Prefiled 01/03/11. Read first time 01/10/11.   Referred to Committee on Judiciary.

     AN ACT Relating to the authority of shareholders and boards of directors to take certain actions under the corporation act; amending RCW 23B.02.060, 23B.08.010, 23B.10.200, 23B.10.030, 23B.11.030, 23B.12.020, and 23B.14.020; and adding new sections to chapter 23B.08 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 23B.02.060 and 2009 c 189 s 5 are each amended to read as follows:
     (1) The incorporators or board of directors of a corporation shall adopt initial bylaws for the corporation.
     (2) The articles of incorporation or bylaws must either specify the number of directors or specify the process by which the number of directors will be fixed, unless the articles of incorporation dispense with a board of directors pursuant to RCW 23B.08.010.
     (3) Unless its articles of incorporation or its bylaws provide otherwise, a corporation is governed by the following provisions:
     (a) The board of directors may approve the issuance of some or all of the shares of any or all of the corporation's classes or series without certificates under RCW 23B.06.260;
     (b) A corporation that is not a public company shall hold a special meeting of shareholders if the holders of at least ten percent of the votes entitled to be cast on any issue proposed to be considered at the meeting demand a meeting under RCW 23B.07.020;
     (c) A director need not be a resident of this state or a shareholder of the corporation under RCW 23B.08.020;
     (d) The board of directors may fix the compensation of directors under RCW 23B.08.110;
     (e) Members of the board of directors may participate in a meeting of the board by means of a conference telephone or similar communication equipment under RCW 23B.08.200;
     (f) Corporate action permitted or required by this title to be approved at a board of directors' meeting may be approved without a meeting if the corporate action is approved by all members of the board under RCW 23B.08.210;
     (g) Regular meetings of the board of directors may be held without notice of the date, time, place, or purpose of the meeting under RCW 23B.08.220;
     (h) Special meetings of the board of directors must be preceded by at least two days' notice of the date, time, and place of the meeting, and the notice need not describe the purpose of the special meeting under RCW 23B.08.220;
     (i) A quorum of a board of directors consists of a majority of the number of directors under RCW 23B.08.240;
     (j) If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board of directors under RCW 23B.08.240;
     (k) A board of directors may create one or more committees and appoint members of the board of directors to serve on them under RCW 23B.08.250; and
     (l) Unless approved by shareholders, a corporation may indemnify, or make advances to, a director only for reasonable expenses incurred in the defense of any proceeding to which the director was a party because of being a director to the extent such action is consistent with RCW 23B.08.500 through 23B.08.580 under RCW 23B.08.590.
     (4) The bylaws of a corporation may contain any provision((, not in conflict with law or the articles of incorporation,)) for managing the business and regulating the affairs of the corporation((, including but not limited to the following:
     (a) A restriction on the transfer or registration of transfer of the corporation's shares under RCW 23B.06.270;
     (b) Shareholders may participate in a meeting of shareholders by any means of communication by which all persons participating in the meeting can hear each other under RCW 23B.07.080; and
     (c) A quorum of the board of directors may consist of as few as one-third of the number of directors under RCW 23B.08.240)) to the extent the provision does not infringe upon or limit the exclusive authority of the board of directors under RCW 23B.08.010(2)(b) or otherwise conflict with this title or any other law, the articles of incorporation, or a shareholders' agreement authorized by RCW 23B.07.320.

Sec. 2   RCW 23B.08.010 and 1989 c 165 s 80 are each amended to read as follows:
     (1) ((Except as provided in subsection (3) of this section,)) Each corporation must have a board of directors((.
     (2) All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, subject to any limitation set forth in the articles of incorporation.
     (3))), except that a corporation may dispense with or limit the authority of its board of directors by describing in its articles of incorporation, or in a shareholders' agreement authorized by RCW 23B.07.320, who will perform some or all of the duties of the board of directors.
     (2) Subject to any limitation set forth in this title, the articles of incorporation, or a shareholders' agreement authorized by RCW 23B.07.320:
     (a) All corporate powers shall be exercised by or under the authority of the corporation's board of directors; and
     (b) The business and affairs of the corporation shall be managed under the direction of its board of directors, which shall have exclusive authority as to substantive decisions concerning management of the corporation's business.

Sec. 3   RCW 23B.10.200 and 2009 c 189 s 35 are each amended to read as follows:
     (1) A corporation's board of directors, subject to the limitations set forth in RCW 23B.02.060(4), may amend or repeal the corporation's bylaws, or adopt new bylaws, ((unless)) except to the extent that:
     (a) This power is reserved exclusively to the shareholders pursuant to the articles of incorporation((,)) or a shareholders' agreement authorized by RCW 23B.07.320, or pursuant to RCW 23B.10.205, ((or, if applicable, RCW)) 23B.10.210, or any other provision of this title ((reserve this power exclusively to the shareholders in whole or part)); or
     (b) The shareholders, in amending ((or)), repealing, or adopting a particular bylaw under subsection (2) of this section, provide expressly that the board of directors may not amend or repeal that bylaw.
     (2) A corporation's shareholders, subject to the limitations set forth in RCW 23B.02.060(4), may amend or repeal the corporation's bylaws, or adopt new bylaws, even though the bylaws may also be amended or repealed, or new bylaws may also be adopted, by its board of directors.

