The New Massachusettes Corporation Law Important Changes for Small Businesses by Sherwood Guernsey, Esq.

Whether you are a multi-million dollar organization or a small business, if you are incorporated in the state of Massachusetts, your world is about to change.

For the first time in a century - literally - the Massachusetts corporate laws have undergone substantial revision with the passage of Massachusetts general laws Chapter 156D. The present law dates back to 1903, and except for important revisions in 1964, has only been revised on an occasional basis since then. The newly revised law takes effect July 1, 2004.

Why is it important?
The new law is important because it affects so many businesses. Despite a growing number of alternative forms of doing businesses (LLC's, PC's etc.), the old familiar corporation remains by far the entity of choice for small businesses.

But more importantly, the new law modernizes state law in a way that will help retain and attract new business. The revisions give business corporations the flexibility to adapt to new technologies, save money, and reap the benefits of new corporate legal developments being instituted in other states. Instead of incorporating in "corporate friendly" Delaware, there are now many more reasons to incorporate right here in Massachusetts. Since small business is the real engine of our economic growth or decline, making Massachusetts a more "business friendly" location, is no small matter.

What is affected by this law?
This law affects nearly all areas of corporate law; the following highlights some of the changes. For all the details, or to see how these changes may impact your business, contact your attorney and financial advisor.

Corporate communication will enter the new millennium. All means of communication by and between directors, shareholders, and the Secretary of State will be allowed. Shareholder and director notices, proxies, consents, and waivers, for example, can now be sent by e-mail, instead of being sent by regular mail. This one change alone will save businesses time and money, streamlining decision-making.

With the new law, corporate actions can take place without a meeting, with less than unanimous consent, if authorized by the company's Articles of Organization. Written consent will only be required from that percentage of outstanding shares that would be required to approve the action at a meeting, a change very helpful to small businesses.

Conversion to a new type of entity will be greatly simplified. Simply by filing a shareholders' vote to convert, a corporation can change to a different type of entity without having to convey its assets or cease existence.

Capital finance becomes more flexible, as the directors will be able to determine the fair value of the shares it will issue, subject to their fiduciary responsibility, without creating some fictitious par value. Shares can be issued for services that have been, or will be, rendered. By streamlining the process, companies can seize opportunities and secure financing more quickly.

Dramatic corporate governance changes are allowed, so that a corporation may rewrite its Articles to change or severely limit the powers of say, the Board of Directors, or even eliminate the Board of Directors, or change the meeting and voting requirements. This will allow small business corporations to act in a manner more like an LLC, without the rigid requirements for meetings and notices and layers of governance.

What steps should you take?
There are two important things you should do right away. First, Every Massachusetts corporation must appoint a registered agent and a resident agent office, who will serve as agent for service of process in any litigation. If a company complies with this provision before July 1, 2004, no fee will be required; after July 1, 2004, there will be a fee payable to the Secretary of State Be sure to file before July 1st.

Second, it is important to understand that, in most cases, the law is not "self-effectuating." To take advantage of the many new provisions of the law, you must take the initiative to review and, if appropriate, amend your company's organization documents: the Charter, By-Laws, and Shareholder Agreement.

The stakes are high but the benefits are many. Contact your attorney to determine how the corporation law may impact your business, and how you can take advantage of the many benefits.