§ 1.22. FILING, SERVICE, AND COPYING FEES

(a) The secretary of state shall collect the following fees when the documents described in this subsection are delivered to the secretary of state for filing:

* * *

(23) Annual report not accompanying initial articles $ ____.

(23A) Annual report accompanying initial articles No fee.

(23B) Amended annual report No fee.

* * *

OFFICIAL COMMENT

* * *

Subdivision (8) contains a maximum fee for filing a change of address of a registered agent. Since corporation service companies serve as registered agents for thousands of corporations in many jurisdictions, their change of address may require a very large number of filings. Hence, the fee is broadly based on the number of corporations affected but a maximum fee is specified to reflect that as the number of changes increases the cost per change should decrease.

Subdivisions (23A ) and (23B) provide that no fee will be charged with respect to an annual report that accompanies initial articles of incorporation or an amended annual report. A fee is required with respect to the initial articles of incorporation and thus it is unnecessary to provide for a separate fee with respect to the annual report that must accompany the articles. No fee is required with respect to an amended annual report to encourage the prompt filing of amendments so that the publicly available information in the annual report will be kept current.

* * *

§ 1.40. ACT DEFINITIONS

In this Act:

(1) “Articles of incorporation” means the original articles of incorporation, all amendments thereof, and any other documents permitted or required to be filed by a domestic business corporation with the secretary of state under any provision on this Act except [Section] chapter 5 or sections 16.01(h) and 16.21. If an amendment of the articles or any other document filed under this Act restates the articles in their entirety, [thenceforth] after the restatement is effective the “articles” shall not include any prior documents.

* * *

(2A) “Closely-held corporation” means a corporation that has not more than 50 shareholders. The term does not include a corporation in which one or more public corporations own a majority or more of the outstanding shares.

* * *

§ 2.01 INCORPORATION

One or more [persons] individuals may act as the incorporator or incorporators of a corporation by delivering articles of incorporation to the secretary of state for filing. An incorporator has the duties and liabilities of:

(1) a director until a director of the corporation has been named in an annual report; and

(2) the individual required by section 16.01(f) until another individual has been named in an annual report.

OFFICIAL COMMENT

The articles must be accompanied by the first annual report of the corporation as required by section 16.21(c).

§ 2.02 ARTICLES OF INCORPORATION

(a) The articles of incorporation must set forth:

(1) a corporate name for the corporation that satisfies the requirements of section 4.01;

(2) the number of shares the corporation is authorized to issue; and

(3) [the street address of the corporation’s initial registered office and the name of its initial registered agent at that office; and

(4)] the name and address of each incorporator.

(b) The articles of incorporation may set forth:

(1) [the names and addresses of the individuals who are to serve as the initial directors;] (Repealed.)

* * *

OFFICIAL COMMENT

* * *

2. Requirements

The only information required in the articles of incorporation to form a “standard” corporation is:

(1) The name, which must meet the requirements of chapter 4 of the Model Act.

(2) The number of shares the corporation is authorized to issue. If a single class or shares is authorized, only the number of shares authorized need be disclosed; if more than one class of shares is authorized, however, both the number of authorized shares of each class and a description of the rights of each class must be included. See the Official Comment to sections 6.01 and 6.02. It is unnecessary to specify par value, expected minimum capitalization, or contemplated issue price.

(3) [The street address of the corporation’s initial registered office and the name of its initial registered agent. A mailing address consisting only of a post office box is not sufficient.

(4)] The name and address of each incorporator.

Previous versions of the Model Act also required the articles of incorporation to include information regarding the corporation’s initial registered office and registered agent. That requirement was deleted as no longer necessary when section 16.21 was amended to require that an initial annual report accompany the initial articles of incorporation delivered to the secretary of state for filing.

* * *

3. Optional Provisions

* * *

a. Initial directors

[Under section 2.02(b)(1) an election may be made to have the corporation organized by a person or persons other than the incorporators. See the Official Comment to section 2.03. These persons described as “initial directors,” may be either the permanent directors or interim directors to be replaced by the shareholders after the corporation is organized.] Previous versions of the Model Act permitted the articles of incorporation to name initial directors. That provision was eliminated when section 16.21 was amended to require that an initial annual report accompany articles of incorporation. If the initial directors of a corporation have been determined at the time of incorporation, they will be identified in the initial annual report.

