Bill Summary – FastDemocracy

SB 263
                       Department of Legislative Services
                              Maryland General Assembly
                                    2021 Session
                           FISCAL AND POLICY NOTE
                                   Enrolled
Senate Bill 263                 (Senators West and Waldstreicher)
Judicial Proceedings                                                     Economic Matters
           Corporations and Real Estate Investment Trusts - Miscellaneous
This bill makes various changes to laws governing corporate actions for corporations and
real estate investment trusts (REITs) as applicable, including with respect to forum
selection requirements, remote stockholders meetings, the Maryland Control Share
Acquisition Act (MCSAA), and premature stock issuances. The bill also makes other
technical and clarifying changes.
                                    Fiscal Summary
State Effect: The bill does not directly affect State finances or operations.
Local Effect: The bill does not directly affect local finances or operations.
Small Business Effect: Minimal.
                                         Analysis
Bill Summary/Current Law:
Forum Selection
The bill clarifies that a corporation’s charter or bylaws may require that any internal
corporate claim be brought only in specified circuit courts of the State or a federal court
sitting in the State. Courts outside the State may also be designated as additional venues.
As REITs are subject to this provision of law, the clarification also applies to venues for
such internal claims for REITs.
Remote Stockholders Meetings
Under current law, a corporation may allow stockholders to participate in a meeting by
means of a conference telephone or other communications equipment if all participants can
hear each other at the same time. Under the bill, the requirement is revised to allow for
participation by conference telephone or other communications equipment if all
participants can read or hear the proceedings of the meeting substantially concurrently with
the proceedings.
The bill allows a board to hold a stockholders meeting either partially or entirely remotely.
The bill eliminates a provision requiring a board of directors, at the request of a
stockholder, to provide a place for a stockholders meeting. The bill also makes REITs
subject to this provision of law, so that the authorization for remote meetings also applies
to them.
Maryland Control Share Acquisition Act
Under MCSAA, holders of “control shares” of a corporation acquired in a “control share
acquisition” have no voting rights with respect to the control shares except to the extent
approved by a two-thirds vote of other stockholders (i.e., excluding the interested holders
of the control shares themselves). Though MCSAA does not apply to certain types of
corporations, a corporation registered under the Investment Company Act of 1940 as a
closed-end investment company may opt in to MCSAA.
The bill clarifies that shares acquired prior to the time a corporation is subject to MCSAA
(i.e., including if and when it opts in to the Act) are excluded from the definition of “control
share acquisition” that, in turn, determines voting rights. Under MCSAA, holders of control
shares have no voting rights with respect to control shares acquired in a control share
acquisition (unless two-thirds approval from other stockholders is obtained).
Under current law, “control shares” means shares of stock that would, if aggregated with
all other shares of the corporation’s stock (including shares excluded from a control share
acquisition), entitle a person, as specified, to vote for corporation directors within
three specified ranges of voting power. The bill clarifies that the definition of “control
shares” includes shares of stock acquired within the three specified ranges of voting power,
even if the initial shares acquired within the applicable range of voting power are excluded
from a control share acquisition.
Premature Stock Issuance
Under current law, a corporation must file articles supplementary with the State
Department of Assessments and Taxation if, under a power contained in its charter, the
SB 263/ Page 2
corporation’s board of directors classifies or reclassifies any unissued stock. Stock issued
by a corporation prior to the time the articles supplementary become effective ceases to be
voidable as a result of the failure to file the articles supplementary at the time the articles
supplementary become effective. A right or liability accrued because a corporation issued
stock before the articles supplementary are effective is extinguished at the time the articles
supplementary become effective, except to the extent that the person with the right or
liability has acted detrimentally in reliance on the right or liability solely because the stock
was issued.
The bill provides for this same dynamic – i.e., prematurely issued stock or shares cease to
be voidable upon an effective date and rights or liabilities extinguish, save for detrimental
reliance – with respect to articles of amendment filed by a corporation, articles
supplementary filed by a REIT, or an amendment to a REIT’s declaration of trust.
Other Technical and Clarifying Changes
Reverse Stock Splits: The bill eliminates a provision in current law that explicitly
authorizes a corporation registered as an open-end investment company under the
Investment Company Act of 1940 (i.e., most commonly, a mutual fund) to effect certain
reverse stock splits with the approval of a majority of the board of directors and without
stockholder action. Chapters 292 and 293 of 2020 generally authorized open-end
investment companies to amend their charters with majority approval of the entire board
of directors. Accordingly, the bill eliminates the specific authorization (which extends to
REITs as well) with respect to reverse stock splits as superfluous.
Board Removal of Officers or Agents: The bill eliminates, as superfluous, a provision
explicitly acknowledging that a board of directors may remove any officer or agent of the
corporation if the board in its judgment finds that removal will serve the best interests of
the corporation. This revision is made in light of the fact that the Maryland General
Corporation Law already, and generally, requires directors to act with a reasonable belief
that their actions are in the best interests of the corporation.
Additional Comments: The bill implements recommendations of the Maryland State Bar
Association whose Committee on Corporation Law monitors the Maryland General
Corporation Law.
                                 Additional Information
Prior Introductions: None.
Designated Cross File: HB 781 (Delegate Dumais) - Economic Matters.
SB 263/ Page 3
Information Source(s): Judiciary (Administrative Office of the Courts); Maryland State
Bar Association; Department of Legislative Services
Fiscal Note History:    First Reader - February 2, 2021
rh/ljm                  Third Reader - March 16, 2021
                        Enrolled - April 7, 2021
Analysis by: Tyler Allard                           Direct Inquiries to:
                                                    (410) 946-5510
                                                    (301) 970-5510
SB 263/ Page 4
Statutes affected: 
Text - First - Corporations and Real Estate Investment Trusts - Miscellaneous: 3-702 [], 2-113 Corporations and Associations, 2-309 Corporations and Associations, 2-413 Corporations and Associations, 2-502.1 Corporations and Associations, 2-503 Corporations and Associations, 2-604 Corporations and Associations, 2-606.1 Corporations and Associations, 2-607 Corporations and Associations, 2-105 Corporations and Associations, 3-701 Corporations and Associations, 3-702 Corporations and Associations, 8-203 Corporations and Associations, 8-501 Corporations and Associations, 8-601.1 Corporations and Associations
Text - Third - Corporations and Real Estate Investment Trusts - Miscellaneous: 3-702 Corporations and Associations, 2-113 Corporations and Associations, 2-309 Corporations and Associations, 2-413 Corporations and Associations, 2-502.1 Corporations and Associations, 2-503 Corporations and Associations, 2-604 Corporations and Associations, 2-606.1 Corporations and Associations, 2-607 Corporations and Associations, 2-105 Corporations and Associations, 3-701 Corporations and Associations, 3-702 Corporations and Associations, 8-203 Corporations and Associations, 8-501 Corporations and Associations, 8-601.1 Corporations and Associations
Text - Enrolled - Corporations and Real Estate Investment Trusts - Miscellaneous: 3-702 Corporations and Associations, 2-113 Corporations and Associations, 2-309 Corporations and Associations, 2-413 Corporations and Associations, 2-502.1 Corporations and Associations, 2-503 Corporations and Associations, 2-604 Corporations and Associations, 2-606.1 Corporations and Associations, 2-607 Corporations and Associations, 2-105 Corporations and Associations, 3-701 Corporations and Associations, 3-702 Corporations and Associations, 8-203 Corporations and Associations, 8-501 Corporations and Associations, 8-601.1 Corporations and Associations