The Iowa Legislature adopted far-reaching changes in the Iowa Business Corporation Act (IBCA), effective January 1, 2003.  The last major revision in the IBCA was in 1989, and the latest changes are designed to bring the IBCA up to date with changes in the Revised Model Business Corporation Act (after which the IBCA is patterned) adopted since 1989.

Some of the IBCA amendments will affect companies’ articles of incorporation or bylaws, either by requiring a change or by making a change desirable. Others of the amendments will not require changes in organic documents but will affect the way that Iowa corporations operate. Every Iowa corporation and its counsel should carefully review its articles of incorporation, bylaws, shareholder agreements and other significant corporate documents and procedures to ensure they conform to the amended statute.

Following are the major categories of changes effective January 1, 2003, with a notation of individual items and the IBCA section containing the change. This list does not include all of the changes made by the amendments.

I. Shareholder Meetings, Written Actions and Agreements.

  • Notices to a shareholder may be electronic if authorized by the shareholder. (§ 141)
  • Notice to shareholder need not be sent if for two years all notices sent to shareholder at that address have been return undelivered or if certain dividend payments have been returned as undeliverable. Must reinstate if shareholder provides correct address. (§ 1606)
  • Articles may establish percentage of shares needed to call special meeting, but not more than 25%. If not specified, 10% is needed. (§ 702)
  • Unless otherwise provided in articles, shareholder demanding special meeting may revoke demand any time prior to receipt by corporation of enough demands to require meeting. (§ 702)
  • Articles or bylaws may specify a quorum requirement or voting percentage other than the minimum established by the IBCA. Previously only the articles could so specify. (§ 727)
  • Electronic shareholder voting is permitted. (§ 722)
  • Inspectors of election are required for public companies and permitted for private companies. (§ 729)
  • New provisions govern conduct of meetings. Any rules adopted for, and the conduct of, meetings must be “fair to shareholders.” (§ 708)
  • A shareholder acting by written consent in lieu of a meeting may revoke its consent any time prior to receipt by the corporation of the consents necessary to make the action effective. (§ 704)
  • New provisions govern shareholder agreements. Shareholders may vary certain provisions of the IBCA by agreement. Such agreements are only valid for 10 years, and the corporation must take certain steps with regard to such agreements. (§ 732)
  • New provisions require shareholder approval of issuance of stock, stock options or other rights or convertible securities, if the shares will be issued for non-cash consideration and if the voting power of the new shares will exceed 20% of the shares outstanding before the issuance. (§ 621)

II. Boards of Directors and Board Committees.

  • Size of board may be changed by amendment to, or in manner specified by, articles. This repeals the former requirement of shareholder approval for changes of more than 30%. (§ 803)
  • Directors may be elected by plurality, rather than majority, of votes cast. (§ 728)
  • A director acting by written consent in lieu of a meeting may revoke its consent any time prior to receipt by the corporation of the consents necessary to make the action effective. (§ 821)
  • Board committees are prohibited from taking certain actions. The amendments now permit committees to take certain actions, including authorizing distributions (e.g., dividends) within limits or according to a formula or method approved by the board. (§ 825)
  • Committees are permitted to consist of one or more members. Previously, two was the minimum. (§ 825)
  • The board or, unless prohibited by articles, bylaws or resolution creating the committee, a committee may appoint a replacement for an absent or disqualified committee member. (§ 825)

III. Liability and Indemnification of Officers and Directors.

  • Standards of conduct for directors (§ 830) and officers (§ 842) are revised.
  • Liability of directors is revised. (§ 831)
  • Director conflicts of interest is revised. (§ 832)
  • Liability of directors for unlawful distributions is revised, including addition of a 2-year statute of limitations. (§ 833)
  • Indemnification of directors and officers (permissive and mandatory), including advancement of expenses, is revised. (§§ 850-856)
  • Corporation may obligate itself in advance to indemnify or advance expenses by articles, bylaws or resolution or contract approved by the board or shareholders. (§ 858)
  • IBCA indemnification provisions are expressly made exclusive. Formerly, statute was expressly non-exclusive. (§ 859)
  • Exculpatory provisions for articles of incorporation are still permitted, but statutory language is modified and moved to a completely different place in the Act. New § 202(d)(3) -- replacing former § 832 --  permits corporations, by a provision in their articles of incorporation, to eliminate or limit monetary liability of directors for “any action taken, or any failure to take any action” except:
    • The amount of financial benefit received to which the director is not entitled;
    • Intentional infliction of harm on the corporation;
    • A violation of § 833 (unlawful distributions); or
    • An intentional violation of criminal law.
    • Derivative action provisions are rewritten. (§§ 740-747)

IV. Fundamental Changes.

  • Fundamental changes include amendments to articles or bylaws, mergers, compulsory share exchanges, disposition of assets and dissolution.
  • Certain procedural changes made in order to create consistency among various types of fundamental changes. Other procedural changes also made.
  • Amendment of articles of incorporation
    • Board need not make a recommendation if conflict of interest or other special circumstances exist (§ 1003)
    • Class voting no longer required for certain changes affecting a class or series of shares. (§ 1004)
    • No shareholder vote required for amendment to increase number of authorized shares of a class to make a share dividend for that class (creating parity of treatment with forward stock splits). (§ 1005)
  • Disposition of assets requires shareholder approval only if it would “leave the corporation without a significant continuing business activity.” Adopts a safe harbor definition for this term – a business representing at least 25% of total assets. (§ 1202)
  • Appraisal rights
    • Changes name from “dissent” to “appraisal”. (§ 1302)
    • Not available with respect to shares that remaining outstanding after merger or share exchange. (§ 1302)
    • Not available for articles amendments that change a class of stock except for reverse stock splits where the corporation has the right or obligation to purchase the fractional shares.  (§ 1302)
    • Not available for any class of shares traded on NYSE, Amex or Nasdaq, or is otherwise widely traded. However, this exclusion does not apply if the consideration is other than cash shares that are publicly traded, or if acquiror has one of a list of relationships with the acquired company. (§ 1302)
    • Articles may limit or eliminate appraisal rights for preferred stock. (§ 1302)

  January 2003