* * *

§ 2.03. INCORPORATION

* * *

OFFICIAL COMMENT

* * *

1. What to File

Section 1.20 requires that only one executed original and an exact or conformed copy of the articles need be delivered to the secretary of state for filing. This delivery must be accompanied by the applicable filing fee. The articles of incorporation must also be accompanied by the first annual report of the corporation. See section 16.21(c).

2. Nature of Filing

Section 1.25 provides that the secretary of state files the articles and accompanying initial annual report by stamping them “filed” and recording the date and time of receipt; [he] the secretary of state then retains the signed original articles of incorporation [for his records] and annual report as part of the public record and returns the exact or conformed copy of the articles to the incorporators along with a receipt for the fee. The return of this copy and the fee receipt establishes that the articles have been filed in the form of the copy.

* * *

§ 2.05. ORGANIZATION OF CORPORATION

(a) After incorporation:

(1) if initial directors are named in the [articles of incorporation] first annual report of the corporation, the initial directors shall hold an organizational meeting, at the call of a majority of the directors, to complete the organization of the corporation by appointing officers, adopting bylaws, and carrying on any other business brought before the meeting;

(2) if initial directors are not named in the [articles] first annual report, the incorporator or incorporators shall hold an organizational meeting at the call of a majority of the incorporators:

(i) to elect directors and complete the organization of the corporation; or

(ii) to elect a board of directors who shall complete the organization of the corporation.

(b) Action required or permitted by this Act to be taken by incorporators at an organizational meeting may be taken without a meeting if the action taken is evidenced by one or more written consents describing the action taken and signed by each incorporator.

OFFICIAL COMMENT

Following incorporation, the organization of a new corporation must be completed so that it may engage in business. This usually requires adoption of bylaws, the appointment of officers and agents, the raising of equity capital by the issuance of shares to the participants in the venture, and the election of directors. If initial directors are elected after incorporation, an amended annual report will need to be filed under section 16.21(e) to reflect their election.

Earlier versions of the Model Act required initial directors to be named in the articles and provided that they complete the organization of the corporation. Many states followed this pattern, but others provided that the incorporators organize the corporation or meet to elect a board of directors to organize the corporation. The goal of all these provisions was usually to permit the completion of the organization of the corporation with minimum expense and formality, though in many cases it was felt necessary for business decisions to be made at an early stage by the persons with responsibility for business operation.

Experience in states that [followed the Model Act pattern] required the initial directors to be named in the articles revealed that multiple organizational meetings were often necessary[, particularly where for reasons of convenience or secrecy both the incorporators and initial directors were “dummies” without any financial interest in the enterprise who were not expected to make any significant business decisions]. In this situation, the initial directors formally organized the corporation, including issuing of at least some shares; immediately following this organizational meeting, the new shareholders met to elect a permanent board of directors who were to manage the business. In many instances, the permanent board of directors also had to meet immediately after its selection by the shareholders to consider business questions that must be resolved promptly, such as authorization of employment contracts or the valuation of property or services to be accepted as consideration for shares.

Section 2.05 simplifies the formation process by allowing alternative methods of completing the formation of the corporation.

First, section 2.05(a)(1) contemplates that if the names of the initial directors are set forth in the [articles of incorporation] first annual report, the persons so named will organize the corporation. [It is expected that initial directors will be named only if they will be the permanent board of directors and there is no objection to the disclosure of their identity in the articles of incorporation.]

Second, section 2.05(a)(2) provides alternative methods for completing the organization of the corporation if initial directors are not named in the [articles of incorporation] first annual report. The incorporators may themselves complete the organization, or they may simply meet to elect a board of directors who are then to complete the organization. Section 2.01 makes clear until the first director has been elected and named in an amended annual report, the incorporators have both the duties and obligations of the directors.

It is contemplated that in routine incorporations, the first alternative will be elected, while in more complex situations when prompt business decisions must be made, the second alternative will be chosen and the completion of the organization will be turned over to the board of directors representing the investment interests in the corporation.

Sections 2.05(b) and (c) are limited to meetings of incorporators since sections 8.21 and 8.22 permit the same actions by the board of directors. If a meeting of shareholders is necessary, sections 7.01 and 7.04 give them the same flexibility that is given incorporators under sections 2.05(b) and (c).

