Bill 415

                    Current Status

Bill Number:               415
Ratification Number:       490
Act Number                 444
Introducing Body:          Senate
Subject:                   "South Carolina Business Corporation Act
                           of 1988"

(A444, R490, S415)

AN ACT TO AMEND CHAPTERS 1 THROUGH 20 OF TITLE 33, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO BUSINESS CORPORATIONS, SO AS TO ENACT THE "SOUTH CAROLINA BUSINESS CORPORATION ACT OF 1988" INCLUDING PROVISIONS RELATING TO INCORPORATION OF BUSINESS ORGANIZATIONS, PURPOSES, AND POWERS OF CORPORATIONS, NAMES, OFFICES, AND AGENTS, SHARES AND DISTRIBUTIONS, SHAREHOLDERS, DIRECTORS, AND OFFICERS, AMENDMENTS OF ARTICLES OF INCORPORATION AND BYLAWS, MERGER AND SHARE EXCHANGE, SALE OF ASSETS, DISSENTERS' RIGHTS, DISSOLUTION, FOREIGN CORPORATIONS, RECORDS, AND REPORTS, CLOSE CORPORATIONS, PROFESSIONAL CORPORATIONS, AND TRANSITION PROVISIONS; TO AMEND CHAPTER 2 OF TITLE 35, RELATING TO THE TAKE-OVER BID DISCLOSURE ACT, SO AS TO REVISE THE PROVISIONS OF THE CHAPTER TO REGULATE CONTROL SHARE ACQUISITIONS AND BUSINESS COMBINATIONS; TO AMEND SECTIONS 33-42-30, 12-19-20, 12-19-70, 12-19-120, 15-9-210, 15-9-240, 15-9-245, AND 15-9-430, RELATING TO NAME OF A LIMITED PARTNERSHIP, FILING OF ANNUAL REPORTS, CORPORATE LICENSE FEES OR TAXES, AND SERVICE OF PROCESS, SO AS TO CONFORM THEM TO THE NEW PROVISIONS OF THE SOUTH CAROLINA BUSINESS CORPORATION ACT OF 1988 AND TO MAKE CERTAIN OTHER CHANGES; TO AMEND THE 1976 CODE BY ADDING SECTION 12-7-1675 SO AS TO PROVIDE FOR ADMINISTRATIVE DISSOLUTION OF A CORPORATION FOR FAILURE TO PAY FRANCHISE OR INCOME TAXES WHEN DUE AND BY ADDING SECTION 12-54-125 SO AS TO ALLOW THE TAX COMMISSION TO WITHDRAW WARRANTS OF DISTRAINT FOR DISSOLVED CORPORATIONS UNDER CERTAIN CONDITIONS; AND TO REPEAL SECTIONS 12-19-130, 15-9-260, 15-63-20 THROUGH 15-63-50, 33-51-10 THROUGH 33-51-170 AND CHAPTERS 21, 23, AND 25 OF TITLE 33 RELATING TO THE TIME FOR FILING OF ANNUAL REPORTS AND PAYMENT OF FEES OR TAXES, SERVICE OF PROCESS, CHARTER ANNULMENT, PROFESSIONAL ASSOCIATIONS, DISSOLUTION, FOREIGN BUSINESS CORPORATIONS, ANNUAL REPORTS, POWERS OF THE SECRETARY OF STATE, AND MISCELLANEOUS MATTERS.

Whereas, the General Assembly by this act is substantially revising the various statutes in the 1976 Code relating to business corporations and professional corporations; and
Whereas, the General Assembly recognizes the impact these changes will have in South Carolina and the need of the bar, judiciary, and those persons advising corporations to be familiar with and understand the changes; and
Whereas, the General Assembly believes that the Final Report of the Corporate Code Revision Project Study Committee will greatly facilitate an understanding of this act; and
Whereas, for the above reasons, the General Assembly has decided to include the study committee's final report which has been amended to reflect amendments made by the Senate and House of Representatives as part of this act:
A. Introduction
In November, 1985, Senator Marshall Williams, Chairman of the Senate Judiciary Committee, established a special study committee of legislators, practitioners, and law school professors to study the 1984 Model Business Corporation Act with the view of its possible adoption, with appropriate amendments, in South Carolina. This study was financed by a grant of forty-five thousand dollars made to the South Carolina Law Institute, which agreed to handle the administration of the project. The study committee, which was chaired by Senator Thomas E. Smith, Jr., divided its work into five areas and had a subcommittee assigned to each area. These areas, and the members of the subcommittees, were as follows:
Business Corporation Code Revision Study Committee:
  (1) Administrative issues (responsibilities of the Secretary of State, filing and license fees, execution of documents), incorporation (articles of incorporation, bylaws, organizational meeting, etc.), and the rights and obligations of foreign corporations operating in South Carolina: Reporter: Professor James R. Burkhard, Columbia; Senator: Ryan C. Shealy, Lexington; Attorneys: Robert C. Wilson, Jr., Greenville; William W. Kehl, Greenville; J. Drayton Hastie, Jr., Charleston; Donald H. Stubbs, Columbia; Thomas A. Evins, Spartanburg; C. Alan Chapman, Greenville; Robert L. Clement, Jr., Charleston; Representative: Joyce C. Hearn (ex officio), Columbia.
  (2) Corporate finance issues, including authorization and issuance of stock, dividends, redemptions, and recapitalization: Reporter: Professor Martin C. McWilliams, Jr., Columbia; Senator: William E. Applegate, III, Charleston; Attorneys: Robert H. Hodges, Jr., Columbia; George S. King, Jr., Columbia; Elaine H. Fowler, Columbia; Edward G. Menzie, Columbia; Edward C. Roberts, Columbia; R. Wayne Byrd, Florence; D. Laurence McIntosh, Florence; Representative: Larry A. Martin (ex officio), Pickens.
  (3) Shareholder and director management functions, including voting rights, shareholder and director meetings, director responsibilities and liabilities for mismanagement and improper distributions, derivative suits, and right of indemnification: Reporter: Professor John P. Freeman, Columbia; Senators: Thomas E. Smith, Jr., Pamplico; Edward E. Saleeby, Hartsville; Warren K. Giese, Columbia; Attorneys: Steven W. Hamm, Columbia; Charles W. Knowlton, Columbia; J. D. Todd, Jr., Greenville; Augustine T. Smythe, Charleston; Karen J. Williams, Orangeburg; James C. Boyd, Charleston; Henry Hammer, Columbia; Representative: Derial L. Ogburn (ex officio), Jefferson.
  (4) Mergers, consolidations, share exchanges, major sale Or assets, amendments to the articles of incorporation, dissolution, and other fundamental structural changes: Reporter: Professor Gregory B. Adams, Columbia; Senators: Glenn F. McConnell, Charleston; Nick A. Theodore, Greenville; Attorneys: Theodore B. Cuerard, Charleston; Edward J. Hamilton, Jr., Columbia; James R. Gilreath, Greenville; David W. Robinson, Columbia; Steve C. Griffith, Jr., Charlotte, North Carolina; David A. Quattlebaum, III, Greenville; Robert W. Sullivan, Fort Mill; William M. Musser, Columbia; Representative: John William McLeod (ex officio), Florence.
  (5) Special provisions relating to close corporations (generally defined as corporations in which all or most of the shareholders are actively engaged in the management of the business) and professional corporations involving doctors, engineers, lawyers, and other professionals: Reporter: Professor Harry J. Haynsworth, Columbia; Senators: John A. Martin, Winnsboro; Isadore E. Lourie, Columbia; John C. Hayes, III, Rock Hill; James E. Bryan, Jr., Laurens; John E. Courson, Columbia; Attorneys: Julian J. Nexsen, Sr., Columbia; R. David Massey, Greenville; Sherwood M. Cleveland, Columbia; F. Dean Rainey, Jr., Greenville; M. Craig Garner, Jr., Columbia; E. N. Zeigler, Florence; Representative: T. Moffatt Burriss (ex officio), Columbia.
  The Business Corporation Code Revision Study Committee throughout its work was assisted by Michael N. Couick, and Susan S. Musser of the Senate Judiciary Committee, Carolyn Adams of the House Judiciary Committee, and Stephen T. Draffin, Catherine Yonce and Gayle Kubala of the South Carolina Legislative Council.
  The subcommittees met at various times from January through June of 1986 to formulate recommendations to the full study committee. The full study committee then held five meetings to consider the subcommittee reports and a sixth meeting to finalize its recommendations. These meetings were held on July 22, August 21, September 10, September 30, October 14, and November 6, 1986. In addition to members of the study committee, members of the Business Advisory Committee appointed by Senator Williams attended these meetings. The Business Advisory Committee members were: Jack Burnett, III, Southern Weaving, Greenville; William Barnett, III, Barnett Southern, Arcadia; Gary M. Duncan, Sr., Vice President and Treasurer, South Carolina National Bank, Columbia; James B. Murphy, Jr., Senior Vice President and Corporation Secretary, South Carolina National Bank, Columbia; A. L. Hutchinson, Jr., Executive Vice President, First Federal Savings & Loan Association, Charleston; and George L. McDaniel, Senior Vice President, South Carolina Federal Savings Bank, Columbia. Minutes of these meetings were prepared and have been turned over to the Senate Judiciary Committee staff. Also, cassette tapes of the meetings were made by the Senate Judiciary Committee staff.
  The remainder of this report provides background information on the 1984 Model Business Corporation Act ("1984 Model Act") and summarizes the changes made by the Model Act in the existing South Carolina Business Corporation Act, enacted in 1981, and the changes in the Model Act recommended by the study committee.
  B. Background Material on the 1984 Model Act and the South Carolina Business Corporation Act
  The 1984 Model Act represents the first complete revision of the Model Act, which has been adopted, with amendments, in approximately thirty-five states, in more than thirty years. The 1984 Model Act is a state-of-the-art document reflecting many years of work by the members of the prestigious American Bar Association Committee on Corporate Laws. In addition to being completely redrafted, the 1984 Model Act also contains new Official Comments that explain the intent and application of each provision. The Model Business Act Annotated (3rd ed., 1984) also contains case citations and citations to law review articles and treatises for each section of the 1984 Model Act. These Official Comments and annotations are useful particularly to South Carolina lawyer since this State has very few major corporate law cases.
  The South Carolina Legislature has enacted two major business corporate acts during this century, Act 847 of 1962 and Act 146 of 1981. There also have been several amendments to the Business Corporation Act over the years. Both the 1962 and the 1981 acts contained a number of Model Act provisions, but there were many areas of substantial differences as well. These differences have caused practical problems for practitioners because of the absence of a large body of corporate case law in South Carolina. The 1981 act, for example, which was based primarily on the 1969 Model Act, did not include the Model Act provisions relating to dividends and other distributions approved by the American Bar Association Committee on Corporate Laws in 1979. The essence of the Model Act Provisions were adopted in Act 146 of 1985, but the many trailing amendments necessary to implement fully the new Model Act financial provisions were not enacted.
  Since the existing South Carolina Business Corporation Act already has most of the Model Act provisions, the 1984 Model Act is essentially a modernization, reorganization, simplification, and clarification of the present statute rather than a major change in substantive law. In fact, the study committee in several instances retained provisions in the existing South Carolina Business Corporation Act that were contrary to the Model Act, principally to avoid transition problems that might arise with respect to corporations already in existence before the new act becomes effective and legal questions that might arise when the Model Act language differed from the existing statute. As a result, the proposed act contains far fewer transition provisions than the acts in other states that have adopted, or are contemplating adoption of, the 1984 Model Act. Even with these modifications, the act being recommended is substantially the 1984 act, together with the 1984 Statutory Close Corporation and Professional Corporation Supplements in the Model Act. By adopting this act, South Carolina will have a statute that will place its corporate law in the mainstream of American corporate law, thereby benefiting existing and new businesses in South Carolina, creating an attractive legal climate for out-of-state businesses contemplating location of plants or other operations in South Carolina, and simplifying the task of lawyers and other corporate advisors.
  C. Summary of Major Substantive Changes
  There are a substantial number of substantive changes in the existing South Carolina Business Corporation Act. These changes are discussed in the South Carolina Reporters' Comments to each section. A brief summary of the most significant changes follows:
  1. The articles of incorporation, which is a basic corporate constituent document, have been simplified and significantly shortened. It will no longer be necessary to include a purPose clause, the names and addresses of the board of directors, or the par value of the shares. These items, however, can be included, if the incorporators wish to do so. In addition, the articles do not need to be verified.
  2. The provisions regulating corporate names have been liberalized. For example, a corporation will be able to use "company" or "Co." as part of its name.
  3. Many large corporations incorporated in South Carolina are authorized to include in their articles of incorporation a provision exempting outside directors from liability for simple negligence in certain types of damage suits against the directors brought by one or more of the corporation's shareholders. This provision, which is a modification of the statutes adopted in Delaware, is discussed in more detail in the South Carolina Reporters' Comments to Section 33-2-102 of this act.
