Alabama Corporate Law Set for Update

June 28, 2019

On May 1, 2019, Act No. 2019-94 was signed into law, marshalling in a complete overhaul and restatement of Alabama's corporate law.  The new Alabama Business Corporation Law is set to take effect January 1, 2020.

The new law will predominantly reflect the language of the ABA's Revised Model Business Corporation Act, with some additional provisions inserted to mimic the Delaware General Corporation Law.

Among the biggest changes is the centralized filing system for incorporating new entities with the Alabama Secretary of State.  This replaces the current system of county-by-county filing, and aligns Alabama's filing procedure with the rest of the nation.  Interestingly enough, while the Act alters other portions of Alabama's Business and Nonprofit Entities Code, the county-based filing procedure for limited liability companies (LLCs) and partnerships remains intact.

One major substantive change in the law is that it will now allow shareholder actions to be taken by written consent so long as a majority of the shareholders entitled to vote on the issue approve of the action.  This eliminates the need for unanimous written consent by the shareholders (however, written actions taken by the board of directors will still require unanimous consent).  This significantly changes the strategy for corporations seeking shareholder approval, as the headache and expense of holding shareholder meetings or issues with dissenting (or too many) shareholders can be avoided. 

Other major changes to the current law include: (1) reducing the default shareholder voting requirement to approve a significant event (e.g., a merger, sale of substantially all assets, etc.) from two-thirds to a simple majority; (2) eliminating the provision requiring staggered boards to have nine or more members; and (3) denying shareholders preemptive rights unless they are provided for in the articles of incorporation.

New additions to the Alabama Business Corporation Law include: (1) allowing for remote participation in shareholder meetings; (2) enabling the Board of Directors to adopt certain amendments to a corporation's articles without shareholder approval; (3) new procedures to ratify defective corporate actions; and (4) eliminating a director's duty to bring business opportunities to the corporation through a provision in articles.

While the new law automatically applies to all new corporations formed on or after January 1, 2020, any existing corporation can go ahead and opt-in to the new provisions.  However, all corporations, new and old, will be subject to the new law beginning January 1, 2021.

This Insight is intended only to provide an overview of the matters addressed herein and does not constitute legal advice.  If you have any questions regarding a specific issue, please seek appropriate legal counsel.

John George Archer (Primary Author) - About John George / More from John George

Categorized In

Latest Insights