§ 6.04. FRACTIONAL SHARES

(a) A corporation may:

(1) issue fractions of a share or pay in money the value of fractions of a share;

(2) arrange for disposition of fractional shares by the shareholders;

(3) issue scrip in registered [or bearer] form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share.

(b) Each certificate representing scrip must be conspicuously labeled “scrip” and must contain the information required by section 6.25(b). A corporation may not issue scrip in bearer form.

* * *

OFFICIAL COMMENT

* * *

Section 6.04 authorizes handling fractional shares in various ways, including:

(1) The corporation may issue scrip instead of fractional shares. Scrip confers none of the substantive rights of shareholders, but only authorizes holders to combine scrip certificates in amounts aggregating a full share and then to exchange them for a full share. This aggregation must occur within the time and subject to the conditions set initially by the board of directors and stated in the scrip certificate. Scrip that is not combined and exchanged becomes void. To protect shareholders against forfeiture of their interest, however, it is usually provided that the shares represented by scrip certificates not exchanged by the expiration date are to be sold and the proceeds held, either indefinitely or for a stated period, for the benefit of the scripholders and paid to them on surrender of their scrip certificate.

[Scrip has been widely used in lieu of fractional shares. The New York Stock Exchange, while not requiring the use of any particular method for the settlement of fractional share interests, has established a policy relating to the minimum rights and privileges that scrip issued by registered companies must provide. N.Y.S.E. Listed Company Manual section 703.02(B).]

* * *

§ 6.21. ISSUANCE OF SHARES

* * *

(g) At the time an individual first becomes a shareholder of a closely-held corporation, the individual must certify to the corporation whether the individual is holding his or her shares as a nominee. The certification must be kept as part of the shareholder records of the corporation required by section 16.01(c).

(h) A shareholder of a closely-held corporation that is a person incorporated or formed under the laws of a jurisdiction other than the United States or a state must provide the corporation with a current certification stating the name and residential street address in the United States of an individual whose principal residence is in the United States and who has access to a record of the record owners of the shareholder and can produce the record within the United States promptly upon appropriate request by an authorized agent of a governmental body.

(i) When the record of the record owners of a shareholder is produced as required by subsection (h), the record must:

(1) include the last known street and mailing address of each record owner of the shareholder;

(2) indicate for each record owner that is a person incorporated or formed by a public filing, whether within or outside the United States, the jurisdiction under whose laws the person is incorporated or formed; and

(3) indicate or describe the percentage of the voting power in the shareholder held by each record owner of the shareholder at the time the record is produced.

(j) Section 16.01(g) applies to the individual required by subsection (h).

(k) A certification under subsection (g) or (h) that is incorrect does not affect the existence of the corporation or the validity of any acts of the corporation.

§ 6.25. FORM AND CONTENT OF CERTIFICATES

(a) Shares may but need not be represented by certificates. Unless this Act or another statute expressly provides otherwise, the rights and obligations of shareholders are identical whether or not their shares are represented by certificates. A corporation may not issue certificates in bearer form.

* * *

OFFICIAL COMMENT

* * *

[Certificateless] Uncertificated shares are permitted under section 6.25(a) upon compliance with section 6.26. Section 6.25(a) makes it clear that there are no differences in the rights and obligations of shareholders, whether or not their shares are represented by certificates, other than mechanical differences, such as the means by which instructions for transfer are communicated to the issuer, necessitated by the use of nonuse of certificates. If share transfer restrictions are imposed, conspicuous references must appear on the certificate if they are to be binding on third persons without knowledge of the restrictions. See section 6.27.

* * *

§ 8.30. STANDARDS OF CONDUCT FOR DIRECTORS

* * *

OFFICIAL COMMENT

* * *

1. Section 8.30(a)

* * *

(2) The phrase “best interests of the corporation” is key to an explication of a director’s duties. The term “corporation” is a surrogate for the business enterprise as well as a frame of reference encompassing the shareholder body. In determining the corporation’s “best interests,” the director has wide discretion in deciding how to weigh near-term opportunities versus long-term benefits as well as in making judgments where the interests of various groups within the shareholder body or having other cognizable interests in the enterprise may differ.

