Get Out the Vote! The New Louisiana Business Corporation Act Changes the Minimum Shareholder Vote Required for a Merger

Boards of directors of Louisiana corporations, take heed: if you are considering a merger, be mindful of a change effected by Louisiana's new Business Corporation Act (La. R.S. 12:1-101, et seq.) which took effect January 1, 2015 (the “LBCA”) with respect to obtaining the minimum shareholder vote in favor thereof. The LBCA replaced in its entirety the prior Louisiana Business Corporation Law and the changes implemented thereby to Louisiana's corporate law may necessitates revision to or amendment and restatement of the articles of incorporation of corporations in existence as of January 1, 2015, including with respect to the minimum vote required for a merger, to the extent deviation from the LBCA is desired.

Prior to the LBCA, Louisiana's corporate law required that a merger agreement submitted to shareholders for approval receive a favorable vote by at least two-thirds of the voting power present at the shareholders' meeting, or by such larger or smaller vote (not less than a majority) of the voting power present or of the total voting power as the corporation's articles of incorporation required. La. R.S. 12:112(C)(2). Thus, for example, if the voting power of a corporation was held as follows: 45% by Shareholder 1, 40% by Shareholder 2, and 15% by Shareholder 3, with the presence (in person or by proxy) of the Shareholders holding a majority of the voting power at the meeting constituting a quorum, a mere two-thirds vote of the voting power present could approve the merger. So, if Shareholder 1 (45%) and Shareholder 3 (15%) attend the meeting, a quorum exists, the aggregate voting power present equals 60%, and a two-thirds pro-merger vote of such 60% (i.e. 40%, which Shareholder 1 alone could establish) would suffice.

Now, pursuant to the LBCA and unless the articles of incorporation require a greater vote, a plan of merger must be approved by at least a majority of the votes entitled to be cast. La. R.S. 12:1-1104. With some deviation in language from the prior corporate law, a quorum under the LBCA is still established by a majority of the total voting power (more specifically, under the LBCA, the majority of the votes “entitled to be cast”). La. R.S. 12:74(B). But, using the same example, approval of the merger under the LBCA faces a greater challenge. If Shareholder 1 (45%) and Shareholder 3 (15%) attend the shareholders' meeting, a quorum again exists. However, because approval of the merger under the LBCA requires a majority of the votes entitled to be cast, Shareholder 1's 45% alone does not by itself constitute such a majority. Thus, if Shareholder 3 opposes the merger, the action fails.

This key distinction between Louisiana's prior and current corporate law, as it relates to shareholder approval of a merger, is that shareholder approval is now, under the LBCA, based on the number of votes entitled to be cast, rather than the voting power present. Of note, the same “majority of the votes entitled to be cast” requirement also applies, under the LBCA, to shareholder approval of amendment to the corporation's articles of incorporation and by-laws (La. R.S. 12:1-1003); removal of directors (La. R.S. 12:1-808); conversion (La. R.S. 12:1-955) and dissolution (La. R.S. 12:1-1402). Practically speaking, then, if a board is proposing a merger for which there is not universal agreement among the shareholders, the minimum hurdle of securing the necessary shareholder approval (unless the articles of incorporation or by-laws specify a higher shareholder voting requirement) is higher under the LBCA. What's more is that, as La. R.S. 12:1-1104(5) is written, the default “majority of the votes entitled to be cast” rule for shareholder approval is the best a pro-merger board can do; the deviation permitted by the statute to be taken by the corporation's articles of incorporation does not allow the articles to provide for a lesser vote, but, rather, to require a “greater vote”.  Under the prior law, the statutory rule of shareholder approval of at least two-thirds of the voting power present applied unless the articles provided for a larger – or smaller (but not less than a majority) – vote of the total voting power present or of the total voting power, as the articles of incorporation required. In other words, under the prior statute, the articles of incorporation could have permitted shareholder approval of a merger by a mere majority of the voting power present.

Having taken effect January 1, 2015, the Act applies to all Louisiana corporations in existence on such effective date that were incorporated for a purpose for which a corporation can be formed under the Act (e.g., special forms of corporations, such as banking and insurance corporations, are governed by separate statutes). La. R.S. 12:1-1701. Accordingly, boards of directors considering and/or pursuing a merger must be cognizant of the requisite level of shareholder approval required for the transaction, as required by the Act, to ensure a successful vote.

Please contact us if you need assistance with any transactional matters.

             Author: Lucie R. Kantrow              Practice Area: Corporate Law              Date: June 1, 2015

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