The General Assembly of Maryland has enacted House Bill 209 (Chapter 560 of the Laws of Maryland 2023), amending several provisions of the Maryland General Corporation Law (the "MGCL"), the Maryland REIT Law (the "MRL") and the Maryland Statutory Trust Act (the "MSTA"), as well as certain other provisions of the Corporations and Associations Article of the Annotated Code of Maryland (the "C&A Article") applicable to close corporations, nonstock corporations and limited liability companies. The legislation has been signed by Governor Moore and is effective as of October 1, 2023. Here are the key provisions:
Shares Issued in a Conversion. MGCL Section 2-203(d) has been amended to clarify that the board of directors is not required to separately authorize the issuance of shares of stock issued in a conversion to a Maryland corporation, if the conversion was duly approved.
Prohibition on Bearer Certificates. MGCL Sections 2-210 and 2-214 have been amended to clarify that certificates for stock or scrip of a Maryland corporation may not be issued in bearer form. A similar prohibition is also included in Section 4A-402 of the Maryland Limited Liability Company Act with respect to certificates evidencing membership interests in limited liability companies formed under Maryland law.
Annual Meetings of Stockholders of an Investment Company. MGCL Section 2-501 has been amended to permit the charter or bylaws of a corporation that is an investment company as defined in the Investment Company Act of 1940 (the "1940 Act") to provide that the corporation is not required to hold an annual meeting of stockholders in any year in which the election of directors is not required to be acted upon under the 1940 Act. The prior version of the statute referred to registered investment companies and did not apply to closed-end funds that elect to be regulated as business development companies ("BDCs") under the 1940 Act. With the statutory change, unlisted BDCs that do not have classified boards will have the same flexibility with respect to annual meetings of stockholders as registered investment companies.
Conversion of a Close Corporation. Section 4-601 of the C&A Article has been amended to specify that a conversion of a close corporation shall be made in accordance with the conversion provisions of the MGCL, provided, however, that a conversion shall require the affirmative vote of every stockholder of the close corporation. This amendment conforms the manner and approval of a conversion of a close corporation with the approval requirements for a consolidation, merger, statutory share exchange or transfer of assets of a close corporation.
Directors of a Nonstock Corporation. Section 5-202 of the C&A Article has been amended to expressly permit what is sometimes referred to as an ex officio director. The new Section 5-202 of the C&A Article permits the charter or bylaws of a nonstock corporation to provide that an individual may serve as a director of a nonstock corporation by reason of serving in a specified office or position within or outside the nonstock corporation and prescribes that the individual shall serve as a director during the individual's service in the specified office or position.
Termination of a Real Estate Investment Trust. Section 8-502 of the MRL has been amended to establish the process by which a real estate investment trust formed under the MRL (a "REIT") may terminate its existence. Previously, the MRL provided only that a REIT may terminate its existence by voluntary dissolution and required that the State Department of Assessments and Taxation ("SDAT") be notified of the effective date of dissolution, without specificity as to the form or content of the notice. As amended, Section 8-502 of the MRL provides that in order to terminate its existence, a REIT must now file a notice of termination with the SDAT that includes (i) the name of the REIT; (ii) a statement that the termination by voluntary dissolution was approved in the manner and by the vote required by law and by the declaration of trust of the REIT; (iii) a statement detailing the manner of approval; (iv) all other provisions that the board of trustees considers necessary to dissolve and terminate the REIT; and (v) a statement that the REIT is dissolved and terminated. Provisions relating to execution and effectiveness have also been added.
Section 8-502 has also been amended to explicitly provide that the REIT continues to exist after the filing of the notice of termination for the purposes of (i) paying, satisfying and discharging any existing debts or obligations, (ii) collecting and distributing assets, and (iii) taking all other actions required to liquidate and wind up its business and affairs.
Maryland Control Share Acquisition Act Made Applicable to Statutory Trusts that are Closed-End Funds. New Section 12-307 of the MSTA makes the Maryland Control Share Acquisition Act applicable to a statutory trust formed on or after October 1, 2023 that is a closed-end investment company as defined in the 1940 Act. Accordingly, a registered closed-end investment company or a BDC that is a statutory trust formed on or after October 1, 2023 will be subject to the statute without any provision in the governing instrument or any action by the board of trustees. In addition, under Section 12-307, the governing instrument of a statutory trust formed before October 1, 2023, that is a closed-end investment company may provide that the Maryland Control Share Acquisition Act applies to such statutory trust.
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As always, our colleagues and we are available at any time to discuss these or other matters of Maryland law.
Patsy McGowan
Michael Leber
Jim Hanks
This memorandum is provided for information purposes only and is not intended to provide legal advice. Such advice may be provided only after analysis of specific facts and circumstances and consideration of issues that may not be addressed in this document.