In 2013, the Iowa legislature enacted several amendments to the Iowa Business Corporation Act (the “Act”) that became effective January 1, 2014. This bulletin will summarize some of those amendments.
Annual financial reports to shareholders. The legislature included in the Act a requirement that within 120 days after the close of a corporation’s fiscal year, a corporation must deliver annual financial statements to its shareholders. The Act states that the financial statements should include a balance sheet, an income statement, and a statement of changes in shareholders’ equity for the year unless that information appears elsewhere in the financial statements.
To the extent that the corporation’s financial statements are reported upon by a public accountant, that public accountant’s report must accompany the financial statements. If the statements are not prepared by a public accountant, the statements must be accompanied by a statement of the president or the person responsible for the corporation’s accounting records which does all of the following:
- States such person’s reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation.
- Describes any respects in which the statements were not prepared on a basis of accounting consistent with statements prepared for the preceding year.
Failure to comply with this requirement will not adversely affect the existence of the corporation. However, the Act does provide that a shareholder to whom the statements were not sent, may upon a written request require the corporation to send a financial report to that shareholder.
Conflict of Interest Transactions. The Act introduces new concepts and clarity related to conflict of interest transactions (i.e., transactions that serve the personal or non-corporate interest of a corporate decision maker). These changes are important for all Iowa corporations and provide new procedures that offer a corporation’s board of directors and shareholders the ability to have certainty that a corporate transaction will not be characterized under the Act as a conflicted transaction. The Act does this by creating the positions of “qualified directors” and “qualified shareholders” and certain procedures for these positions to follow in corporate transactions that might otherwise be conflicted transactions.
The statute has different definitions for who may be considered a “qualified director” or “qualified shareholder” depending on the type of corporate action, but in essence qualified directors or shareholders are disinterested decision makers. Along with the new definitions and procedures, the Act retained the general fairness to the corporation test that has applied to authorize conflict of interest transactions in the past.
Electronic Communication. The Act provides clarity and flexibility with regard to the use of electronic notices and remote participation for both shareholder and director meetings. Shareholders may participate remotely (e.g., via video conference or telephone) in shareholder meetings if the board authorizes such action. With regard to electronic notice (e.g., of an annual meeting), that statute requires that a corporation have a shareholder’s consent in order to give notice to a shareholder electronically.
The Act now allows the articles of corporation or by-laws to authorize or require directors to receive electronic notices of director meetings.
Other amendments. The Iowa legislature made several other changes to the Act, some of which include:
- Providing board members more flexibility in determining record dates for purposes of notice and shareholder voting. Most by-laws do not address the possibility of different record dates for notice and voting. We recommend including language in by-laws to address whether differing records dates will be permitted or prohibited.
- Adding requirements for cumulative voting. The new rules did not change the requirement that a corporation’s articles of corporation must permit cumulative voting in order for shareholder to cumulate their votes.
- Lowering the required number of votes to achieve a shareholder action without a meeting. To implement this provision, certain language must be included in a corporation’s articles of incorporation.
These are just a few of the several amendments the legislature made to the Act.
Opportunity for review. In light of the amendments to the Act, we encourage you to review the corporation’s articles of incorporation and bylaws to make sure these documents continue to reflect your wishes. If you would like our assistance reviewing the corporation’s articles of incorporation and bylaws, please contact us and we will be happy to assist you.