Unanimous Governance Agreements - Another Innovation of the New Louisiana Business Corporation Act

One of the major innovations of the recently enacted Louisiana Business Corporation Act (LBCA), La. R.S. 12:1-101 et seq., is its authorization of the shareholder governance device known as a unanimous governance agreement.  La. R.S. 12:1-732.  A duly adopted unanimous governance agreement allows shareholders to override otherwise mandatory statutory rules under the LBCA, subject only to the limitations imposed by public policy.  La. R.S. 12:1-732.B.

The requirements for due adoption of a unanimous governance agreement are set forth in La. R.S. 12:1-732.A.  First, the agreement must be in writing and signed by all persons who are shareholders at the time of the agreement.  La. R.S. 12:1-732.A.(1).  Second, the agreement must govern “the exercise of the corporate powers or the management of the business and affairs of the corporation or the relationship among the shareholders, the directors, and the corporation, or among any of them.”  La. R.S. 12:1-732.A.(2).  Finally, the agreement must state that it is a unanimous governance agreement or that it is governed by La. R.S. 12:1-732.  La. R.S. 12:1-732.A.(3).

The existence of a unanimous governance agreement is required to be noted conspicuously on the stock certificates of the corporation.  La. R.S. 12:1-732.C.(1).  If it is not, a purchaser of shares who did not know of the existence of the agreement at the time of the purchase may be entitled to rescind the purchase.  12:1-732.C.(2).  Unless otherwise provided in the agreement, it remains effective for twenty (20) years, but can be renewed, amended, or terminated at any time by unanimous consent of the shareholders at such time.  La. R.S. 12:1-732.I.  Nevertheless, the agreement will remain effective after its term expires until twenty-five percent of the issued shares of any class submit to the corporation a written consent terminating the agreement.  Id.

So what can shareholders do with a unanimous governance agreement?  The statute itself provides an illustrative list:

  1. Eliminate the board of directors, or restrict the power of the board of directors;
  2. Authorize distributions, whether or not in proportion to ownership of shares;
  3. Establish the directors or officers of the corporation, or their terms of office;
  4. Permit the use of weighted voting rights or director proxies;
  5. Establish the terms and conditions for the transfer or use of property between the corporation and any shareholder, director, officer, or employee;
  6. Transfer to one or more shareholders or other persons all or part of the authority to exercise the corporate powers or to manage the business and affairs of the corporation; and
  7. Require dissolution of the corporation at the request of one or more of the shareholders or another specified event or contingency. R.S. 12:1-732.B.

Simply put, the unanimous governance agreement provides shareholders with greater authority and governance flexibility than they previously enjoyed under the former Louisiana Business Corporation Law.   At its most extreme, the unanimous governance agreement could be used to eliminate the board of directors and put corporate authority in the hands of a single shareholder.   Conversely, the heightened vote requirement for execution, amendment, or termination of the unanimous governance agreement—unanimity—may not be ideal in a corporation where shareholder turnover is more frequent.  The particular facts and circumstances of each corporation, including, without limitation, its shareholder base, growth plans and governance principles, must be considered to determine whether the adoption of a unanimous governance agreement is advisable.

If you have any questions regarding unanimous governance agreements or the new LBCA, please do not hesitate to contact our firm.

               Author: Jacob M. Kantrow                Practice Area: Corporate Law                Date: October 5, 2015

Disclaimer: The information provided herein (1) is for general information only; (2) does not create an attorney-client relationship between the author or the author’s firm and the reader; (3) does not constitute the provision of legal advice, tax advice, or professional consulting of any kind; and (4) does not substitute for consultation with professional legal, tax or other competent advisors.  Before making any decision or taking any action in connection with the matters discussed herein, you should consult with a professional legal, tax and/or other advisor who should be provided with all pertinent facts relevant to your particular situation. The information provided herein is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information.