  4. If a corporation's registered agent cannot be located, service of process can be made on the corporate secretary. Under existing law, service of process in this situation is made on the South Carolina Secretary of State, who then forwards the suit papers to the corporation.
  5. The requirements for foreign corporations to register in South Carolina have been simplified. This simplification is consistent with the changes made in the articles of incorporation (See paragraph 1).
  6. The new act eliminates the anachronistic concepts of stated capital, paid in capital, capital surplus, earned surplus, par value, and treasury shares.
  7. A corporation will be able to issue shares of stock that can be convertible into debt. Under current law, an upstream conversion, as this is called, is not possible except in the case of an installment redemption contract with a shareholder.
  8. A corporation will be able to issue shares for future services and notes. Under current law, a corporation can issue shares only for money or other property conveyed to the corporation, or for past services. This change will be helpful particularly to close corporations. Any shares issued for notes or future services must be held in escrow until the full consideration has been paid or the services contracted for have been performed.
  9. A provision specifically authorizing the most common types of share transfer restrictions used by corporations is included in the proposed act. There is no statute on this issue in the existing Business Corporation Act, and there is only one case that has dealt specifically with this issue.
  10. A new provision authorizing a corporation, some of whose shares are held by a nominee (usually a depository, brokerage firm, or bank trust department), to communicate directly with the beneficial owners of the shares is included in the new act. This provision will mainly benefit public companies.
  11. Under the new act, a resolution that requires a majority vote passes _if the shares voting in favor of the resolution outnumber the shares voting against the resolution. In other words, abstentions do not affect the outcome. Under the existing Business Corporation Act, the resolution passes only if the shares voting in favor of the resolution outnumber the shares voting against the resolution and the shares held by those shareholders who abstain. The new act is in line with most people's reasonable expectations.
  12. The new act contains specific limitations on the power of a board of directors to increase or decrease the size of the board.
  13. Supermajority voting rights are permitted without limitations but, in the case of supermajority shareholder voting rights, the right must be disclosed in the articles of incorporation. The existing statute allows supermajority voting rights to be included in both the articles of incorporation and the bylaws. A provision giving existing corporations that have supermajority voting rights in their bylaws two years to amend their articles of incorporation to comply with this new requirement is included in the proposed act.
  14. The ten-year limitation on voting agreements is eliminated. There is no public policy reason why such a limitation should be imposed by statute. If they wish, the shareholders can include a time limitation in a voting agreement.
  15. Derivative suits will be governed exclusively by Rule 23(b)(1) of the South Carolina Supreme Court Rules of Civil Procedure. Since this issue is covered by the Rules of Civil Procedure, there is no need to have a separate derivative statute in the corporate code.
  16. A new provision that specifically allows a corporation to include in the articles of incorporation a provision preventing removal of directors except for cause is included in the act.
  17. The procedure for approval of loans to directors has been changed and clarified.
  18. A corporation will be able to have any officers it wants. Under the existing Business Corporation Act, unless the articles of incorporation otherwise provide, a corporation just have a president, a vice-president, a secretary, and a treasurer.
  19. Shareholder inspection rights and rights to information about the corporation are broadened and strengthened. For example, every shareholder must receive an annual balance sheet and income statement, whereas under current law this financial information only needs to be sent if the shareholder makes a demand for it. In addition, under the new act, if the financial statement is not prepared in accordance with generally accepted accounting standards, the basis on which they were prepared must be stated in a letter from the president accompanying the statements.
  20. Several changes are made in the procedures and authority for the board of directors to make amendments to the bylaws without shareholder approval.
  21. There are several changes in the provisions regulating mergers and related transactions. For example, the form of merger traditionally known as a consolidation is eliminated as a separate form but is included in the definition of a statutory merger. One additional change worth noting in this summary is a new provision specifically authorizing a parent corporation to merge into one of its subsidiaries.
  22. Many significant changes were made in the dissenters' rights provisions. Some of the most important are:
  (a) Shareholders of corporations listed on a national exchange are given dissenters' rights.
  (b) Dissenting shareholders with preferred stock or other preferences will not be limited to receiving the amount they would receive if the corporation were liquidated.
  (c) The rights of beneficial owners. of shares to assert dissenters' rights is clarified.
  (d) A corporation must provide more information to dissenting shareholders than is required under the existing statute, including an explanation of how the value being offered was calculated.
  23. Several changes were made in the dissolution provisions. Perhaps the most significant are new provisions which strengthen the power of the Secretary of State to dissolve a corporation for failure to pay taxes or to file annual reports.
  24. A new form of corporation called a statutory close corporation is authorized. Any corporation is eligible to elect to become a statutory close corporation. The types of corporations that are most likely to choose this option are:
  (a) small, closely-held corporations, all or substantially all of whose shareholders are active in the business;
  (b) professional corporations that wish to operate with a partnership-management format; and
  (c) wholly-owned subsidiary corporations. Several innovative provisions are available to corporations that elect statutory close corporation status. For example, a statutory form of share transfer restrictions automatically applies, unless the articles of incorporation otherwise provide, and the shareholders can elect to have a statutory buy-out agreement, which authorizes a corporate purchase of the shares owned by a deceased shareholder, apply. In addition, no formal bylaws are necessary and annual shareholder meetings are not required unless requested by a shareholder. Moreover, the remedies provisions in the Statutory Close Corporation Supplement provide enhanced protection for minority shareholders against arbitrary or unconscionable conduct by controlling shareholders.
  25. The statutory provisions regulating professional corporations have been completely revised. The new provisions, which follow the Professional Corporation Supplement of the 1984 Model Act and replace the 1962 South Carolina Professional Association Act, are much more comprehensive than the existing statute. In addition, more flexibility is authorized. A professional association, for example, can use the designation "professional association", or "P.A.", "PA", "professional corporation", "P.C.", "PC", "service corporation", or "chartered" in its name; and it can engage in more than one professional service (e.g., architectural and engineering services) if the applicable licensing authorities authorize this joint practice. Centralized filing in the office of the Secretary of State instead of local filing in the office of the clerk of court will be required, but existing professional associations will be given two years to file their articles of incorporation with the Secretary of State. They also will have two years to make any amendments to their articles required by the new act.
  26. The filing and license fee structure has been revised. Many of the fees under the existing Business Corporation Act are based on the stated capital of the corporation, a concept that is eliminated. (See paragraph 7.) Under the new act, filing and license fees are uniform and are not dependent on the size of the corporation. The filing fees range from ten dollars to one hundred dollars, depending on the type of document, and the license fee that accompanies the annual report that is filed with the South Carolina Tax Commission is increased from ten dollars to twenty-five dollars, a figure that more accurately reflects the cost of processing the annual reports and providing information in that report to the public. Based on projections provided by the Secretary of State and the Tax Commission, the fees generated by the new act will be at least as great as those generated under the 1981 South Carolina Business Corporation Act.
  D. Recommendations
The study committee has two major recommendations:
  1. That the act as approved by the study committee be enacted by the General Assembly and become generally effective January 1, 1989; and
  2. That the 1984 Model Act Official Comments and the South Carolina Reporters Comments prepared for this study be included in the act and printed as part of the 1976 Code.
  Respectfully submitted, this eighteenth day of November, 1986. Members of the Study Committee: Professor Gregory B. Adams, Senator William E. Applegate, II, James G. Boyd, Senator James E. Bryan, Jr., Professor James R. Burkhard, Representative T Moffatt Burriss (ex officio), R. Wayne Byrd, C Alan Chapman, Robert L. Clement, Jr., Sherwood M. Cleveland, Senator John E. Courson, Thomas A. Evins, Elaine H. Fowler, M. Craig Garner, Jr., Professor John P. Freeman, Steve C. Griffith, Jr., Edward J. Hamilton, Jr., Steven W. Hamm, Henry Hammer, J. Drayton Hastie, Jr., Senator John C. Hayes, III, Professor Harry J. Haynsworth, Representative Joyce C. Hearn (ex officio), Robert H. Hodges, Jr., Senator Isadore E. Lourie, William W. Kehl, George S. King, Jr., Charles W. Knowlton, Senator John A. Martin, Representative Larry A. Martin (ex officio), R. David Massey, Edward C. Menzie, William W. Musser, D. Laurence McIntosh, Representative John William McLeod (ex officio), Senator Glenn F. McConnell, Julian J. Nexsen, Sr., Representative Derial L. Ogburn (ex officio), David A. Quattlebaum, III, F. Dean Rainey, Jr., Edward C. Roberts, David W. Robinson, Senator Edward E. Saleeby, Senator Ryan C. Shealy, Senator Thomas E. Smith, Jr., Chairman Augustine T. Smythe, Donald H. Stubbs, Robert W. Sullivan, Senator Nick A. Theodore, J. D. Todd, Jr., Karen J. Williams, Robert C. Wilson, Jr., and E. N. Zeigler. Members of the Business Advisory Committee: Jack Burnett, III, William Barnett, III, Gary M. Duncan, Sr., A. L. Hutchinson, Jr., George L. McDaniel, and James B. Murphy, Jr. Now, therefore,
Be it enacted by the General Assembly of the state of South Carolina
Citation
SECTION 1. Whenever "this act" appears in Section 2 of this act it means Chapters through 20 of Title 33 of the 1976 Code, and these chapters may be cited as the "South Carolina Business Corporation Act of 1988"
Copyright
  SECTION 1A. The copyright for the Official Comments to the 1984 Model Business Corporation Act is held by Law and Business, Inc., by and through its agent, the Clerk of the South Carolina Senate. The copyright for the South Carolina Reporters' Comments is held by the South Carolina Senate, by and through its agent, the Clerk of the South Carolina Senate. All rights are reserved. No claim of copyright is made for official South Carolina government statutes.
  The official comments to the 1984 Model Business Corporation Act and South Carolina Reporters' Comments contained herein may not be reproduced in whole or in part in any form or for inclusion in any material which is offered for sale without the express written permission of the Clerk of the South Carolina Senate. South Carolina Business Corporation Act of 1988
SECTION 2. Chapters 1 through 20 of Title 33 of the 1976 Code, as amended, are further amended to read:
"SOUTH CAROLINA BUSINESS CORPORATION ACT OF 1988
  TABLE OF CONTENTS
Chapter 1. General provisions
Article 1. Short title and reservation of power
Sec.
  33-1-101. Short title.
  33-1-102. Reservation of power to amend or repeal.
Article 2. Filing documents
Sec.
  33-1-200. Filing requirements.
  33-1-210. Forms.
  33-1-220. Filing, service, and copying fees.
  33-1-230. Effective time and date of filing.
  33-1-240. Correcting filed document.
  33-1-250. Filing duty of Secretary of State.
  33-1-260. Appeal from Secretary of State's refusal to file document.
  33-1-270. Evidentiary effect of copy of filed document.
  33-1-280. Certificate of existence.
  33-1-290. Penalty for signing false document.
Article 3. Secretary Or State
Sec.
  33-1-300. Powers.
Article 4. Definitions
Sec.
  33-1-400. Act definitions.
  33-1-410. Notice.
  33-1-420. Number of shareholders.
Chapter 2. Incorporation
Sec.
  33-2-101. Incorporators.
  33-2-102. Articles of incorporation.
  33-2-103. Incorporation.
  33-2-104. Liability for preincorporation transactions.
  33-2-105. Organization of corporation.
  33-2-106. Bylaws.
  33-2-107. Emergency bylaws.
Chapter 3. Purposes and Powers
Sec.
  33-3-101. Purposes.
  33-3-102. General powers.
  33-3-103. Emergency powers.
  33-3-104. Ultra vires.
Chapter 4. Name
Sec.
  33-4-101. Corporate name.
  33-4-102. Reserved name.
  33-4-103. Registered name
  33-4-104. Name change filing requirement when real property owned.
Chapter 5. Office and agent
Sec.
  33-5-101. Registered office and registered agent.
  33-5-102. Change of registered office or registered agent.
  33-5-103. Resignation of registered agent.
  33-5-104. Service on corporation.
Chapter 6. Shares and distributions
Article 1. Shares
Sec.
  33-6-101. Authorized shares.
  33-6-102. Terms of class or series determined by board of directors.
  33-6-103. Issued and outstanding shares.
  33-6-104. Fractional shares.
Article 2. Issuance of shares
Sec.
  33-6-200. Subscription for shares before incorporation.
  33-6-210. Issuance of shares.
  33-6-220. Liability of shareholders.
  33-6-230. Share dividends.
  33-6-240. Share options.
  33-6-250. Form and content of certificates.
  33-6-260. Shares without certificates.
  33-6-270. Restriction on transfer or registration of shares or other securities.
