SSB 3183 (LSB 6163SC (3) 87)

SENATE FILE _____ 

BY  (PROPOSED COMMITTEE ON JUDICIARY BILL BY CHAIRPERSON ZAUN)

A BILL FOR

An Act relating to the boards of directors of public corporations, and including effective date provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 490.803, subsections 2 and 3, Code 2018, are amended to read as follows:
   2.  a.  The number of directors may be increased or decreased from time to time by amendment to, or in the manner provided in, the articles of incorporation or the bylaws.
   b.  (1)  Notwithstanding paragraph “a”, the number of directors of a public corporation subject to section 490.806A, subsection 1, and 490.806B shall be increased or decreased only by the affirmative vote of a majority of its board of directors.
   (2)  This paragraph “b” is repealed on January 1, 2022.
   3.  a.  Directors are elected at the first annual shareholders’ meeting and at each annual meeting thereafter unless their terms are staggered under section 490.806 or 490.806A.
   b.  (1)  Notwithstanding paragraph “a”, a director’s term shall be staggered as provided in section 490.806A or may be staggered as provided in section 490.806B as enacted in this Act.
   (2)  This subparagraph is repealed on January 1, 2022.
    Sec. 2.  Section 490.805, subsections 2 and 4, Code 2018, are amended to read as follows:
   2.  a.  The terms of all other directors expire at the next annual shareholders’ meeting following their election unless their terms are staggered under section 490.806 or 490.806A.
   b.  (1)  Notwithstanding paragraph “a”, the terms of directors shall be staggered as provided in sections 490.806 or may be staggered as provided in section 490.806B as enacted in this Act.
   (2)  This paragraph “b” is repealed on January 1, 2022.
   4.  a.  The term of a director elected to fill a vacancy expires at the next shareholders’ meeting at which directors are elected, except as provided in section 490.806A.
   b.  (1)  Notwithstanding paragraph “a”, the term of a director elected to fill a vacancy expires as provided in section 490.806A and section 490.806B as enacted in this Act.
   (2)  This paragraph “b” is repealed on January 1, 2022.
    Sec. 3.  Section 490.806, Code 2018, is amended to read as follows:
   490.806  Staggered terms for directors.
   1.  Except as otherwise provided in section 490.806A, a corporation’s The articles of incorporation may provide for staggering the terms of its directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total, as near as may be. In that event, the terms of directors in the first group expire at the first annual shareholders’ meeting after their election, the terms of the second group expire at the second annual shareholders’ meeting after their election, and the terms of the third group, if any, expire at the third annual shareholders’ meeting after their election. At each annual shareholders’ meeting held thereafter, directors shall be chosen for a term of two years or three years, as the case may be, to succeed those whose terms expire.
   2.  a.  Subsection 1 does not apply to a public corporation that is subject to section 490.806A but may apply to a public corporation that is subject to section 490.806B as enacted in this Act.
   b.  This subsection is repealed on January 1, 2022.
    Sec. 4.  Section 490.806A, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  3.  This section is repealed on January 1, 2022.
    Sec. 5.  NEW SECTION.  490.806B  Public corporations —— nonstaggered terms.
   1.  Notwithstanding section 490.806A, the board of directors of any public corporation which, as of January 1, 2019, is subject to section 490.806A, subsection 1, shall adopt an amendment to its articles of incorporation that includes all of the following:
   a.  The staggered terms of the class I directors, class II directors, and class III directors elected or appointed prior to January 1, 2019, shall cease at the expiration of their then current terms as provided in section 490.806A.
   b.  The terms of directors elected or appointed on or after January 1, 2019, shall expire at the next annual shareholders’ meeting following their election or appointment.
   c.  Any other changes that the directors determine are necessary to implement the provisions of this subsection.
   2.  Any amendment to the articles of incorporation as provided in subsection 1 shall be made without shareholder approval.
   3.  Notwithstanding subsection 1, the public corporation’s articles of incorporation may provide for staggering the terms of its directors as provided in section 490.806.
   4.  Section 490.803, subsection 2, paragraph “b”, and section 490.810, subsection 1A, shall continue to apply to a public corporation subject to subsection 1 of this section.
   5.  This section is repealed on January 1, 2022.
    Sec. 6.  Section 490.810, subsection 1A, Code 2018, is amended to read as follows:
   1A.  a.  For a public corporation subject to section 490.806A, subsection 1, and 490.806B, a vacancy on the board of directors, including but not limited to a vacancy resulting from an increase in the number of directors, shall be filled solely by the affirmative vote of a majority of the remaining directors, even though less than a quorum of the board.
   b.  This subsection is repealed on January 1, 2022.
    Sec. 7.  Section 490.1005A, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  3.  This section is repealed on January 1, 2022. 
    Sec. 8.  CONTINUATION OF THE ARTICLES OF INCORPORATION.  

Notwithstanding the repeals of sections 490.806A and 490.806B as provided in this Act, any amendment to the articles of incorporation of a public corporation adopted in compliance with sections 490.806A and 490.806B and in effect immediately prior to January 1, 2022, shall remain in effect until amended or repealed as provided in the relevant sections of chapter 490 as those sections exist on or after January 1, 2022.
    Sec. 9.  EFFECTIVE DATE.  The following takes effect January 1, 2019:
  The section of this Act enacting section 490.806B.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   GENERAL. This bill amends provisions in Code chapter 490 (“Iowa Business Corporation Act”), that became effective on March 23, 2011, and created a special requirement governing the terms of office for a public corporation’s board of directors (board) elected by its holders of common shares, unless the board elected to opt out of the requirement by a date certain. See 2011 Iowa Acts, chapter 2, and Code section 490.806A, which in part superseded Code sections 490.805 and 490.806. 
   STAGGERED TERMS FOR DIRECTORS. The 2011 Act required the public corporation to divide its directors into three equal groups (referred to as “classes”). The directors are then required to serve staggered three-year terms as designated by the board with no other corporate action required except that the board was required to amend its articles of incorporation (articles) in order to comply with the special requirement. The bill provides that beginning January 1, 2019, a director that was subject to the special requirement due to the 2011 Act and whose three-year term is to expire at the next annual shareholder meeting is to be elected in the same manner as the director of any other corporation. This means that the shareholders of the public corporation will elect all directors whose terms are expiring for one-year terms, unless the corporation has adopted the ordinary staggered term method under Code section 490.806.
   REPEAL. On January 1, 2022, the bill eliminates a majority of the provisions that allowed for the special requirement and effectively restores the provisions in Code chapter 490 as they existed prior to the 2011 Act. The one provision that will survive defines a public corporation. The provision prior to the 2011 Act referenced the national association of securities dealers (NASD) which is no longer in existence. The bill provides that the articles of incorporation survive the repeals of the relevant Code sections.