NEW SECTION.  Sec. 4   A new section is added to chapter 23B.08 RCW to read as follows:
     A corporation may agree to submit a corporate action to a vote of its shareholders whether or not the board of directors determines at any time subsequent to approving such a corporate action that it no longer recommends the corporate action.

Sec. 5   RCW 23B.10.030 and 2003 c 35 s 4 are each amended to read as follows:
     (1) A corporation's board of directors may propose one or more amendments to the articles of incorporation for submission to the shareholders.
     (2) For the amendment to be adopted:
     (a) The board of directors must recommend the amendment to the shareholders unless (i) the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation ((and)) or (ii) section 4 of this act applies, and in either case the board of directors communicates the basis for ((its determination)) so proceeding to the shareholders ((with the amendment)); and
     (b) The shareholders entitled to vote on the amendment must approve the amendment as provided in subsection (5) of this section.
     (3) The board of directors may condition its submission of the proposed amendment on any basis, including the affirmative vote of holders of a specified percentage of shares held by any group of shareholders not otherwise entitled under this title or the articles of incorporation to vote as a separate voting group on the proposed amendment.
     (4) The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with RCW 23B.07.050. The notice of meeting must also state that the purpose, or one of the purposes, of the meeting is to consider the proposed amendment and contain or be accompanied by a copy of the amendment.
     (5) In addition to any other voting conditions imposed by the board of directors under subsection (3) of this section, the amendment to be adopted must be approved by two-thirds, or, in the case of a public company, a majority, of the voting group comprising all the votes entitled to be cast on the proposed amendment, and of each other voting group entitled under RCW 23B.10.040 or the articles of incorporation to vote separately on the proposed amendment. The articles of incorporation may require a greater vote than that provided for in this subsection. The articles of incorporation of a corporation other than a public company may require a lesser vote than that provided for in this subsection, or may require a lesser vote by separate voting groups, so long as the required vote is not less than a majority of all the votes entitled to be cast on the proposed amendment and of each other voting group entitled to vote separately on the proposed amendment. Separate voting by additional voting groups is required on a proposed amendment under the circumstances described in RCW 23B.10.040.

Sec. 6   RCW 23B.11.030 and 2009 c 189 s 38 are each amended to read as follows:
     (1) After adopting a plan of merger or share exchange, the board of directors of each corporation party to the merger, and the board of directors of the corporation whose shares will be acquired in the share exchange, shall submit the plan of merger, except as provided in subsection (7) of this section, or share exchange for approval by its shareholders.
     (2) For a plan of merger or share exchange to be approved:
     (a) The board of directors must recommend the plan of merger or share exchange to the shareholders((,)) unless (i) the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation ((and)) or (ii) section 4 of this act applies, and in either case the board of directors communicates the basis for ((its determination)) so proceeding to the shareholders ((with the plan)); and
     (b) The shareholders entitled to vote must approve the plan, except as provided in subsection (7) of this section.
     (3) The board of directors may condition its submission of the proposed plan of merger or share exchange on any basis, including the affirmative vote of holders of a specified percentage of shares held by any group of shareholders not otherwise entitled under this title or the articles of incorporation to vote as a separate voting group on the proposed plan of merger or share exchange.
     (4) The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with RCW 23B.07.050. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger or share exchange and must contain or be accompanied by a copy or summary of the plan.
     (5) In addition to any other voting conditions imposed by the board of directors under subsection (3) of this section, the plan of merger must be approved by two-thirds of the voting group comprising all the votes entitled to be cast on the plan, and of each other voting group entitled under RCW 23B.11.035 or the articles of incorporation to vote separately on the plan, unless shareholder approval is not required under subsection (7) of this section. The articles of incorporation may require a greater or lesser vote than that provided in this subsection, or a greater or lesser vote by separate voting groups, so long as the required vote is not less than a majority of all the votes entitled to be cast on the plan of merger and of each other voting group entitled to vote separately on the plan. Separate voting by additional voting groups is required on a plan of merger under the circumstances described in RCW 23B.11.035.
     (6) In addition to any other voting conditions imposed by the board of directors under subsection (3) of this section, the plan of share exchange must be approved by two-thirds of the voting group comprising all the votes entitled to be cast on the plan, and of each other voting group entitled under RCW 23B.11.035 or the articles of incorporation to vote separately on the plan. The articles of incorporation may require a greater or lesser vote than that provided in this subsection, or a greater or lesser vote by separate voting groups, so long as the required vote is not less than a majority of all the votes entitled to be cast on the plan of share exchange and of each other voting group entitled to vote separately on the plan. Separate voting by additional voting groups is required on a plan of share exchange under the circumstances described in RCW 23B.11.035.
     (7) Approval by the shareholders of the surviving corporation on a plan of merger is not required if:
     (a) The articles of incorporation of the surviving corporation will not differ, except for amendments enumerated in RCW 23B.10.020, from its articles of incorporation before the merger;
     (b) Each shareholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares, with identical designations, preferences, limitations, and relative rights, immediately after the merger;
     (c) The number of voting shares outstanding immediately after the merger, plus the number of voting shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed the total number of voting shares of the surviving corporation authorized by its articles of incorporation immediately before the merger; and
     (d) The number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed the total number of participating shares authorized by its articles of incorporation immediately before the merger.
     (8) As used in subsection (7) of this section:
     (a) "Participating shares" means shares that entitle their holders to participate without limitation in distributions.
     (b) "Voting shares" means shares that entitle their holders to vote unconditionally in elections of directors.
     (9) After a merger or share exchange is approved, and at any time before articles of merger or share exchange are filed, the planned merger or share exchange may be abandoned, subject to any contractual rights, without further shareholder approval, in accordance with the procedure set forth in the plan of merger or share exchange or, if none is set forth, in the manner determined by the board of directors.