  33-6-280. Expense of issue.
Article 3. Subsequent acquisition of shares by shareholders and corporation
Sec.
  33-6-300. Shareholders' preemptive rights.
  33-6-310. Corporation's acquisition of own shares.
Article 4. Distributions
Sec.
  33-6-400. Distributions to shareholders.
Chapter 7. Shareholders
Article 1. Meetings
Sec.
  33-7-101. Annual meeting.
  33-7-102. Special meeting.
  33-7-103. Court-ordered meeting.
  33-7-104. Action without meeting.
  33-7-105. Notice of meeting.
  33-7-106. Waiver of notice.
  33-7-107. Record date.
Article 2. Voting
Sec.
  33-7-200. Shareholders' list for meeting.
  33-7-210. Voting entitlement of shares.
  33-7-220. Proxies.
  33-7-230. Shares held by nominees.
  33-7-240. Corporation's acceptance of votes.
  33-7-250. Quorum and voting requirements for voting groups.
  33-7-260. Action by single and multiple voting groups.
  33-7-270. Greater quorum or voting requirements.
  33-7-280. Voting for directors; cumulative voting.
Article 3. Voting trusts and agreements
Sec.
  33-7-300. Voting trusts.
  33-7-310. Voting agreements.
Article 4. Derivative proceedings
Sec.
  33-7-400. Procedure in derivative proceedings.
Chapter 8. Directors and Officers
Article 1. Board of directors
Sec.
  33-8-101. Requirement for and duties of board of directors.
  33-8-102. Qualifications of directors.
  33-8-103. Number and election of directors.
  33-8-104. Election of directors by certain classes of shareholders.
  33-8-105. Terms of directors generally
  33-8-106. Staggered terms for directors.
  33-8-107. Resignation of directors.
  33-8-108. Removal of directors by shareholders.
  33-8-109. Removal of directors by judicial proceeding.
  33-8-110. Vacancy on board.
  33-8-111. Compensation of directors.
Article 2. Meetings and action of board of directors
Sec.
  33-8-200. Meetings.
  33-8-210. Action without meeting.
  33-8-220. Notice of meeting.
  33-8-230. Waiver of notice.
  33-8-240. Quorum and voting.
  33-8-250. Committees.
Article 3. Standards of conduct
Sec.
  33-8-300. General standards for directors.
  33-8-310. Director or officer conflict of interest.
  33-8-320. Loans to directors.
  33-8-330. Liability for unlawful distributions.
Article 4. Officers
Sec.
  33-8-400. Required officers.
  33-8-410. Duties of officers.
  33-8-420. Standards of conduct for officers.
  33-8-430. Resignation and removal of officers.
  33-8-440. Contract rights of officers.
Article 5. Indemnification
Sec.
  33-8-500. Article definitions.
  33-8-510. Authority to indemnify.
  33-8-520. Mandatory indemnification.
  33-8-530. Advance for expenses.
  33-8-540. Court-ordered indemnification.
  33-8-550. Determination and authorization of indemnification.
  33-8-560. Indemnification of officers, employees, and agents.
  33-8-570. Insurance.
  33-8-580. Application of article.
Chapter 9. Reserved
Chapter 10. Amendment of articles of incorporation and bylaws
Article 1. Amendment of articles of incorporation
Sec.
  33-10-101. Authority to amend.
  33-10-102. Amendment by board of directors.
  33-10-103. Amendment by board of directors and shareholders.
  33-10-104. Voting on amendments by voting groups.
  33-10-105. Amendment before issuance of shares.
  33-10-106. Articles of amendment.
  33-10-107. Restated articles of incorporation.
  33-10-108. Amendment pursuant to reorganization.
  33-10-109. Effect of amendment.
Article 2. Amendment of bylaws
Sec.
  33-10-200. Amendment by board of directors or shareholders.
  33-10-210. Bylaw increasing quorum or voting requirement for shareholders
  33-10-220. Bylaw increasing quorum or voting requirement for directors.
Chapter 11. Merger and share exchange
Sec.
  33-11-101. Merger.
  33-11-102. Share exchange.
  33-11-103. Action on plan.
  33-11-104. Merger of subsidiary.
  33-11-105. Articles of merger or share exchange.
  33-11-106. Effect of merger or share exchange.
  33-11-107. Merger or share exchange with foreign corporation.
  33-11-108. Merger of parent into subsidiary.
Chapter 12. Sale of assets
Sec.
  33-12-101. Sale of assets in regular course of business and mortgage of assets.
  33-12-102. Sale of assets other than in regular course of business.
  33-12-103. 'Sale' defined.
Chapter 13. Dissenters' rights
Article 1. Right to dissent and obtain payment for shares
Sec.
  33-13-101. Definitions.
  33-13-102. Right to dissent.
  33-13-103. Dissent by nominees and beneficial owners.
Article 2. Procedure for exercise of dissenters' rights
Sec.
  33-13-200. Notice of dissenters' rights.
  33-13-210. Notice of intent to demand payment.
  33-13-220. Dissenters' notice.
  33-13-230. Shareholders' payment demand.
  33-13-240. Share restrictions.
  33-13-250. Payment.
  33-13-260. Failure to take action.
  33-13-270. After-acquired shares.
  33-13-280. Procedure if shareholder dissatisfied with payment or offer.
Article 3. Judicial appraisal of shares
Sec.
  33-13-300. Court action.
  33-13-310. Court costs and counsel fees.
Chapter 14. Dissolution
Article 1. Voluntary dissolution
Sec.
  33-14-101. Dissolution by incorporators or initial directors.
  33-14-102. Dissolution by board of directors and shareholders.
  33-14-103. Articles of dissolution.
  33-14-104. Revocation of dissolution.
  33-14-105. Effect of dissolution.
  33-14-106. Known claims against dissolved corporation.
  33-14-107. Unknown claims against dissolved corporation.
Article 2. Administrative dissolution
Sec.
  33-14-200. Grounds for administrative dissolution.
  33-14-210. Procedure for and effect of administrative dissolution.
  33-14-220. Reinstatement following administrative dissolution.
  33-14-230. Appeal from denial of reinstatement.
Article 3. Judicial dissolution
Sec.
  33-14-300. Grounds for judicial dissolution.
  33-14-310. Procedure for judicial dissolution.
  33-14-320. Receivership or custodianship.
  33-14-330. Decree of dissolution.
Article 4. Miscellaneous
Sec.
  33-14-400. Deposit with State Tax Commission.
Chapter 15. Foreign corporations
Article 1. Certificate of authority
Sec.
  33-15-101. Authority to transact business required.
  33-15-102. Consequences of transacting business without authority.
  33-15-103. Application for certificate of authority.
  33-15-104. Amended certificate of authority.
  33-15-105. Effect of certificate of authority.
  33-15-106. Corporate name of foreign corporation.
  33-15-107. Registered office and registered agent of foreign corporation.
  33-15-108. Change of registered office or registered agent of foreign corporation.
  33-15-109. Resignation of registered agent of foreign corporation.
  33-15-110. Service on foreign corporation
Article 2. Withdrawal
Sec.
  33-15-200. Withdrawal of foreign corporation.
Article 3. Revocation of certificate Or authority
Sec.
  33-15-300. Grounds for revocation.
  33-15-310. Procedure for and effect of revocation.
  33-15-320. Appeal from revocation.
Chapter 16. Records and Reports
Article 1. Records
Sec.
  33-16-101. Corporate records.
  33-16-102. Inspection of records by shareholders.
  33-16-103. Scope of inspection right.
  33-16-104. Court-ordered inspection.
Article 2. Reports
Sec.
  33-16-200. Financial statements for shareholders.
  33-16-210. Other reports to shareholders
  33-16-220. Annual report.
Chapter 17. Reserved
Chapter 18. Statutory Close Corporation Supplement
Article 1. Creation
Sec.
  33-18-101. Short title.
  33-18-102. Application of Business Corporation Act and Professional Corporation Supplement.
  33-18-103. Definition and election of statutory close corporation status.
Article 2. Shares
Sec.
  33-18-101. Notice of statutory close corporation status on issued shares.
  33-18-110. Share transfer prohibition.
  33-18-120. Share transfer after first refusal by corporation.
  33-18-130. Attempted share transfer in breach of prohibition.
  33-18-140. Compulsory purchase of shares after death of shareholder.
  33-18-150. Exercise of compulsory purchase right.
  33-18-160. Court action to compel purchase.
  33-18-170. Court costs and other expenses.
Article 3. Governance
Sec.
  33-18-200. Shareholder agreements.
  33-18-210. Elimination of board of directors.
  33-18-220. Bylaws.
  33-18-230. Annual meeting.
  33-18-240. Execution of document in more than one capacity.
  33-18-250. Limited liability.
Article 4. Reorganization and termination
Sec.
  33-18-300. Merger, share exchange, and sale of assets.
  33-18-310. Termination of statutory close corporation status.
  33-18-320. Effect of termination of statutory close corporation status.
  33-18-330. Shareholder option to dissolve corporation.
Article 5. Judicial supervision
Sec.
  33-18-400. Court action to protect shareholders.
  33-18-410. Ordinary relief.
  33-18-420. Extraordinary relief: share purchase&
  33-18-430. Extraordinary relief: dissolution
Article 6. Transition provisions
Sec.
  33-18-500. Application to existing corporations.
Chapter 19. Professional Corporation Supplement
Article 1. General provisions
Sec.
  33-19-101. Short title
  33-19-102. Application of South Carolina Business Corporation Act and Statutory Close Corporation Supplement.
  33-19-103. Supplement definitions.
Article 2. Creation
Sec.
  33-19-109. Election of professional corporation status.
  33-19-110. Purposes.
  33-19-120. General powers.
  33-19-130. Rendering professional services.
  33-19-140. Prohibited activities.
  33-19-150. Corporate name.
Article 3. Shares
Sec.
  33-19-200. Issuance of shares.
  33-19-210. Notice of professional corporation status on shares.
  33-19-220. Share transfer restriction.
  33-19-221. Attempted share transfer in breach of prohibition.
  33-19-230. Compulsory acquisition of shares after death or disqualification of shareholder.
  33-19-231. Option to purchase shares of a terminated shareholder.
  33-19-240. Acquisition procedures.
  33-19-250. Court action to appraise.shares.
  33-19-260. Court costs and fees of experts.
  33-19-270. Cancellation of disqualified shares.
Article 4. Governance
Sec.
  33-19-300. Directors and officers.
  33-19-310. Voting of shares.
  33-19-320. Confidential relationship.
  33-19-330. Privileged communications.
  33-19-340. Responsibility for professional services.
Article 5. Reorganization and termination
Sec.
  33-19-400. Merger.
  33-19-410. Termination of professional status.
  33-19-420. Judicial dissolution.
Article 6. Foreign professional corporations
Sec.
  33-19-500. Authority to transact business.
  33-19-510. Application for certificate of authority.
  33-19-520. Revocation of certificate of authority.
Article 7. Miscellaneous regulatory provisions.
Sec.
  33-19-600. Articles of incorporation for licensing authority.
  33-19-610. Annual qualification statement for licensing authority.
  33-19-620. Annual report.
  33-19-630. Rulemaking by licensing authority.
  33-19-640. Licensing authority's regulatory jurisdiction.
  33-19-650. Penalty for signing false document.
Article 8. Transition provisions
Sec.
  33-19-700. Application to existing professional corporations.
Chapter 20. Transition provisions
Sec.
  33-20-101. Application to existing domestic corporations.
  33-20-102. Application to qualified existing foreign corporations.
  33-20-103. Application to nonprofit corporations.
  33-20-104. Application of Chapters 18 and 19.
  33-20-105. Saving provisions.
  CHAPTER 1
General Provisions
Article 1. Short Title and Reservation of Power.
Article 2. Filing Documents.
Article 3. Secretary of State.
Article 4. Definitions.
  Article 1
Short Title and Reservation of Power
Sec.
  33-1-101. Short title.
  33-1-102. Reservation of power to amend or repeal.
Section 33-1-101. Citation of act.
Chapters 1 through 20 of Title 33 of the 1976 Code is known and may be cited as the 'South Carolina Business Corporation Act of 1988'.
CROSS REFERENCES
Application of act to existing domestic
  corporation, see Section 33-20-101.
Application of act to qualified existing foreign
  corporation, see Section 33-20-102.
Close corporations, see Statutory Close
  Corporation Supplement, Chapter 18.
Professional corporations, see Professional
  Corporation Supplement, Chapter 19.
Saving provisions, see Section 33-20-105.
OFFICIAL COMMENT
  The short title provided by section 1.01 (Section 33-1-101) creates a convenient name for the state's business corporation act.
  See the Introduction for a general description of the development of the Model Act, the purposes it is intended to serve, the principles under which the 1984 Revised Model Business Corporation Act was prepared, and the roles of the Cross References and Official Comments.
