The General Assembly of Maryland has enacted Senate Bill 137 (the "General Corporate Legislation"), which makes several changes to the Maryland General Corporation Law (the "MGCL") and the Maryland REIT Law (the "MRL"). The General Assembly has also enacted Senate Bill 136 to explicitly permit the use of distributed electronic networks or databases (sometimes referred to as "blockchain" technology) in corporate record keeping (the "Distributed Ledger Legislation"). Finally, the General Assembly enacted House Bill 1116 and the identical Senate Bill 911 regarding annual reporting on the composition of the boards of directors of certain Maryland corporations (the "Annual Report Legislation"). The new legislation was signed by Governor Hogan and became effective on October 1, 2019. Unless otherwise noted, all section references below are to the MGCL.
Here are the key provisions of the bills:
General Corporate Legislation
Entire Board of Directors. The phrase "entire board of directors," as sometimes used in the MGCL, has been defined in Section 1-101 to mean "the number of individuals who are directors of the corporation" and its usage conformed throughout the MGCL. The intent of the amendment is to codify the common understanding of the phrase as referring to the incumbent directors and excluding any vacant directorships.
Term of Directors. Section 2-407 was amended to clarify that a director elected to fill a vacancy serves until the next annual meeting of stockholders, unless the vacancy was filled pursuant to Section 3-804(c)(3). Directors elected by the board to fill a vacancy under this provision of Title 3, Subtitle 8 of the MGCL serve for the balance of the full term of the class of directors in which the vacancy occurred.
Consent in Lieu of a Stockholder Meeting. Section 2-505 has been amended to provide that stockholders may take action or consent to any action by delivering a consent in writing or by electronic transmission of the stockholders entitled to cast not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all stockholders entitled to vote on the action were present and voted. The amendment is intended to clarify that the voting threshold for a consent in lieu of a meeting is the applicable portion of the shares outstanding and entitled to be voted, not of the percentage required for a quorum at a meeting.
Mergers. Section 3-106, which addresses the merger of a subsidiary corporation with its parent, and Section 3-106.1, which addresses the merger of a publicly-traded corporation after a tender or exchange offer, were each amended to change the required time period for giving notice to any minority stockholders from 30 days to 20 business days prior to the filing of articles of merger, in order to align the notice period with the tender offer rules under the Securities Exchange Act of 1934. The foregoing MGCL sections are expressly applicable to a real estate investment trust under the MRL. In addition, Section 3-113 was amended to clarify the effective time of a merger involving foreign limited partnerships, foreign limited liability companies and foreign partnerships.
REIT Powers. Section 8-301 of the MRL was amended to explicitly add the power (which has always been implicit) to make guarantees to the powers of a Maryland real estate investment trust.
Distributed Ledger Legislation
The Distributed Ledger Legislation explicitly adds the "use of or participation in one or more electronic networks or databases, including one or more distributed electronic networks or databases" to the definition of electronic transmission under Section 1-101(m)(2). New Section 2-114 is added to the MGCL and is the heart of the Distributed Ledger Legislation. It applies to any books and records maintained by or on behalf of a corporation, including bylaws, stock ledgers, minutes of stockholders' meetings and records of share issuances, transfers and cancellations. Section 2-114(b) authorizes the electronic maintenance of these corporate records if they may be converted within a reasonable time into clearly legible written form, and these records may be used in determining a record date under Section 2-511(a) or preparing a list of stockholders under Section 2-513(b)(2). Section 2-114(c) requires a corporation using electronic maintenance to convert any record maintained electronically into a clearly legible written form on the request of any person entitled to inspect the document under the same title of the MGCL. Finally, Section 2-114(d) provides that corporate records maintained in accordance with Section 2-114(b) are "admissible as evidence and accepted for all other purposes to the same extent that an original written record of the same information would have been."
Many existing sections of the MGCL related to record keeping and notices were also amended to implement the concepts embedded in new Section 2-114. The Distributed Ledger Legislation is intended to ensure that the MGCL continues to evolve as new technologies come into use.
Annual Report Legislation
The Annual Report Legislation amends Section 11-101 of the Tax-Property Article of the Annotated Code of Maryland to require reporting on the gender composition of the boards of directors of certain Maryland corporations. Each Maryland stock corporation "with total sales exceeding $5,000,000" and each tax-exempt Maryland nonstock corporation with an operating budget exceeding $5,000,000 must include the number of female board members and the total number of directors constituting its board of directors in its annual report that is required to be filed by April 15th with the State Department of Assessments and Taxation of Maryland. This is a reporting requirement only and this legislation does not purport to impose any substantive requirements regarding the composition of the board of directors of any Maryland corporation.
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Each of us participated in the drafting of the General Corporate Legislation and the Distributed Ledger Legislation through the Committee on Corporation Law (of which each of us is a former Chair) of the Business Law Section of the Maryland State Bar Association, which proposed the legislation. The Annual Report Legislation was proposed by other persons.
As always, please do not hesitate to call any of us or our colleagues if you have any questions or comments about any of the foregoing or any other matter of Maryland law.