The obligation of a director to act in the best interests of the corporation necessarily presupposes that a director will exercise good faith efforts to be sufficiently informed about the affairs of the corporation that the director will be able to judge what is in the best interests of the corporation. Similarly, if the first director of a corporation is not named in the corporation’s first annual report, the incorporator or incorporators must have sufficient familiarity with the current and anticipated affairs of the corporation to act in the best interests of the corporation until a director has been elected and named in an amended annual report.

The notion found in the law of some countries that a director may serve purely as a nominee for undisclosed principals and without an obligation to act in a manner the director believes to be in the best interests of the corporation and without any understanding of the nature of the corporation’s business has never been part of United States law.

* * *

§ 10.05. AMENDMENT BY BOARD OF DIRECTORS

Unless the articles of incorporation provide otherwise, a corporation’s board of directors may adopt amendments to the corporation’s articles of incorporation without shareholder approval:

* * *

(2) to delete the names and addresses of the initial directors;

(3) to delete the name and address of the initial registered agent or registered office[, if a statement of change is on file with the secretary of state];

* * *

OFFICIAL COMMENT

The amendments [described in clauses (1) through (8)] permitted by this section are so routine and “housekeeping” in nature as not to require approval by shareholders. None affects substantive rights in any meaningful way, and permitting them to be made by action of the board of directors alone will encourage the corporation to keep the publicly available text of its articles of incorporation up to date.

Prior versions of the Model Act required the initial articles of incorporation to include information about the corporation’s registered agent and registered office and also permitted the initial articles to identify the initial directors of the corporation. The Model Act now requires that current information regarding a corporation’s registered agent, registered office and directors be available through the annual reports filed under section 16.21 and thus the board is given the ability to remove duplicate information on those subjects from the articles.

§ 14.20. GROUNDS FOR ADMINISTRATIVE DISSOLUTION

The secretary of state may commence a proceeding under section 14.21 to administratively dissolve a corporation if:

* * *

(4) the corporation does not notify the secretary of state within 60 days that its registered agent or registered office has been changed, that its registered agent has resigned, or that its registered office has been discontinued; [or]

(5) the records of the secretary of state do not show a current individual required by section 16.01(f) for 60 days or more while it is a closely-held corporation;

(6) while it is a closely-held corporation, the corporation does not notify the secretary of state within 60 days that the individual required by section 16.01(f) has been changed, that the address of the individual has been changed, or that the individual has resigned; or

[(5)] (7) the corporation’s period of duration stated in its articles of incorporation expires.

§ 14.21. PROCEDURE FOR AND EFFECT OF ADMINISTRATIVE DISSOLUTION

* * *

(d) The administrative dissolution of a corporation does not terminate the authority of its registered agent or relieve the corporation of the obligation to comply with sections 6.21(g) – (i) and 16.01(c) and (f).

§ 16.01. CORPORATE RECORDS

* * *

(c) A corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and street addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each. The shareholder records of a closely-held corporation must:

(1) indicate for each shareholder that is a person incorporated or formed by a public filing, whether within or outside the United States, the jurisdiction under whose laws the person is incorporated or formed;

(2) identify the individuals responsible for preparing and maintaining the records; and

(3) include the certifications required by section 6.21(g) and (h).

* * *

(f) A closely-held corporation shall at all times have an individual whose principal residence is in the United States who has access to and can produce within the United States promptly upon appropriate request by an authorized agent of a governmental body:

(1) the corporation’s shareholder records; and

(2) a copy of a government-issued, photo identification document, such as a passport or driver’s license, for each director of the corporation in office at the time whose principal residence is outside the United States.

(g) The individual required by subsection (f) is not liable for damages for any inaccuracy or omission from the records and documents required to be produced under that subsection or for producing the records and documents in good faith, except that this subsection does not limit the liability of an individual:

(1) for intentional misconduct or criminal conduct;

(2) for an intentional tort;

(3) for breach of contract; or

(4) to the extent the individual was responsible for preparing or maintaining the records and documents.

(h) A closely-held corporation may notify the secretary of state of a change in the identity or address of the individual required by subsection (f) in the manner provided in section 5.02(a) for changing its registered agent or registered office as if the individual and his or her address were the registered agent or registered office. The individual may change his or her address or resign in the manner provided in section 5.02(b) or 5.03 for a registered agent to change a registered office address or resign as if the individual and his or her address were the registered agent or registered office.