SOUTH CAROLINA REPORTERS' COMMENTS
  This section specifies that "the act" encompasses Chapters 1 through 20 of Title 33 of the 1976 Code. Chapters 1 through 18 of this act replace Act 146 of 1981, referred to in the South Carolina Reporters' Comments as the 1981 South Carolina Business Corporation Act, which in turn replaced Act 847 of 1962, referred to in these comments as the 1962 South Carolina Business Corporation Act. Chapter 19, which governs professional corporations, replaces Act 194 of 1962, codified as Chapter 51 of Title 33 of the 1976 Code, referred to in these comments as the 1962 South Carolina Professional Corporation Act.
  This act is derived from the 1984 Model Business Corporation Act (referred to in both the official and South Carolina reporters' comments as the "1984 Model Act" and sometimes as the ("Model Act"), promulgated by the American Bar Association Committee on Corporate Laws of the Section of Corporation, Banking and Business Law. The Official Comments following each section were approved by the Committee on Corporate Laws and are reproduced with permission. As is pointed out in the introduction to the 1984 Model Act, referred to in the second paragraph of the Official Comments to this section, the Official Comments describe the substantive decisions made in the drafting process and in many cases explain the meaning and purpose of the section.
  The South Carolina Reporters' Comments which follow each section were drafted as part of the preparation of this act by the Reporters to the Corporate Code Study Committee appointed in November, 1985, by Senator Marshall Williams of the Senate Judiciary Committee. These SouthCarolina Reporters' Comments explain the purpose of each section, the differences, if any, between the section and the 1981 South Carolina Business Corporation Act, and any differences between the section and the official text of the 1984 Act.
  The Official and South Carolina Reporters' Comments are intended to assist those who use and interpret this act to determine the intention of the drafters and the interrelationship between the various sections. As such, the comments serve the same function and purpose as the Comments to the Uniform Commercial Code, Title 36, of the 1976 Code. See *Farnsworth and Honnold, COMMERCIAL LAW (3rd ed., 1976), pp. 8 10. They can be useful particularly in a state like South Carolina because the State does not have a large body of corporate case law. The comments are not, however, part of the statutory law and, therefore, are not binding on any court or other adjudicatory body.
  The cross references following each section were prepared by the 1984 Model Act Reporter for the convenience of the user. These cross references, which have been modified by the South Carolina Reporters, are not exhaustive and are not a substitute for a careful review of the entire act when researching a corporate law issue.
  The Code section numbering system used in this act differs somewhat from the Model Act. Whenever the Official Comments mention a specific section number, the section number of the 1976 Code is placed beside it in parenthesis.
  The derivation clause following the South Carolina Reporters' Comments gives the 1984 Model Act section from which the section is derived. This enables persons researching corporate law issues to compare the South Carolina provisions with the Model Act Official Text and to obtain easy access to the section by section case and law review annotations in the Model Business Corporation Act Annotated (3rd ed., 1984). No.
DERIVATION: 1984 Model Act Section 1.01.
  Section 33-1-102. Reservation of power to amend or repeal.
  The General Assembly of South Carolina has power to provide regulations regarding this act and to amend or repeal all or any part of this act or its regulations at any time; and all domestic and foreign corporations subject to this act are governed by the amendment or repeal.
CROSS REFERENCES
  Application of act to existing domestic
corporation, see Section 33-20-101.
Application of act to existing qualified foreign
corporation, see Section 33-20-102.
Saving provisions, see Section 33-20-105.
OFFICIAL COMMENT
  Provisions similar to section 1.02 (Section 33-1-102) have their genesis in Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat) 518 (1819), which held that the United States Constitution prohibited the application of newly enacted statutes to existing corporations while suggesting the efficacy of a reservation of power similar to section 1.02 (Section 33-1-102). The purpose of section 1.02 (Section 33-1-102) is to avoid any possible argument that a corporation has contractual or vested rights in any specific statutory provision and to ensure that the state may in the future modify its corporation statutes as it deems appropriate and require existing corporations to comply with the statutes as modified.
  All articles of incorporation or certificates of authority granted under the Model Act are subject to the reservation of power set forth in section 1.02 (Section 33-1-102). Further, corporations "governed" by this Act - which includes all corporations formed or qualified under earlier, general incorporation statutes that contain a reservation of power - are also subject to the reservation of power of section 1.02 (Section 33-1-102) and bound by subsequent amendments to the Act.
  Many states have constitutional provisions mandating the reservation of power to amend or modify corporate statutes and charters. In these states section 1.02 (Section 33-1-102) is also supported by specific constitutional authorization.
SOUTH CAROLINA REPORTERS' COMMENTS
  1. History
In 1841 the Legislature passed Act 2846 which provided in Section *XLI:
  "XLI. Be it further enacted, That it shall become part of the charter of every corporation, which shall at the present, or any succeeding session of the General Assembly, receive a grant of a charter, or any renewal, amendment or modification thereof, (unless the Act granting such charter, renewal, amendment or modification, shall in express terms except it,) that every charter of incorporation granted, renewed, or modified, as aforesaid, shall at all times remain subject to amendment, alteration or repeal, by the Legislative authority." (Reported in XI Statutes at Large of S.C. 177, Republican Print. Co. 1873) This act was adopted pursuant to the authority of Article VIII, Section 2, of the Constitution of 1790, which provided:
  "The rights, privileges, immunities and estates of both civil and religious societies, and of corporate bodies, shall remain as if the Constitution of this State had not been altered or amended."
(This language was adopted verbatim as Article VIII, Section 2, of the Constitution of 1861.) Upon adoption of the Constitution of 1868 which eliminated the need for special chartering of corporations by the Legislature, and stated at Article XII, Section 1, that "corporations may be formed under general laws, but all such laws may from time to time be altered or repealed," the legislature thereupon changed the language of the prior act in adopting Act 288, 19 Statutes of South Carolina, 546, Section 21 (1886), which stated:
  "It shall be deemed a part of the charter of every corporation created under the provisions of any general law, and of every charter granted, renewed or amended by Act or Joint Resolution of the General Assembly, (unless such Act or Joint Resolution shall, in express terms, declare the contrary,) that such charter, and every amendment and renewal thereof, shall always remain subject to amendment, alteration or repeal by the General Assembly."
  This "reserved power to amend" provision was codified in 1902 as S.C. Code Ann. Section 1842 (State Company, 1902). The identical language was carried forward through various subsequent codifications, namely: S.C. Code Ann. Section 2783 (Michie, 1912); S.C. Civil Code Section 4250 (R.L. Bryan, 1922); S.C. Code Ann. Section 7676 (Michie, 1932); S.C. Code Ann. Section 7676 (Jacobs Press, 1942); S.C. Code Ann. Section 12-401 (Michie, 1952); and S.C. Code Ann. Section 12-401 (Michie, 1962).
  Effective January 1, 1964, the language of the reserved powers section was changed slightly to read:
  "Section 12-11.9. Reservation of power by General Assembly.-The General Assembly of South Carolina reserves at all times the power and right:
(a) to prescribe, as it may deem advisable, regulations, provisions, limitations, and requirements which shall be binding upon any and all corporations, domestic and foreign, subject to the provisions of chapters 1.1 to 1.14 of this Title, and
(b) to amend, repeal, or modify chapters 1.1 to 1.14 of this Title, in whole or in part, at pleasure. ( 1962 (52) 1996. )"
S.C. Code Ann. Section 12-11.9 (Michie, 1975 Supplement).
  This language was again codified as Section 33-1-90 in the 1976 Code and has been in place until the adoption of this act.
  Article IX, Section 2, of the Constitution of 1895, which remained in place until 19f 1, contained the following enabling language:
  "Section 2. No charter of incorporation shall be granted, changed or amended by special law, except in the case of such charitable, educational, penal or reformatory corporations as may be under the control of the State, or may be provided for in this Constitution, but the General Assembly shall provide by general laws for changing or amending existing charters, and for the organization of all corporations hereafter to be created, and any such law so passed, as well as all charters now existing or hereafter created, shall be subject to future repeal or alteration: Provided, That the General Assembly may by a two-thirds vote of each house on a concurrent resolution allow a Bill for a special charter to be introduced, and when so introduced may pass the same as other Bills."
  In 1971, the phrase "any such law [relating to corporations] so passed as well as all [corporate] charters now existing or hereafter created shall be subject to future repeal or alteration" was deleted.
  In spite of this deletion, there would not seem to be any implication that the Legislature no longer has the constitutional right to adopt amended statutes that may modify existing rights, duties, and responsibilities of corporations, shareholders, directors, and officers. Article IX, Section 2, of the Constitution continues to provide that the General Assembly shall adopt statutes governing corporations, and implicit within this grant is the power to amend. Since the corporate code, even before this constitutional amendment, always has mentioned the Legislature's reserved power to amend, there should be no question that this reserved power is an existing provision of all corporate charters adopted since 1841, as if it were written therein.
  As early as 1878, the United States Supreme Court in Hoge v. Richmond and D.R.R. 99 U.S. 348 (1878) recognized the right of the South Carolina Legislature to change the provisions regulating a corporation's charter, and that such reserved power was a provision of each charter as if it had been specifically set forth in the charter.
  A description of other cases dealing with the State's reserved power to amend these statutes and thus modify existing corporate charters is collected in the Code volumes containing the South Carolina Constitution at Article IX, Section 2. See e.g., Witt v. Peoples State Bank 166 S.C. 1, 164 S.E. 306 (1932) (charters of state banks are subject to the state's reserved powers).
  2. Non-Model Act Provision
  The South Carolina statute, different from the Model Act, retains the language in the 1981 South Carolina Business Corporation Act giving the Legislature the power to adopt regulations regarding the act.
DERIVATION: 1984 Model Act Section 1.02.
Article 2
Filing Documents
Sec.
  33-1-200. Filing requirements.
  33-1-210. Forms.
  33-1-220. Filing, service, and copying fees.
  33-1-230. Effective time and date of filing.
  33-1-240. Correcting filed document.
  33-1-250. Filing duty of Secretary of State.
  33-1-260. Appeal from Secretary of State's refusal to file document.
  33-1-270. Evidentiary effect of copy of filed document.
  33-1-280. Certificate of existence.
  33-1-290. Penalty for signing false document.
Section 33-1-200. Filing requirements.
  (a) A document must satisfy the requirements of this section, and of any other section that adds to or varies from these requirements, to be entitled to filing by the Secretary of State.
  (b) This act must require or permit filing the document in the office of the Secretary of State.
  (c) The document must contain the information required by the act. It may contain other information as well.
  (d) The document must be typewritten or printed.
  (e) The document must be in the English language. A corporate name need not be in English if written in English letters or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.
  (f) The document must be executed:
(1) by the chairman of the board of directors of a domestic or foreign corporation, or by its president, or by another of its officers;
(2) if directors have not been selected or the corporation has not been formed, by an incorporator; or
(3) if the corporation is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
  (g) The person executing the document shall sign it and state beneath or opposite his signature his name and the capacity in which he signs. The document may but need not contain:
(1) the corporate seal, (2) an attestation by the secretary or an assistant secretary, and (3) an acknowledgment, verification, or proof.
  (h) If the Secretary of State has prescribed a mandatory form for the document under Section 33-1-210, the document must be in or on the prescribed form.
  (i) The document must be delivered to the office of the Secretary of State for filing and must be accompanied by one exact or conformed copy (except as provided in Sections 33-5-103 and 33-15-109), the correct filing fee, and any franchise tax, license fee, or penalty required by the act or other law.
CROSS REFERENCES
Certificate of existence for foreign corporation, see Section 33-15-103.
Corporate name, see Chapter 4 and Section 33-15-106.
Correcting filed document, see Section 33-1-240. "Deliver" includes mail, see Section 33-1-400. Effective time and date of filing, see Section 33-1-230.
Filing fees, see Section 33-1-220.
Forms, see Section 33-1-210.
Penalty for filing false document, see Section 33-1-290.
Secretary of corporation, see Section 33-1-400.
Secretary of State's filing duty, see Section 33-1-250.
OFFICIAL COMMENT
  Section 1.20 (Section 33-1'200) standardizes the filing requirements for all: documents required or permitted by the Model Act to be filed with the secretary of state. In a few instances, other sections of the Act impose additional requirements which must also be complied with if the document in question is to be filed. Section 1.20 (Section 33-1-200) relates only to documents which the Model Act expressly requires or permits to be filed with the secretary of state; it does not authorize or direct the secretary of state to accept or reject for filing other documents relating to corporations and does not treat documents required or permitted to be filed under other statutes.
  The purposes of the filing requirements of chapter 1 are: (1) to simplify the filing requirements by the elimination of formal or technical requirements that serve little purpose, (2) to minimize the number of pieces of paper to be processed by the secretary of state, and (3) to eliminate all possible disputes between persons seeking to file documents and the secretary of state as to the legal efficacy of documents.
