Washington State

House of Representatives

Office of Program Research

BILL

ANALYSIS

Judiciary Committee

SB 6205

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Background:

The Washington Business Corporation Act (WBCA) contains provisions intended to deter or prevent the hostile takeover of Washington corporations and foreign corporations that have substantial economic ties to Washington. The anti-takeover statute generally prohibits a target corporation from engaging in certain significant business transactions with an acquiring person for a period of five years. A significant business transaction includes, for example, a merger or consolidation of the target corporation with the acquiring person, the substantial sale of the target corporation's assets to the acquiring person, the termination of five percent or more of the Washington employees of the target corporation, and the liquidation or dissolution of a target corporation proposed by the acquiring person.

A person becomes an "acquiring person," thus triggering the moratorium on significant business transactions, when the person obtains 10 percent of more of the outstanding voting shares of the target corporation. "Voting shares" means the shares of a corporation entitled to vote generally in the election of directors.

A corporation may issue different classes of shares such as voting and nonvoting shares, and preferred and common shares. Different classes of shares may have different voting rights. A corporation's articles of incorporation must set forth the classes or series of shares and the number of shares of each class that may be issued. If more than one class of shares is authorized, the articles must give each class a distinguishing designation and set forth the preferences, limitations, voting powers, and relative rights of each class.

Summary of Bill:

The anti-takeover statute in the WBCA is revised to incorporate the concept of "voting power," instead of "voting shares," in determining whether a person becomes an "acquiring person" or meets other thresholds established in the anti-takeover statute. An "acquiring person" is a person who is the beneficial owner of voting shares entitled to cast votes comprising 10 percent or more of the voting power of the target corporation. "Voting power" means the total number of votes entitled to be cast by all of the outstanding voting shares of a corporation.

The definition of "beneficial ownership" with respect to shares is restructured and renamed "beneficial owner," and is revised to specifically indicate the term includes a person who, directly or indirectly, has or shares the power to vote or dispose of the shares, or direct the voting or disposition of the shares. The terms "beneficial ownership," "beneficially own," and "beneficially owned" have correlative meanings.