OFFICIAL COMMENT

* * *

2. Shareholder’s Lists and Accounting Records

* * *

Section 16.01(c) requires the corporation to maintain such records of its shareholders as will permit it to compile a list of shareholders when required. These records may consist of stubs from which certificates have been detached in the case of corporations with a few shareholders or of elaborate electronic data retrievable only by modern technology in the case of large, publicly held corporations. The record may be retained by the corporation or an agent, who traditionally is the transfer agent but may be another agent.

A closely-held corporation must at all times have an individual with access to its shareholder records and the ability to produce those records promptly within the United States. The person must also have access to a government-issued, photo identification document for each director of the corporation currently in office whose principal residence is outside the United States. The person must be identified in each annual report filed by the corporation under section 16.21. Corporations will often choose to have the corporate secretary fulfill these responsibilities, but they may be given to an individual other than the secretary if desired.

* * *

§ 16.21. ANNUAL REPORT FOR SECRETARY OF STATE

(a) Each domestic corporation, and each foreign corporation authorized to transact business in this state, shall deliver to the secretary of state for filing an annual report that sets forth:

(1) the name of the corporation and the state or country under whose law it is incorporated;

(2) the street address of its registered office in this state and the name of its registered agent at that office [in this state];

(3) the street address of its principal office;

(4) either:

(i) the names and business street addresses of its directors [and] ; or

(ii) if the corporation has eliminated the board of directors or restricted the discretion or powers of the board of directors pursuant to an agreement among the shareholders adopted under section 7.32, the name and business street address of each person who exercises or has authority over the exercise of the corporate powers of the corporation or under whose direction the business and affairs of the corporation are managed;

(5) a statement as to whether or not the corporation is a closely-held corporation and if it is a closely-held corporation, the name and business street address of the individual required by section 16.01(f);

(6) the names and business street addresses of its principal officers;

[(5)] (7) a brief description of the nature of its business;

[(6) the total number of authorized shares, itemized by class and series, if any, within each class] and

[(7)] (8) except in the case of the annual report delivered to the secretary of state for filing with the corporation’s initial articles of incorporation, the total number of issued and outstanding shares, itemized by class and series, if any, within each class.

* * *

(c) The first annual report of a domestic corporation must be delivered to the secretary of state [between January 1 and April 1 of the year following the calendar year in which a domestic corporation was incorporated or a foreign corporation was authorized to transact business] with the corporation’s initial articles of incorporation. The first annual report of a foreign corporation authorized to transact business in this state must be delivered to the secretary of state between January 1 and April 1 of the year following the calendar year in which the foreign corporation was authorized to transact business. Subsequent annual reports must be delivered to the secretary of state between January 1 and April 1 of the following calendar years.

* * *

(e) If any of the information in a domestic corporation’s most recent annual report becomes incorrect or incomplete, the corporation must promptly deliver to the secretary of state for filing an amended annual report that is correct as of the date of its delivery to the secretary of state; unless the corporation has not yet delivered its annual report for the current year to the secretary of state for filing, in which case the corporation must promptly deliver an annual report for the current year to the secretary of state for filing.

(f) In lieu of the information required by paragraph (a)(4) or (5), a first annual report may state that the persons described in either or both of those paragraphs have not yet been identified.

OFFICIAL COMMENT

The requirement relating to the annual report that each corporation must submit to the secretary of state has been modified in section 16.21 in an effort to make it a limited information document for use by the secretary of state, members of the general public, and shareholders. The purpose of the annual report is to show the location of the principal office of the corporation, the names and business addresses of its directors and principal officers, the general nature of the corporation’s business, and [its capital structure] if the corporation is a closely-held corporation the name and address of an individual with access to the record of its shareholders. It permits members of the general public to ascertain the identity of the corporation and communicate directly with it. It also establishes the alternative to the registered office for service of process and related matters. The “principal office” of the corporation is defined as the location of its executive office in section 1.40.

* * *

The obligation imposed by section 16.21(e) to update the information in a corporation’s annual report only applies to domestic corporations. Updating the information in the annual report of a foreign corporation was not considered necessary because current annual report information should be available in the home state where the foreign corporation is incorporated.