The requirements of section 1.20 (Section 33-1-200) may be summarized as follows:
1. FORM
  To be eligible for filing, a document must be typed or printed and in the English language (except to the limited extent permitted by section 1.20(e) (Section 33-1-200(e)). The secretary of state is not authorized to prescribe forms (except to the extent permitted by section 1.21 (Section 33-1-210)) and as a result may not reject documents on the basis of form (see section 1.25 (Section 33-1-250)) if they contain the information called for by the specific statutory requirement and meet the minimal formal requirements of this section.
2. EXECUTION
  To be filed a document must simply be executed by a corporate officer. Section 1.21(f) (Section 33-1-210(f)). No specific corporate officer is designated as the appropriate officer to sign though the signing officer must designate his office or the capacity in which he signs the document. Among the officers who are expressly authorized to sign a document is the chairman of the board of directors, a choice that may be appropriate if the corporation has a board of directors but has not appointed officers. If a corporation has not been formed or has neither officers nor a board of directors, an incorporator may execute the document.
  The requirement in earlier versions of the Model Act and in many state statutes that documents must be acknowledged or verified as a condition for filing has been eliminated. These requirements serve little purpose in connection with documents filed under corporation statutes. (See in this connection section 1.29 (Section 33-1-290), which makes it a criminal offense for any person to sign a document for filing with knowledge that it contains false information.) On the other hand, many organizations, like lenders or title companies, may desire that specific documents include acknowledgements, verifications, or seals; section 1.21(g) (Section 33-1-210(g)) therefore provides that the addition of these forms of execution does not affect the eligibility of the document for filing.
3. CONTENTS
  A document must be filed by the secretary of state if it contains the information required by the Model Act. The document may contain additional information or statements and their presence is not ground for the secretary of state to reject the document for filing. These documents must be accepted for filing even though the secretary of state believes that the language is illegal or unenforceable. In view of this very limited discretion granted to secretaries of state under this section, section 1.25(d) (Section 33-1-250(d)) defines the secretary of state's role as "ministerial" and provides that no inference or presumption arises from the fact that the secretary of state accepted a document for filing. See the Official Comments to sections 1.25 (Section 33-1-250) and 1.30 (Section 33-1-300).
4. NUMBER OF COPIES
  Section 1.20(i) (Section 33-1-200(i)) requires that a document filed with the secretary of state must be accompanied by "one exact or conformed copy." The requirement in early versions of the Model Act and in many state statutes that "duplicate originals" (each being executed as an original document) be submitted has been eliminated. Under section 1.20(i) (Section 33-1-200(i)) an "exact" copy is a reproduction of the executed original document by photographic or xerographic process; a "conformed" copy is a copy on which the existence of signatures is entered or noted on the copy. The substitution of exact or conformed copies for duplicate originals reflects advances in the art of office copying machines that permit the routine reproduction of exact copies of executed documents. However, a person submitting "duplicate originals" meets the requirement of this section since the secretary of state may treat the duplicate original as a "conformed copy." The reasons for requiring an exact or conformed copy of a filed document to accompany the signed original, and the processing of these documents by the secretary of state, are discussed in the Official Comment to section 1.25 (Section 33-1-250).
SOUTH CAROLINA REPORTERS' COMMENTS
  1. This provision contains the mechanical requirements for preparing various documents. It is similar to Sections 33-1-40 through 33-1-70, 33-7-30, and 33-7-40 of the 1981 South Carolina Business Corporation Act.
  2. Content of Filed Documents
Nothing in this section specifies the content of the various documents required or permitted to be filed. For these substantive requirements, please see:
  Section 33-1-280. Certificate of existence (good standing).
  Section 33-2-102. Contents of the articles of incorporation.
  Section 33-4-102. Reserved name.
  Section 33-5-102. Change of registered agent.
  Section 33-10-106. Articles of amendment.
  Section 33-11-105. Articles of merger or share exchange.
  Section 33-14-103. Articles of dissolution.
  Section 33-15-103. Application for certificate of authority.
  Section 33-15-108. Change of registered office of foreign corporation.
  Section 12-19-20. Annual report.
3. Mechanical Provisions
  Subsection (a) is similar to Section 33-1-60(a) of the 1981 South Carolina Business Corporation Act. It establishes the requirements as to the form and method of execution for a document to be filed with the Secretary of State. This provision, as its predecessors, has no application for executing other documents such as a corporate deed. Subsection (b) is new but is merely ministerial. Subsection (c) is new and adds explicit language that a document may contain additional information. This may be important particularly in filing articles which include nonstandard provisions.
  All filed documents must be typed (printed) and be in English. Although prior law was not specific on these provisions, these requirements were implied and certainly reflect existing custom. One original and a conformed or "xerox" copy still must be filed. See Section 33-1-200(i).
4. Who May Execute
  Under prior law, provision was made for directors and shareholders to execute documents for filing (see Section 33-1-40(b)(2)(B), (C), and (D) of the 1981 South Carolina Business Corporation Act). This power or right has been deleted. Further, the revision anticipates that after incorporation the chairman of the board, rather than the president, may be the primary responsible officer for executing documents. Many corporations will not normally have a chairman of the board. Therefore, this section clarifies the Model Act provision in stating that the president or other appropriate officer has the right and power to execute documents for filing. With domestic South Carolina corporations, it is more likely that most filings will be signed by the president. The new law adds the power of a court-appointed fiduciary to execute documents.
  In keeping with prior law, the person must sign his name, presumably in ink as has always been the custom (Section 33-1-40(b) of the 1981 South Carolina Business Corporation Act), and designate his capacity either opposite, or "below", his name (subsection (g)).
5. Verification
  Although documents such as the articles of incorporation previously required a verification, and other documents required an attestation, neither step is now required for filing any document (new subsection (g)). Thus, Section 33-1-50 of the 1981 South Carolina Business Corporation Act which sets forth the steps required to verify has been deleted.
  The optional verification now means whatever the corporation desires. A verification can be included in any filed document (Section 33-1-200(c) and (g)). Companies are not required to but may follow the prior procedure of having a certificate signed by each person who executed the document, which certificate would verify that each signer:
  (1) has read and understands the meaning and purport of the statements contained in the document;
  (2) asserts that the statements are true or he is informed or believes that the statements are true;
  (3) has signed the document, and, in case of one signing in a representative capacity, that he had the authority so to sign.
6. Seal
  Under both the new subsection (g) and prior law, the use of the corporate seal is optional (see Section 33-1-70 of the 1981 South Carolina Business Corporation Act). Under prior law, if it was affixed to a document, this was prima facie evidence that the document was executed by proper corporate authority. This no longer will be the case.
  It seems unlikely that the removal of this presumption will have any negative effect on title searching, (where abstractors are more likely to rely on "certified" minutes) or in the introduction of corporate documents in litigation. These would seem to be the only areas which previously might have benefitted by this presumption.
7. Technical Deletions
  Many obvious steps, previously set forth in the statute, such as comparing the original and conformed copy and returning the copy, are deleted as unnecessary (Section 33-1-60(a)(3) through (5) of the 1981 South Carolina Business Corporation Act). A title for each document is no longer required (Section 33-1-40(d) of the 1981 South Carolina Business Corporation Act), and no longer must the address of the current registered office be included with each filed document.
8. Local Filing of Name Changes
  Although for years there has been no requirement that the articles or other corporate documents be filed with a local office [see Folk, Reconsiderations and Prospects 15 S.C.L. Rev. 467, 469-471 (1963)1, Section 33-1-60(a)(6) of the 1981 South Carolina Business Corporation Act provided that any corporate name change for any corporation owning real property had to be filed in the register of mesne conveyances office in order to provide notice to subsequent purchasers. This requirement is being continued and is set forth as Section 33-4-104. This filing requirement applies where the corporation simply changes its name, or where the name change is the result of a merger, share exchange, or reorganization.
DERIVATION: 1984 Model Act Section 1.20.
Section 33-1-210. Forms.
  (a) The Secretary of State may prescribe and furnish on request forms for: (1) an application for a certificate of existence, (2) a foreign corporation's application for a certificate of authority to transact business in this State, (3) a foreign corporation's application for a certificate of withdrawal, and
(4) in conjunction with the Tax Commission, the annual report. If the Secretary of State so requires, use of these forms is mandatory. The Secretary of State, through regulation, may prescribe a mandatory form in regard to any other forms required or permitted by this act to be filed in his office. All such mandatory forms must comply with all statutory requirements contained in this act.
  (b) The Secretary of State may prescribe and furnish on request forms for other documents required or permitted to be filed by this act but their use is not mandatory.
CROSS REFERENCES
Annual report, see Sections 33-16-220 and 12-19-20.
Application for certificate of authority, see Section 33-15-103.
Application for certificate of withdrawal, see Section 33-15-200.
Certificate of existence, see Section 33-1-280.
Effective time and date of filing, see Section 33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
OFFICIAL COMMENT
  As described in the Official Comment to section 1.20 (Section 33-1-200), documents are entitled to filing under the Model Act if they meet the substantive and formal requirements of the Act; they may also contain additional information if the person submitting the document so elects. See the Official Comments to sections 1.20 (Section 33-1-200) and 1.25 (Section 33-1-250). In these circumstances it is not appropriate to vest the secretary of state with general authority to establish mandatory forms for use under the Model Act. Certain types of reports and requests for documents may be processed efficiently only if uniform forms are prescribed by the secretary of state. Certificates of existence, for example, should require specific information located at specific places on the form; similarly, processing of large-volume, largely routine filings is expedited if standardized forms are required. Also, the disclosure requirements of the annual report may be administered on a systematic basis if a standardized form is mandated. Section 1.21(a)(Section 33-1-210(a)) recognizes that these considerations may exist in limited cases, and expressly enumerates those forms for which the secretary of state is authorized to establish mandatory forms.
Section 1.21(b) (Section 33-1-210(b)) authorizes (but does not require) the secretary of state to prepare forms suitable for use for other documents required or permitted to be filed under the Act. However, the use of these forms is permissive and cannot be required by the secretary of state.
SOUTH CAROLINA REPORTERS' COMMENTS
  Although under the previous law there was no explicit statutory authority for the Secretary of State to promulgate required forms, the Secretary has developed mandatory forms and in the past has developed a form of annual report. These forms have been routinely used, and making their use mandatory by statute will merely continue existing policy.
  Different from the Model Act, this Section 33-1-210 permits the Secretary of State to adopt by regulation other mandatory forms. Any such additional form, such as a required articles of incorporation format, will be valid only if it meets all the requirements of this act. The need for standardization is important primarily in regard to simplifying the review process and facilitating the clerical processing of the various applications. The Secretary of State's office will be able to review more quickly and then file documents if standard forms are used. This will save time for South Carolina corporations and make the Secretary of State's office more efficient. There is little risk that any additional forms might not be sufficiently flexible to meet a particularly unique need, since Section 33-1-200(c) states that any filed document may contain any additional information which the client desires. By requiring that any future mandatory forms be promulgated through the regulation process, lawyers and affected corporations will have an opportunity to raise any concern that the proposed forms might either not meet statutory requirements or might cause practical problems (or both).
DERIVATION: 1984 Model Act Section 1.21.
Section 33-1-220. Filing, service, and copying fees.
  (a) The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him for filing:
DOCUMENTATION                                                       FEE
(1) Articles of incorporation                                     $10.00.
(2) Application for use of indistinguishable name                 $10.00.
(3) Application for reserved name                                 $10.00.
(4) Notice of transfer of reserved name                             $3.00.
(5) Application for registered name                               $10.00.
(6) Application for renewal of registered name                     $10.00.
(7) Corporation's statement of change of registered
agent or registered office or both                                 $10.00.
(8) Agent's statement of change of registered office
for each affected corporation                                       $2.00.
(9) Agent's statement of resignation                               $3.00.
(10) Amendment of articles of incorporation                       $10.00.
(11) Restatement of articles of incorporation with
amendment of articles                                             $10.00.
(12) Articles of merger or share exchange                         $10.00.
(13) Articles of dissolution                                       $10.00.
(14) Articles of revocation of dissolution                         $10.00.
(15) Certificate of administrative dissolution                     No fee.
(16) Application for reinstatement following
administrative dissolution                                         $25.00.
(17) Certificate of reinstatement                                 No fee.
(18) Certificate of Judicial dissolution                           No fee.
(19) Application for certificate of authority                     $10.00.
(20) Application for amended certificate of authority             $10.00.
(21) Application for certificate of withdrawal                     $10.00.
(22) Certificate of revocation of authority to transact business   No fee.
(23) Annual report - as provided in Section 12-19-20               Fee Paid To Tax Commission
(24) Articles of correction                                       $10.00.
