paragraph (b) within 60 days 
        after (i) the later to occur of the termination of a proceeding 
        or a written request for indemnification to the limited 
        liability company or (ii) a written 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.  The person seeking 
        indemnification or payment or reimbursement of expenses pursuant 
        to this clause has the burden of establishing that the person is 
        entitled to indemnification or payment or reimbursement or 
        expenses. 
           (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 governor, manager, or person possessing, directly or 
        indirectly, the power to direct or cause the direction of the 
        management or policies of the limited liability company, 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 of governors, having 
        at least one member who is a governor.  The committee shall 
        report at least annually to the board of governors concerning 
        its actions. 
           Sec. 13.  Minnesota Statutes 1999 Supplement, section 
        322B.72, subdivision 2, is amended to read: 
           Subd. 2.  [APPROVAL BY OWNERS.] (a) At the meeting a vote 
        of the owners must be taken on the proposed plan.  The plan of 
        merger or exchange is adopted when approved by the affirmative 
        vote of the owners of a majority of the voting power of all 
        ownership interests entitled to vote.  Except as provided in 
        paragraph (b) or a member control agreement, a class or series 
        of ownership interests of the organization is entitled to vote 
        as a class or series if any provision of the plan would, if 
        contained in a proposed amendment to the articles of 
        organization entitle the class or series of ownership interests 
        to vote as a class or series and, in the case of an exchange, if 
        the class or series is included in the exchange.  
           (b) A class or series of ownership interests of the 
        organization is not entitled to vote as a class or series solely 
        because the plan of merger or exchange effects a cancellation or 
        exchange of the ownership interests of the class or series if 
        the plan of merger or exchange effects a cancellation or 
        exchange of all ownership interests of the organization of all 
        classes and series that are existing immediately before the 
        merger or exchange and owners of ownership interests of that 
        class or series are entitled to obtain payment for the fair 
        value of their shares ownership interests under section 322B.383 
        in the event of the merger or exchange. 
           Presented to the governor March 16, 2000 
           Signed by the governor March 20, 2000, 4:05 p.m.