In light of recent attention to closed-end fund governance in general and to bylaws in particular, we offer this brief reminder of the value of a periodic review of the bylaws of Maryland corporations and statutory trusts that are registered closed-end investment companies or business development companies. While there are several reasons to regularly review bylaws, particularly relevant factors for closed-end funds include:
- Preparation for Shareholder Activism. Recent years have seen elevated levels of shareholder activism in closed-end funds, and well-drafted bylaws that address potential activism scenarios can help the board of directors or trustees respond to and manage corporate threats and protect the long-term investment objective of the fund.
- Changes in Law. Bylaws should be reviewed to ensure that they reflect developments in Maryland statutory law and applicable case law.
- Consistency Among a Fund Family. Most new funds are formed with the most up-to-date and refined bylaws; however, the existing funds' bylaws in the complex are not necessarily updated concurrently. While each fund is a separate legal entity that may have particular circumstances, in general, uniform bylaws across a family of closed-end funds provide clarity and consistency for board members, fund managers and investors.
- Best Practices. Governance standards for closed-end funds are constantly evolving, and periodic updates of the bylaws help a fund stay current with industry norms and best practices.
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As always, our colleagues and we are available at any time to discuss these or other matters.