November 2022 in Brief: Corporations, LLCs & Partnerships

Changes in the Model Business Corporation Act—Proposed Amendments to Sections 6.04 and 6.25 Relating to Bearer Shares and Scrip

By the Corporate Laws Committee, ABA Business Law Section (Chair, Steven M. Haas)

The Corporate Laws Committee (the “Committee”) is proposing amendments to sections 6.04 and 6.25 of the Model Business Corporation Act (the “Model Act”) relating to bearer shares and scrip (the “Amendments”). The Committee would welcome any comments from interested persons. Comments should be addressed to Steven M. Haas, Chair, Corporate Laws Committee, Hunton Andrews Kurth LLP, 951 E. Byrd Street, Richmond, VA 23219, or sent to him by e-mail at [email protected]. Comments should be received by December 15, 2022, in order to be considered by the Committee before adoption of the Amendments on third reading.

Background

The Corporate Transparency Act (“CTA”), enacted on January 1, 2021, prohibits corporations from issuing “a certificate in bearer form evidencing either a whole or fractional interest in the entity.” The Committee is proposing amendments to sections 6.04 and 6.25 to conform with the CTA’s provisions. In particular, because scrip can provide the holder with the rights of a shareholder, the Committee is proposing that section 6.04(b) of the Model Act be amended to prohibit the issuance of scrip in bearer form. The Committee is also proposing an amendment to section 6.25(a) to clarify that, consistent with section 6.25(b)(2), and as currently required by section 6.25, share certificates cannot be issued in bearer form.

The Committee is also proposing amendments to sections 6.04(a) and (b) to allow scrip to be issued in uncertificated form, subject to requirements similar to those for fractional and whole shares in uncertificated form.

Proposed Amendments

The proposed changes to sections 6.04 and 6.25 of the Model Act are published in full in The Business Lawyer, Vol. 77, Issue 4. View the proposed amendments online.