Sec. 7   RCW 23B.12.020 and 2009 c 189 s 40 are each amended to read as follows:
     (1) A corporation may sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property, otherwise than in the usual and regular course of business, on the terms and conditions and for the consideration determined by the corporation's board of directors, if the board of directors proposes and its shareholders approve the proposed transaction.
     (2) For a transaction to be approved:
     (a) The board of directors must recommend the proposed transaction to the shareholders unless (i) the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation ((and)) or (ii) section 4 of this act applies, and in either case the board of directors communicates the basis for ((its determination)) so proceeding to the shareholders ((with the submission of the proposed transaction)); and
     (b) The shareholders entitled to vote must approve the transaction.
     (3) The board of directors may condition its submission of the proposed transaction on any basis, including the affirmative vote of holders of a specified percentage of shares held by any group of shareholders not otherwise entitled under this title or the articles of incorporation to vote as a separate voting group on the proposed transaction.
     (4) The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with RCW 23B.07.050. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the sale, lease, exchange, or other disposition of all, or substantially all, the property of the corporation and contain or be accompanied by a description of the transaction.
     (5) In addition to any other voting conditions imposed by the board of directors under subsection (3) of this section, the transaction must be approved by two-thirds of the voting group comprising all the votes entitled to be cast on the transaction, and of each other voting group entitled under the articles of incorporation to vote separately on the transaction. The articles of incorporation may require a greater or lesser vote than provided in this subsection, or a greater or lesser vote by any separate voting groups provided for in the articles of incorporation, so long as the required vote is not less than a majority of all the votes entitled to be cast on the transaction and of each other voting group entitled to vote separately on the transaction.
     (6) After a sale, lease, exchange, or other disposition of property is approved, the transaction may be abandoned, subject to any contractual rights, without further shareholder approval, in a manner determined by the board of directors.
     (7) A transaction that constitutes a distribution is governed by RCW 23B.06.400 and not by this section.

Sec. 8   RCW 23B.14.020 and 2009 c 189 s 50 are each amended to read as follows:
     (1) A corporation's board of directors may propose dissolution for submission to the shareholders.
     (2) For a proposal to dissolve to be approved:
     (a) The board of directors must recommend dissolution to the shareholders unless (i) the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation ((and)) or (ii) section 4 of this act applies, and in either case the board of directors communicates the basis for ((its determination)) so proceeding to the shareholders; and
     (b) The shareholders entitled to vote must approve the proposal to dissolve as provided in subsection (5) of this section.
     (3) The board of directors may condition its submission of the proposal for dissolution on any basis, including the affirmative vote of holders of a specified percentage of shares held by any group of shareholders not otherwise entitled under this title or the articles of incorporation to vote as a separate voting group on the proposed dissolution.
     (4) The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed dissolution either (a) by giving notice of a shareholders' meeting in accordance with RCW 23B.07.050 and stating that the purpose or one of the purposes of the meeting is to consider dissolving the corporation, or (b) in accordance with the requirements of RCW 23B.07.040 for approving the proposed dissolution without a meeting.
     (5) In addition to any other voting conditions imposed by the board of directors under subsection (3) of this section, the proposed dissolution must be approved by two-thirds of the voting group comprising all the votes entitled to be cast on the proposed dissolution, and of each other voting group entitled under the articles of incorporation to vote separately on the proposed dissolution. The articles of incorporation may require a greater or lesser vote than provided in this subsection, or a greater or lesser vote by any separate voting groups provided for in the articles of incorporation, so long as the required vote is not less than a majority of all the votes entitled to be cast on the proposed dissolution and of each other voting group entitled to vote separately on the proposed dissolution.

NEW SECTION.  Sec. 9   A new section is added to chapter 23B.08 RCW to read as follows:
     The right of a director, officer, employee, or agent to indemnification or to advancement of expenses arising under a provision in the articles of incorporation or a bylaw shall not be eliminated or impaired by an amendment to or repeal of that provision after the occurrence of the act or omission that is the subject of the proceeding for which indemnification or advancement of expenses under that provision is sought, unless the provision in effect at the time of such an act or omission explicitly authorizes the elimination or impairment of the right after such an action or omission has occurred.