Proposed Amendments
The Committee proposes changes to sections 2.07 and 3.03 of the Model Act and the corresponding sections of the Official Comment as set forth below. Changes to the existing provisions are marked with deletions shown by strikeouts and additions by double underscoring.
§ 2.07 Emergency Bylaws
- (a) Unless the articles of incorporation provide otherwise, the
board of directors may adopt bylaws may contain provisions to be effective only induring an emergency defined in subsection (d). Such provisions may only be adopted in advance of an emergency. The emergency bylaws, which are subject to amendment or repeal by the shareholders, may make may contain all provisions necessary for managing the corporation during the emergency, including:
- (1) procedures for calling a meeting of the board of directors;
- (2) quorum requirements for the meeting; and
- (3) designation of additional or substitute directors.
- (b) All provisions of the regular bylaws not inconsistent with the emergency bylaws remain effective during the emergency.
The emergency bylaws are not effective after the emergency ends.
- (c) Corporate action taken in good faith in accordance with the emergency bylaws:
- (1) binds the corporation; and
- (2) may not be used to impose liability as a result of any such action on a director, officer, employee, or agent of the corporation.
- (d) An emergency exists for purposes of this section if a quorum of the board of directors cannot readily be assembled because of some catastrophic event.
Cross-References
Amendment of bylaws, see §§ 10.20 and 10.21.
Bylaws, see § 2.06.
Emergency powers without bylaw provision, see § 3.03.
Official Comment
The adoption of emergency bylaws in advance of an emergency not only clarifies lines of command and responsibility that would apply during an emergency but also tends to ensure continuity of responsibility and functioning of the board of directors. The board of directors may be authorized by the emergency bylaws, for example, to designate the officers or other persons, in order of seniority and subject to various conditions, who may be deemed to be directors during the emergency.
The definition of An “emergency” adopted by as defined in section 2.07(d) includes any could result from a catastrophic event of a widespread or company-specific nature, such as a nuclear or atomic disaster, a cyberattack, an epidemic or pandemic, or an event that makes it difficult or impossible for a quorumgives rise to a declaration of a state of emergency by the board of directors to be assembledUnited States or by a state government. To encourage corporations to adopt emergency bylaws, section 2.07(c) broadly validates all corporate actions taken “in good faith” pursuant to them and immunizes all directors, officers, employees, and agents of the corporation from liability as a result of these actions. The phrase “action taken in good faith in accordance with the emergency bylaws” is designed to conform to the standard for immunity elsewhere in the Act.
A corporation that does not adopt emergency bylaws under this section may nevertheless exercise the powers described in section 3.03 in the event of an emergency as defined in section 2.07(d). Sections 2.07 and 3.03 do not limit powers that otherwise exist absent or during an emergency. Emergency bylaws, like regular bylaws, are subject to amendment or repeal by the shareholders.
§ 3.03 Emergency Powers
- (a)
In anticipation of or during an emergency defined in subsection (d), the board of directors of a corporation may:
(1) modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent; and(2) relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
(b) During an emergency defined in subsection (d), unless emergency bylaws provide otherwise:
- (1) notice of a meeting of the board of directors need be given only to those directors whom it is practicable to reach and may be given in any practicable manner; and
- 2) one or more officers of the corporation present at a meeting of the board of directors may be deemed to be directors for the meeting, in order of rank and within the same rank in order of seniority,
asto the extent necessary to achieve a quorum.
- (b) During an emergency, unless emergency bylaws provide otherwise, the board of directors may postpone a meeting of shareholders for which notice has been given or authorize shareholders to participate in a meeting by any means of remote communication that conforms with section 7.09(b). The corporation shall give notice to shareholders, by such means and with such shorter advance notice as are reasonable in the circumstances, of any such postponement, including any new date, time, or place, and describe any means of remote communication to be used.
- (c) Corporate action taken in good faith under this section during an emergency
under this section to further the ordinary business and affairs of the corporation:
- (1) binds the corporation; and
- (2) may not be used to impose liability as a result of any such action on a director, officer, employee, or agent of the corporation.
- (d) An emergency exists for purposes of
this sectionsubsection (a) if a quorum of the board of directors cannot readily be assembled because of some catastrophic event., and for purposes of subsection (b) if, because of some catastrophic event, it is impracticable to convene a meeting of shareholders in accordance with the Act or the bylaws or as specified in a notice for the meeting previously given.
Cross-References
Corporate powers, see § 3.02.
Emergency bylaws, see § 2.07.
Notice of directors’ meeting, see § 8.22.
Notice of shareholders’ meeting, see § 7.05.
Notices and other communications, see § 1.41.
Notice of directors’ meeting, see § 8.22.
“Principal office” defined, see § 1.40.
Remote participation in shareholders’ meetings; meetings held solely by remote participation, see § 7.09.
Requirements for and functions of board of directors, see § 8.01.
Standards of conduct for directors, see § 8.30.
Official Comment
Section 3.03 should be read in conjunction with section 2.07, which authorizes a corporation to adopt emergency bylaws. Section 3.03 grants every corporation limited powers to act in an emergency even though it has failed to adopt emergency bylaws under section 2.07.during an emergency even though it may not have adopted emergency bylaws. Sections 2.07 and 3.03 do not limit powers that otherwise exist absent or during an emergency. For example, while a board of directors typically has the power under common law to postpone a meeting of shareholders, section 3.03(b) provides relief during an emergency from applicable notice provisions. In acting pursuant to section 3.03, including for purposes of providing notice to shareholders that is “reasonable in the circumstances” for purposes of subsection (b), directors remain subject to the standards of conduct set forth in section 8.30.