(25) Application for certificate of existence or authorization     $2.00.
(26) Any other document required or permitted to be filed
by this act                                                       $10.00.
  (b) The Secretary of State shall collect a fee of ten dollars each time process is served on him under this act. The party to a proceeding causing service of process is entitled to recover this fee as costs if he prevails in the proceeding.
  (c) The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign corporation:
(1) for copying, one dollar for the first page and fifty cents for each additional page; and
(2) two dollars for the certificate.
  (d) Before filing any of the following documents, the Secretary of State shall collect the following taxes which shall be remitted to the State Treasurer for use of the State:
(1) articles of incorporation, one hundred dollars;
(2) amendment to articles of incorporation, one hundred dollars;
(3) articles of merger or share exchange, one hundred dollars;
(4) application by a foreign corporation for a certificate of authority to do business in South Carolina, one hundred dollars;
(5) amendment by a foreign corporation of its certificate of authority, one hundred dollars.
CROSS REFERENCES
Agent's change of registered office, see Section 33-5-102.
Agent's resignation, see Section 33-5-103.
Amended certificate of authority, see Section 33-15-104.
Amendment of articles of incorporation, see Sections 33-6-103, 33-6-310, 33-10-106, and 33- 10-108.
Annual report, see Section 33-16-220.
Certificate of authority, see Section 33-15-103.
Certificate of withdrawal, see Section 33-15-200.
Corporation's change of registered agent or office, see Section 33-5-102.
Correction, see Section 33-1-240.
Dissolution:
  administrative, see Section 33-14-210.
  judicial, see Section 33-14-320.
  reinstatement, see Section 33-14-220.
  revocation, see Section 33-14-104.
  voluntary, see Sections 33-14-101 and 33-14-103.
Evidentiary effect of certified copy, see Section 33-1-270.
Existence, see Section 33-1-280.
  Incorporation, see Section 33-2-101.
  Merger, see Section 33-11-105.
  Name of corporation, see Section 33-4-101.
  Registered name, see Section 33-4-103.
  Renewal of registered name, see Section 33-4-103.
  Reserved name, see Section 33-4-102.
  Restatement of articles of incorporation, see Section 33-10-107.
  Revocation of certificate of authority, see Section 33-15-310.
  Service on Secretary of State, see Sections 33-11-107, 33-15-200, and 33-15-310.
  Share exchange, see Section 33-11-105.
  Transfer of registered name, see Section 33-4-103.
OFFICIAL COMMENT
  Section 1.22 (Section 33-1-220) establishes in a single section the filing fees for all documents that may be filed under the Model Act. The dollar amounts for each document should be inserted by each state as it adopts the Act.
  The list of documents in section 1. 22 (Section 33-1-220) includes all documents that are authorized to be filed with the secretary of state under the Model Act. The catch-all in subdivision (26) will apply to any document for which a state does not establish a specific filing fee plus any document that later amendments to the statute may authorize or direct be filed with the secretary of state without establishing a specific filing fee.
  Subdivision (9) states that no fee is applicable to filing the resignation of a registered agent. This provision permits a person who is named as a registered agent without his consent, or who agrees to serve as registered agent for a fee and the fee is not paid, to eliminate any reference to himself in the records of the secretary of state without expense.
  Subdivision (8) contains a maximum fee for filing a change of address of a registered agent. Since corporation service companies serve as registered agents for thousands of corporations in many jurisdictions, their change of address may require a very large number of filings. Hence, the fee is broadly based on the number of corporations affected but a maximum fee is specified to reflect that as the number of changes increases the cost per change should decrease.
  Sections 11.07 (Section 33-11-107), 15.20 (Section 33-15-200), and 15.31 (Section 33-15-310) require the secretary of state to serve process on foreign corporations under the circumstances there specified. The fee for this service is set forth in section 1.22(b) (Section 33-1-220(b)).
  Section 1.22(c) (Section 33-1-220(c)) establishes standard fees for copying filed documents and certifying that copies are true copies under section 1.27(Section 33-1-270).
SOUTH CAROLINA REPORTERS ' COMMENTS
  1. Different from the prior law, the filing fee for most documents is ten dollars.
Many of the separately stated fees (Section 33-20-10 of the 1981 South Carolina Business Corporation Act) have been combined.
  2. Fees Deleted
The only previous fees specified in Section 33-20-10 of the 1981 South Carolina Business Corporation Act which no longer are provided for are: filing amended articles of a foreign corporation; application upon death or incapacity of agent; notice of revocation of appointment; notice of resignation of nonresident director; change in nonresident directors; statements regarding series, or retirement of, shares and reduction of capital; statement that any surviving merged corporation is foreign; statement of intent to dissolve; application for reinstatement; and notice of termination of existence of foreign corporation.
  3. New Fees
If an agent for many corporations changes its address, it shall pay a fee of two dollars for each represented company. South Carolina did not adopt the 1984 Model Act Official Text which recommends a total dollar limit on the fee when the agent represents multiple corporations. If the articles are corrected the usual ten-dollar fee is charged (new paragraph (24)), and if a certificate of existence is issued, this will cost two dollars (new paragraph (25)).
  4. Taxes
Under the 1981 South Carolina Business Corporation Act, the Secretary of State collected a one-time tax based on the company's authorized stated capital. Since stated capital no longer has any significance, and since most all domestic corporations could structure their capital in such a way as to pay the minimum, the new law imposes a one hundred-dollar tax for the filing of any articles, any amended articles, or for articles of merger, consolidation, or exchange.
  Although it might have been possible to have continued to base the amount of filing tax by computing the amount of stated capital, the company would have had under the prior law, such did not seem very pragmatic. (See Lyles v. McCown, 82 S.C. 127, 63 S.E. 355 (1909) allowing the amount of fees to be based on the provisions of a repealed statute.)
  In addition, a one-time tax of one hundred dollars is levied when a foreign corporation qualifies to do business in this State, or when it amends its certificate of authority.
  Fixing a flat tax for each transaction avoids problems such as occurred in Pacolet Mfg. Co. v. Gantt, 68 S.C. 199, 46 S.E. 1005 (1909). In that case, the court, under a prior tax law, held that a fee to increase a company's capital was authorized and permissible even though the company would have paid a smaller fee if the amount of total capitalization had been set forth in its original application.
  These taxes are not part of the Model Act but follow in concept Section 33-29-30 of the 1981 South Carolina Business Corporation Act.
  5. Initial Report
In addition to the above fees and taxes, all domestic and foreign corporations authorized to transact business in South Carolina must file an initial annual report with the South Carolina Tax Commission at the time the articles of incorporation (or, in the case of a foreign corporation, at the time the application for authority to transact business in South Carolina) is filed. The filing fee for this report is twenty-five dollars. See Section 12-19-20 of the 1976 Code and the South Carolina Reporters' Comments to Section 33-16-220.
DERIVATION: 1984 Model Act Section 1.22.
Section 33-1-230. Effective time and date of document.
  (a) Except as provided in subsection (b) of this section and Section 33-1-240(c), a document accepted for filing is effective:
(1) at the time for filing on the date it is filed, as evidenced by the Secretary of State's date and time endorsement on the original document; or
(2) at the time specified in the document as its effective time on the date it is filed.
  (b) A document may specify a delayed effective time and date, and if it does so the document becomes effective at the time and date specified. If a delayed effective date but no time is specified, the document is effective at the close of business on that date. A delayed effective date for a document may not be later than the ninetieth day after the date it is filed
CROSS REFERENCES
Effective date:
  amendment or restatement of articles of incorporation, see Section 33-10-109.
  merger or share exchange, see Section 33-11-105.
  voluntary dissolution, see Section 33-14-103.
  Filing duty of Secretary of State, see Section 33-1-250.
  Filing fees, see Section 33-1-220.
  Filing requirements, see Section 33-1-200.
OFFICIAL COMMENT
  Section 1.23(a) (Section 33-1-230(a)) provides that documents accepted for filing become effective at the time and date of filing, or at another specified time on that date, unless a delayed effective date is selected under section 1.23(b) (Section 33-1-230(b)). This section gives express statutory authority to the common practice of most secretaries of state of ignoring processing time and treating a document as effective as of the date it is submitted for filing even though it may not be reviewed and accepted for filing until several days later.
  Section 1.23(a) (Section 33-1-230(a)) requires secretaries of state to maintain a date and time stamp for recording the receipt of documents and provides that documents become effective at the stamped time on the date of filing. This provision should eliminate any doubt about situations involving same-day transactions in which documents, for example articles of merger, are filed on the morning of the date the merger is to become effective. Section 1.23(a) (Section 33-1-230(a)) contemplates that the time of filing, as well as the date, will be routinely recorded.
  Section 1.23(b) (Section 33-1-230(b)) provides an alternative method of establishing the effective date of a document. The document itself may fix as its effective date any date within 90 days after the date it is filed; it may also fix the time it becomes effective on that date. If no time is specified, the document becomes effective as of the close of business on the specified date. The Model Act also allows the effective date fixed in a document to be corrected to a limited extent. See the Official Comment to section 1.24 (Section 33-1-240).
  Section 1.23(b) (Section 33-1-230(b)) does not authorize or contemplate the retroactive establishment of an effective date before the date of filing.
SOUTH CAROLINA REPORTERS' COMMENTS
  The new law is similar to the provisions of Section 33-1-60(a)(3) and (b) plus Section 33-7-30(f) of the 1981 South Carolina Business Corporation Act. Some provisions previously included in prior Section 33-1-60 are now included in new Section 33-1-200.
  Subsection (a)(2) adds the provision that a document can be effective at any time on the day that it is filed. In regard to documents that are to be effective some days after they are filed, subsection (b) only permits a maximum ninety-day delay and specifies the mechanism for establishing the time of day the document is to be effective. The 1981 South Carolina Business Corporation Act had no restriction on how long of a delay the document could specify.
  Section 33-1-60(b) of the 1981 South Carolina Business Corporation Act provided that the filing of a document with a delayed effective date would not affect the company's right to abandon any plan, merger, consolidation, exchange, or sale of assets. This provision, like the delayed effective date provision, was added in 1982 and was based on Michigan Section 131(2) and Delaware Section 103(d). Although this language, recognizing a corporation's right to abandon the merger or other activity has not been retained, the deletion is based on the assumption that it was merely surplusage and a mere recitation of the law. It was not a grant of any right or power. See, for example, Section 33-11-103(i) regarding mergers and exchanges which clearly indicates that the mere prefiling of the documents is not an irrevocable act.
DERIVATION: 1984 Model Act Section 1.23.
Section 33-1-240. Correcting filed document.
  (a) A domestic or foreign corporation may correct a document filed by the Secretary of State if the document (1) contains an incorrect statement or (2) was defectively executed, attested, sealed, verified, or acknowledged.
  (b) A document is corrected:
(1) by preparing articles of correction that
  (i) describe the document (including its filing date) or attach a copy of it to the articles, (ii) specify the incorrect statement and the reason it is incorrect or the manner in which the execution was defective, and (iii) correct the incorrect statement or defective execution; and
(2) by delivering the articles to the Secretary of State for filing.
  (c) Articles of correction are effective on the effective date of the document they correct except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed.
CROSS REFERENCES
  "Deliver" includes mail, see Section 33-1-400.
  Effective time and date of filing, see Section 33- l-230.
  Filing fees, see Section 33-l-220.
  Filing requirements, see Section 33- l -200.
OFFICIAL COMMENT
Section 1.24 (Section 33-11-240) permits making corrections in filed documents without refiling the entire document or submitting formal articles of amendment. This correction procedure has two advantages: (1) filing articles of correction may be less expensive than refiling the document or filing articles of amendment, and (2) articles of correction do not alter the effective date of the underlying document being corrected. Indeed, under section 1.24(c) (Section 33-1-240(C)), even the correction relates back to the original effective date of the document except as to persons relying on the original document and adversely affected by the correction. As to these persons, the effective date of articles of correction is the date the articles are filed.
  A document may be corrected either because it contains an "incorrect statement" or because it was defectively executed (including defects in optional forms of execution that do not affect the eligibility of the original document for filing).
  A provision in a document setting an effective date (section 1.23 (Section 33-l-230) ) may be corrected under this section, but the corrected effective date must comply with section 1.23 (Section 33-1-230) measured from the date of the original filing of the document being corrected, i.e., it cannot be before the date of filing of the document or more than 90 days thereafter.
SOUTH CAROLINA REPORTERS' COMMENTS
  This provision has no existing counterpart in the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 1.24.
Section 33-1-250. Filing duty of Secretary of State.
  (a) If a document delivered to the office of the Secretary of State for filing satisfies the requirements of Section 33-1-200, the Secretary of State shall file it.
