TRENTON – A set of bills sponsored by Senators Nia H. Gill, the Chairwoman of the Senate Commerce Committee, and Paul A. Sarlo, Chairman of the Senate Labor Committee, which would update laws governing corporations in New Jersey to make the State friendlier to business development was approved by the Commerce Committee today by a vote of 4-0.
“As New Jersey comes to terms with the effects of a national economic crisis the likes of which we haven’t seen since the Great Depression, it is incumbent upon us to retain businesses – and the jobs they bring with them,” said Senator Gill, D-Essex and Passaic. “Our regulatory climate for businesses and corporations is among the strictest in the nation, and particularly at a time when we need to encourage additional business investment in the State, we should revisit some of the corporate regulations currently in place to make for a state friendlier to the business industry.”
“In survey after survey, businesses continually rate New Jersey towards the bottom of the business-friendly spectrum,” said Senator Sarlo, D-Bergen, Essex and Passaic. “Understandably, we need some regulations in place to ensure that our business community acts as good-faith corporate partners to the economic vitality of the State. But especially while we’re trying to come to terms with the perfect economic storm striking the country, we need to cut some of the needless red tape and unnecessary bureaucracy which causes headaches for New Jersey’s business community.”
The first bill in the package, S-2244, would eliminate the ten-day waiting period for certain shareholder actions that do not concern mergers or acquisition activity. Current law requires that ten-day advanced notice be provided to shareholders by a method designated in the corporate bylaws. Proponents of the change argue that this requirement creates unnecessary delay for even minimal corporate action.
“Shareholders, through their continued ownership of stock in the corporation, have expressed their faith that the board of directors can handle day-to-day corporate operations. Advanced notification isn’t necessary for all corporate activity, ” said Senator Gill.
The second bill, S-2245, would give the corporation’s board of directors the authority to appoint one or more officers of the corporation to grant employees and officers shares of stock, rights or options created by the corporation. The bill stipulates that the board of directors would only be able to take this action by authorizing a specific number of shares, rights or options to be awarded, and includes a safeguard prohibiting any officer designated with the authority to grant these benefits from granting them to him or herself. Officers currently have the authority to determine cash compensation for employees and directors.
“By making it easier for stock options and profit sharing to be granted to employees and shareholders, we’re giving boards the ability to involve stakeholders, to a greater extent, in the success of the corporation,” said Senator Sarlo. “For employees especially, these options are a tool to increase productivity and encourage everyone to work harder for the continued profitability of the business.”
The third bill in the legislative package, S-2246, would allow corporations more autonomy in the selection of directors. Under the bill, corporations would be allowed to eliminate plurality voting in the corporation’s by-laws, which can result in an executive officer being chosen with less than an absolute majority of the vote from the shareholders. Under the current law governing the election of corporate officers, directors must be elected by plurality voting unless the corporation’s certificate of incorporation states otherwise.
“Corporations need to choose the best method for them of electing officers to the board of directors,” said Senator Gill. “This isn’t a matter of dictating to corporations the best way to select their officers. This bill, instead, gives them the autonomy and freedom to select the corporate governance model which is best suited to their own needs.”
The three bills are part of a legislative package recommended by the New Jersey Corporate and Business Law Study Commission, which is designed to update the State’s business laws and make it easier for corporations to conduct operations here. The proposals are modeled, for the most part, on Delaware General Corporation Law, a state which is viewed by many in the business community as being very business-friendly.
“The fact of the matter is, moving forward, we’re going to be competing with our neighboring states to encourage business growth in New Jersey,” said Senator Gill. “Reviews of the best practices of other states is necessary, and we must adapt accordingly, to benefit New Jersey and keep our State economically viable.”
“New Jersey has a history of being one of the richest states in the nation, but unless we’re willing to be flexible with certain corporate regulations, we’re going to see that position slip,” said Senator Sarlo. “Over the years, New Jersey has developed a complex and confusing web of regulations for corporate activity, some of which made sense at the time, but are no longer needed. By updating our corporate laws and introducing flexibility in the regulation of businesses in the State, we’re putting ourselves in a position to be adaptable and accessible to the changing needs of the business community in New Jersey.”
The bills now head to the full Senate for consideration.