  (b) The Secretary of State files a document by stamping or otherwise endorsing "Filed", together with his name and official title and the date and time of receipt, on both the original and document copy, together with a further endorsement that the document copy is a true copy of the original document. After filing a document, except as provided in Sections 33-5-103 and 33-15-200, the Secretary of State shall deliver the document copy to the domestic or foreign corporation or its representative and the document copy must be retained as a part of the permanent records of the corporation.
  (c) If the Secretary of State refuses to file a document, he shall return it to the domestic or foreign corporation or its representative within five days after the document was delivered, together with a brief, written explanation of the reason for his refusal.
  (d) The Secretary of State's duty to file documents under this section is ministerial.
His filing or refusing to file a document does not:
  (1) affect the validity or invalidity of the document in whole or part;
  (2) relate to the correctness or incorrectness of information contained in the document;
  (3) create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect.
CROSS REFERENCES
  Appeal from rejection of document, see Section 33- l -260.
  "Deliver" includes mail, see Section 33-1-400.
  Effective time and date of filing, see Section 33- l -230.
Filing requirements:
  fees, see Section 33-l-220.
  generally, see Section 33-l-200.
  resignation of registered agent, see Sections 33-5-103 and 33-15-109.
  service on foreign corporation, see Section 33-15-100.
  Powers of Secretary of State, see Section 33-l-300.
OFFICIAL COMMENT
  1. FILING DUTY IN GENERAL
Under section 1.25 (Section 33-1-250), the secretary of state is required to file a document if it "satisfies the requirements of section 1.20 (Section 33-1-200)." This language should be contrasted with earlier versions of the Model Act (and many state statutes) that required the secretary of state to ascertain whether the document "conformed with law" before filing it. The purpose of this change is to limit the discretion of the secretary of state to a ministerial role in reviewing the contents of documents. If the document submitted is in the form prescribed and contains the information required by section 1.20 (Section 33-1-200) and the applicable provision of the Model Act, the secretary of state under section 1.25 (Section 33-1-250) must file it even though it contains additional provisions the secretary of state may feel are irrelevant or not authorized by the Model Act or by general legal principles. Consistently with this approach, section 1.25 (Section 33-1-250(d)) states that the filing duty of the secretary of state is ministerial and provides that filing a document with the secretary of state does not affect the validity or invalidity of any provision contained in the document and does not create any presumption with respect to any provision. Persons adversely affected by provisions in a document may test their validity in a proceeding appropriate for that purpose. Similarly, the attorney general of the state may also question the validity of provisions of documents filed with the secretary of state in an independent suit brought for that purpose; in neither case should any presumption or inference be drawn about the validity of the provision from the fact that the secretary of state accepted the ' document for filing.
  2. MECHANICS OF FILING
Section 1.25(b) (Section 33-1-250(b)) provides that when the secretary of state files a document, he stamps or endorses it as filed, retains the signed original document for his records, and returns the exact or conformed copy (which must accompany the document under section 1.20(i) (Section 33-1-200(i)) to the corporation or its representative with the secretary of state's fee receipt or acknowledgement of receipt if no fee is required. This will establish that a document has been filed in the form of the copy. Consideration was given to dispensing with the document copy entirely and providing only for the return of a fee receipt or equivalent document. Several states currently follow this practice with respect to articles of incorporation and other documents. It was felt to be important, however, to continue a practice by which each corporation receives back from the secretary of state for its records a document that on its face shows that it is an exact or conformed copy of the document that was filed with the secretary of state. This copy is usually placed in the minute book and is available for informal inspection without requiring a person to examine the records of the secretary of state. Of course, a person desiring a certified copy of any filed document may obtain it from the office of the secretary of state by paying the fee prescribed in section 1.22(c) (Section 33-1220(c)).
  3. ELIMINATION OF CERTIFICATES OF INCORPORATION AND SIMILAR DOCUMENTS
  Section 1.25(b) (Section 33-1-250(b)) provides that acceptance of articles of incorporation or other documents is evidenced merely by the issuance of a fee receipt or acknowledgement of receipt if no fee is required. Earlier versions of the Model Act and the statutes of many states provided that acceptance by the secretary of state is evidenced by a "certificate" (e.g., of incorporation, of merger, or of amendment). This older practice was not retained in the revised Model Act because it was felt desirable to reduce the number of pieces of paper issued by the secretary of state. Under the older practice most state offices routinely issued both fee receipts and certificates. A single document - the fee receipt or acknowledgement - should sufficiently indicate that the document has been accepted for filing, and in fact many states in recent years have dispensed with the formal certificate.
  4. REJECTION OF DOCUMENT BY SECRETARY OF STATE
Because of the simplification of formal filing requirements and the limited discretion granted to the secretary of state by the Model Act, it is probable that rejection of documents for filing will occur only rarely. Section 1.25(c) (Section 33-1-250(c)) provides that if the secretary of state does reject a document for filing he must return it to the corporation or its representative within five days together with a brief written explanation of his reason for rejection. This rejection may be the basis of judicial review under section 1.26 (Section 33-1-260).
SOUTH CAROLINA REPORTERS' COMMENTS
  1. History
  The analogous provisions to this section previously appeared in Sections 33-1-60 and 33-7-40 of the 1981 South Carolina Business Corporation Act.
  Subsection (a) continues the existing South Carolina law that, if the document meets the minimum requirements, the Secretary of State must file it.
  For a number of years, the law of South Carolina has clearly limited the Secretary of State's discretion in deciding whether or not to accept applications for corporate charters. For example, the Secretary of State once refused to accept various charters from applicants wanting to file as industrial banks just before a change in the law. If the Secretary of State were to accept these charters, then these entities would have been "grandfathered" and thus not subject to new restrictive regulations which were about to go into effect. The Secretary of State's sole reason for rejecting the charters was that he believed that the entities were being formed merely to avoid the new law.
  Interpreting the then corporate code, the Supreme Court confirmed that the Secretary of State did not have any discretion as to whether or not to accept the filings. Since the statute then said, as is true of the new statute, that the Secretary of State "shall issue" the certificate once the statutory requirements were met, he was required to accept the documents. Commonwealth Investment Co. of Columbia v. Thornton, 244 S.C. 146, 135 S.E.2d 762 (1964).
  Section 33-7-40 of the 1981 South Carolina Business Corporation Act previously provided that the Secretary of State had the duty to determine that the articles:
  (1) comply with requirements of execution, verification, and filing;
  (2) set forth the information required to be in the articles;
  (3) do not adopt a similar name;
  (4) have an attorney certificate [no longer required];
  (5) are accompanied by an initial tax report and initial license fee.
  This section, by referencing Section 33-1-200 effectively requires the Secretary of State to make the same ministerial determinations.
  As noted in the Official Comment, there generally is no formal document prepared by the Secretary of State, such as a "certificate of incorporation". Rather, the stamped conformed copy evidences the proper filing. This procedure is in conformity with the existing practice of the Secretary of State.
  This provision and others emphasize and clarify that the duties of the Secretary of State are purely ministerial and are intended to give no discretion if statutory requirements are met.
  2. Non-Model Act Provisions
  This section differs from the 1984 Model Act Official Text in three respects:
  (1) Continuing existing practice, the Secretary of State will endorse on the copy that it is a "true copy" of the original.
  (2) The Secretary of State has not, and will not, issue a separate receipt of payment. The conformed, stamped copy (and any canceled check) is sufficient verification of payment.
  (3) Also continuing existing South Carolina practice, subsection (b) requires the company to retain the conformed copy as part of its official records.
  (4) Paragraph (d)(3) is limited by Section 33-1-270. Although the actual filing of a document does not generally create any presumption that the information contained in the document is correct, a certified document, pursuant to Section 33-1-270, shall be treated as being prima facie evidence of the facts therein stated. To the extent Section 33-1-250(d)(3) appears to be inconsistent with Section 33-1-270, the provisions of Section 33-1-270 are to control.
DERIVATION: 1984 Model Act Section 1.25.
  Section 33-1-260. Appeal from Secretary of State's refusal to file document.
  (a) If the Secretary of State refuses to file a document delivered to his office for filing, the domestic or foreign corporation may appeal the refusal within thirty days after the return of the document to the Circuit Court of Richland County. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the Secretary of State's explanation of his refusal to file.
  (b) The court may summarily order the Secretary of State to file the document or take other action the court considers appropriate.
  (c) The court's final decision may be appealed as in other civil proceedings.
CROSS REFERENCES
"Deliver" includes mail, see Section 33-1-400.
  Filing fees, see Section 33-1-220.
  Filing requirements, see Section 33- l -200.
"Principal office":
  defined, see Section 33-1-400.
  designated in annual report, see Section 33-16-220.
Registered office: designated in annual report, see Section 33-16-220.
  requirement, see Sections 33-2-102 and 33-5-101.
Secretary of State's filing duty, see Section 33- 1 -250.
OFFICIAL COMMENT
1. THE COURT WITH JURISDICTION TO HEAR APPEALS FROM
THE SECRETARY OF STATE
  The identity of the specific court with jurisdiction to hear appeals from the secretary of state under section 33-1-260 must be supplied by each state when enacting this section. It is intended that this should be a court of general civil jurisdiction. It may either be the court located in the capital of the state or the court in the county where the corporation's principal business office is located in the state or, if the corporation does not have a principal office in the state, the court located in the county in which its registered office is located. The annual report of the corporation must state where the principal office of the corporation which need not be within the state) is located. See section 16.22 (Section 33-16-220). Other sections of the Model Act also contemplate that the court with jurisdiction over substantive corporate matters will be designated in the statute. See, for example, section 7.03 (Section 33-7-103), relating to the ordering of a shareholders' meeting after the corporation fails to hold such a meeting. It is expected that jurisdiction over litigation with respect to substantive matters will normally be vested in the court in the county of the corporation's principal or registered office. See the Official Comment to section 7.03 (Section 33-7- 103).
2. "SUMMARY" ORDERS
  In view of the limited discretion of the secretary of state under the Act, a "summary" order appears to be appropriate in section 1.26 (Section 33-1-260). Throughout the Model Act the term "summarily order" or similar language is used where courts are authorized to order action taken and the person charged with taking the original action has little or no discretion. The word "summary" is not used in a technical sense but to refer to a class of cases where the court might appropriately order that action be taken on the face of the pleadings or after an oral hearing but without any need to resolve disputed factual issues.
3. BURDEN OF PROOF AND REVIEW STANDARD
  The revised Model Act, unlike earlier versions, does not address either the burden of proof or the standard for review in judicial proceedings challenging action of the secretary of state. It is contemplated that these matters will be governed by general principles of judicial review of agency action in each adopting state.
SOUTH CAROLINA REPORTERS' COMMENTS
  This section is entirely new. It is anticipated that this section will be used very little. For governmental convenience and to reduce costs, the Circuit Court of Richland County has been designated as the appropriate court.
  In regard to the burden of proof and standard of review, Article I, Section 22, of the Constitution of the State of South Carolina, 1895, guarantees Judicial review of administrative decisions. Section 1-23-380 of the 1976 Code (the Administrative Procedures Act) provides the appropriate procedure when the Secretary of State refuses any filing. Section 1-23-380(g) specifically provides:
  "(g) The court shall not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact. The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:
  (1) In violation of constitutional or statutory provisions;
  (2) In excess of the statutory authority of the agency;
  (3) Made upon unlawful procedure;
  (4) Affected by other error of law;
  (5) Clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; or
  (6) Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion."
DERIVATION: 1984 Model Act Section 1.26.
Section 33-1-270. Evidentiary effect of copy of filed document.
  A certificate attached to a copy of a document filed by the Secretary of State, bearing his signature (which may be in facsimile) and the seal of this State, is conclusive evidence that the original document is on file with the Secretary of State and must be taken and received in all courts, public offices, official bodies, and in all proceedings as prima facie evidence of the facts therein stated.
CROSS REFERENCES Certifying fee, see Section 33-1-220.
  Forms, see Section 33-1-210.
Secretary of State's filing duty, see Section 33-1-250.
OFFICIAL COMMENT
  The secretary of state may be requested to certify that a specific document has been filed with him upon payment of the fees specified in section 1.22(c) (Section 33-1-220(c)). Section 1.27 (Section 33-1-270) provides that the certificate is conclusive evidence only that the original document is on file. The limited effect of the certificate is consistent with the ministerial filing obligation imposed on the secretary of state under the Model Act.
SOUTH CAROLINA REPORTERS' COMMENTS
  This section is a combination of Section 1.27 of the 1984 Model Act Official Text language and Section 33-1-60 of the 1981 South Carolina Business Corporation Act. The retention of the broader provision from the prior statute, which stated that the certified document is prima facie evidence of not only its existence, but also of the truth of its contents, was felt necessary in order to protect the operation of the Secretary of State's office.
  The Secretary of State is routinely subpoenaed to testify in cases wherein often all that is being asked of him is to confirm that a document is on file and does contain the information in the copy, or, for example, that a company was formed, authorized certain stock, and named certain people as its initial directors.
  This information is basically uncontroverted, and thus to require the Secretary to actually testify in these many proceedings truly would be an unreasonable request and policy. Therefore, the South Carolina provision is much broader in order to insure that there will be no need to call the Secretary of State to testify.
  To the extent the provisions of this Section 33-1-270 might appear to be inconsistent with Section 33-1-250(d)(3), the provisions of this Section 33-1-270 are to control. The certified document shall be at least prima facie evidence of the facts therein stated.
DERIVATION: 1984 Model Act Section 1.27.
Section 33-1-280. Certificate of existence.
  (a) Anyone may apply to the Secretary of State to furnish a certificate of existence for a domestic corporation or a certificate of authorization for a foreign corporation.
  (b) A certificate of existence or authorization sets forth:
  (1) the domestic corporation's corporate name or the foreign corporation's corporate name used in this State;
  (2) that (i) the domestic corporation is duly incorporated under the law of this State, the date of its incorporation, and the period of its duration if less than perpetual; or (ii) the foreign corporation is authorized to transact business in this State;
  (3) that all fees, taxes, and penalties owed to the Secretary of State have been paid;
  (4) that the Secretary of State has not served notice on the corporation pursuant to either Section 33-14-210 or 33-15-310 that the corporation is subject to being dissolved or its authority revoked;
  (5) that articles of dissolution have not been filed; and
  (6) other facts of record in the office of the Secretary of State that may be requested by the applicant.
  (c) Subject to any qualification stated in the certificate, a certificate of existence or authorization issued by the Secretary of State may be relied upon as conclusive evidence that the domestic or foreign corporation is in existence or is authorized to transact business in this State.
CROSS REFERENCE
Certificate of existence for nonqualified foreign corporation, see Section 33-15-103.
  Filing fees, see Section 33-l-220.
  Filing requirements, see Section 33-l-200.
  Forms, see Section 33-l-210.
"Principal office":
  defined, see Section 33-1-400.
  designated in annual report, see Section 33-16-220.
Registered office:
  designated in annual report, see Section 33- 16-220.
requirement, see Sections 33-2-102, 33-5-101, and 33- 15- 107.
OFFICIAL COMMENT
  Section 1.28 (Section 33-1-280) establishes a procedure by which anyone may obtain a conclusive certificate from the secretary of state that a particular domestic or foreign corporation is in existence or is authorized to transact business in the state. The certificate will probably be a standardized form. The secretary of state is to make the judgment whether or not the corporation is in existence or is authorized to transact business from public records only and is not expected to make a more extensive investigation. In appropriate cases, the secretary of state may issue a certificate subject to specified qualifications.
  Section 1.28(b)(5) (Section 33-1-280(b)(5)) refers only to taxes, fees, or penalties collected by the secretary of state or collected by other agencies and reported to the secretary of state. In some states the secretary of state may ascertain from other agencies that franchise or other taxes have been paid and include this information in the certificate. In states where this procedure does not unduly delay the issuance of certificates, section 1.28 (Section 33-1-280) may be revised appropriately. Section 1.28(b)(5) (Section 33-1-280(b)(5)) relates only to taxes, fees or penalties to the extent their nonpayment affects the existence or authorization to transact business of the corporation.
  A certificate of existence or authorization that may be relied on as binding and conclusive is of material assistance to attorneys who may be required to give formal legal opinions in connection with corporate transactions.
SOUTH CAROLINA REPORTERS' COMMENTS
  Although the 1981 South Carolina Business Corporation Act did not explicitly provide for the Secretary of State to issue a certificate of existence or authorization, it has been current policy for the Secretary to issue a certificate of good standing.
1. Warning
  It should be noted that the South Carolina Secretary of State, under the current tax system, will not provide current information regarding whether the corporation has paid all fees, taxes, and penalties. Section 1.28(b)(3) of the 1984 Model Act Official Text requires the Secretary of State to provide information on unpaid taxes, fees, and penalties only if such information is available in the Secretary's records. Since the Secretary of State routinely does not have access to current tax information, subsection (b)(3) has been revised, and differs from the Model Act in stating that the Secretary of State will certify only the payment of any taxes and fees owed to him. Therefore, it is expected that attorneys and other interested parties will continue the practice of obtaining a separate certificate of compliance from the Tax Commission when it is important to know if a company has paid its taxes. Failure to pay taxes or file returns can be grounds to dissolve the corporation (see Sections 33-14-200 and 33-15-300).
  However, the granting of the certificate of existence will be conclusive evidence that no action has been brought to dissolve the corporation administratively pursuant to Section 33-14-200, whether or not grounds might then exist for such a procedure to be filed. Such assurances will normally be sufficient for an attorney to issue an opinion that the company, as of the date of the certificate, is in good standing with the Secretary of State's office, since no governmental officer, other than the Secretary of State has authority to dissolve the corporation administratively.
  Subsection (b)(4) differs from the Model Act Official Text in two respects. First, since the annual report is filed with the Tax Commission (see Sections 33-16-220 and 12-19-20) different from the Model Act, the South Carolina Secretary of State will not certify whether the annual report has been filed. Lawyers and others desiring to know whether the corporation has filed its annual report will have to obtain this information from the Tax Commission. Second, subsection (b)(4) has been amended to specifically note that the certificate means that the Secretary of State has not commenced any action to dissolve the company administratively. This could be important in that a company still might "not be dissolved" but has been served notice that unless it corrected certain deficiencies that it was about to be dissolved administratively.
  2. Certificate does not negate the possibility that other actions are pending to dissolve the company
  It should be noted, however, that the Attorney General has had and continues to have, authority pursuant to Section 12-37-2270 to bring an action to vacate the corporation's charter for failure to pay property taxes or other stated causes. Moreover, technically, the charter may be automatically "forfeited or annulled" without the actual court action if property taxes have not been paid. The Attorney General also has the power to bring an action to dissolve a corporation for obtaining articles by fraud or abusing its authority (see Section 33-14-300). A shareholder has the continuing right to bring an action to dissolve the company (see Section 33-14-300(2)). The certificate of existence will not negate the possibility of any of these events or any others not within the jurisdiction of the Secretary of State. However, if an action has been brought under any of these sections, the corporation (or its officers or directors) will receive notice of the proceeding.
  3. Other changes to prior law
  The requirements of new Section 33-1-280 go beyond the Secretary of State's prior policy by additionally providing for disclosure:
  (1) that no articles of dissolution have been filed (subsection (b)(5)); and,
  (2) of other facts of record in the Secretary of State's office requested by the applicant (subsection (b)(6)).
  It is clear also that any person, regardless of his relationship with the corporation, has the right to obtain a certificate of existence (subsection (a)).
DERIVATION: 1984 Model Act Section 1.28.
Section 33-1-290. Penalty for signing false document.
  (a) A person commits an offense if he signs a document he knows is false in any material respect (including an omission of a material fact necessary in order to make the statements made in light of the circumstances under which they were made, not misleading) with intent that the document be delivered to the Secretary of State for filing.
  (b) An offense under this section is a misdemeanor punishable by a fine of not to exceed five hundred dollars.
  (c) Any person who violates subsection (a) is liable to any person who is damaged thereby.
CROSS REFERENCES
Administrative dissolution, see Section 33-14-200.
"Deliver" includes mail, see Section 33-1-400.
Revocation of certificate of authority of foreign corporation, see Section 33-15-300.
OFFICIAL COMMENT
  Section 1.29 (Section 33-1-290) makes it a criminal offense for any person to sign a document that he knows is false in any material respect with intent that the document be submitted for filing to the secretary of state.
  Section 1.29(b) (Section 33-1-290(b)) is keyed to the classification of offenses provided by the Model Penal Code. If a state has not adopted this classification, the dollar amount of the fine should be substituted for the misdemeanor classification.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 1.29 of the 1984 Model Act Official Text has been amended in two primary respects in order to continue the provisions of Section 33-25-60 of the 1981 South Carolina Business Corporation Act. The South Carolina version specifically provides:
  (a) an intentional material omission makes a document false, and
  (b) any injured person has a private (civil) cause of action against the wrongdoer.
  Although the predecessors to this provision apparently have not been acted upon for a number of years, prior statutes likewise made it a crime for directors to make false statements in regard to a corporation's financial position, and another overlapping statute once made it a crime to make a false and misleading statement, but only if the person to whom the statement was made could prove damage. This second statute is discussed in State v. Bolyn 143 S.C. 63, 86-90 141 S.E. 165, 172-173 (1928) and the two statutes are compared in State v. Johnson 149 S.C. 195, 205-206, 146 S.E. 657, 660 (1929).
DERIVATION: 1984 Model Act Section 1.29.
Article 3
Secretary of State
Sec.
Section 33-1-300. Powers.
  The Secretary of State has the power reasonably necessary to perform the duties required of him by this act.
CROSS REFERENCES
Administrative dissolution, see Section 33- 14 -200.
Judicial dissolution, see Section 33-14-300.
Revocation of certificate of authority of foreign corporation, see Section 33-15-300.
Secretary of State's filing duty, see Section 33- 1 -250.
OFFICIAL COMMENT
  Section 1. 30 (Section 33- 1 -300) is intended to grant the secretary of state the authority necessary for his efficient performance of the filing and other duties imposed on him by the Act but is not intended to give him general authority to establish public policy. The most important aspects of a modern. corporation statute relate to the creation and maintenance of relationships among persons interested in or involved with a corporation; these relationships basically should be a matter of concern to the parties involved and not subject to regulation or interpretation by the secretary of state. Further, even in situations where it is claimed that the corporation has been formed or is being operated for purposes that may violate the public policies of the state, the secretary of state generally should not be the governmental official that determines the scope of public policy through administration of his filing responsibilities under the Act. Rather, the attorney general may seek to enjoin the illegal conduct or to dissolve involuntarily the offending corporation.
  Section 1.30 (Section 33-1-300) is more narrowly drafted than earlier versions of the Model Act and the statutes of many states.
SOUTH CAROLINA REPORTERS' COMMENTS
  This section is essentially the same as Section 33-25-20 of the 1981 South Carolina Business Corporation Act; but, as noted in the Official Comment, the new law is more narrowly drafted than the prior law and specifies that the Secretary of State only has the "power reasonably necessary to perform" his duties, rather than the previous more expansive grant of authority giving him that power and authority "reasonably necessary" to enable him to "administer the act efficiently" along with the power to Perform his duties.
DERIVATION: 1984 Model Act Section 1.30.
Article 4
Definitions
Sec. 33-1-400. Act definitions.
33-1-410. Notice. 33-1-420. Number of shareholders.
Section 33-1-400. Act definitions.
As used in Chapters 1 through 19 of this title:
  (1) 'Agreement' includes any valid agreement, written or oral, of the shareholders or between any of the shareholders and the corporation as to the affairs of the corporation and the conduct of its business. The bylaws of a corporation constitute an agreement.
  (2) 'Articles of incorporation' include amended and restated articles of incorporation and articles of merger.
  (3) 'Authorized shares' means the shares of all classes a domestic or foreign corporation is authorized to issue.
  (4) 'Corporation' or 'domestic corporation' means a corporation for profit, which is not a foreign corporation, incorporated under or subject to the provisions of this act. 'Corporation' or 'domestic corporation' also may include a 'nonprofit' corporation to the extent permitted by the provisions of Section 33-20-103.
  (5) 'Conspicuous' means so written that a reasonable person against whom the writing is to operate should have noticed it. For example, printing in italics, boldface, or contrasting color, or typing in capitals or underlined, is conspicuous.
  (6) 'Deliver' includes mail.
  (7) 'Distribution' means a direct or indirect transfer of money or other property (except its own shares) or incurrence of indebtedness by a corporation to or for the benefit of its shareholders in respect of any of its shares. A distribution may be in the form of a declaration or payment of a dividend; a purchase, redemption, or other acquisition of shares; a distribution of indebtedness; or otherwise.
  (8) 'Effective date of notice' is defined in Section 33-1-410.
  (9) 'Employee' includes an officer but not a director. A director may accept duties that make him also an employee.
  (10) 'Entity' includes corporation and foreign corporation; not-for-profit corporation; profit and not-for-profit unincorporated association; business trust, estate, partnership, trust, and two or more persons having a Joint or common economic interest; and state, United States, and foreign government.
  (11) 'Foreign corporation' means a corporation for profit incorporated under a law other than the law of this State.
  (12) 'Governmental subdivision' includes authority, county, district, and municipality.
  (13) 'Includes' denotes a partial definition.
  (14) 'Individual' includes the estate of an incompetent or deceased individual.
  (15) 'Means' denotes an exhaustive definition.
  (16) 'Notice' is defined in Section 33-1-410.
  (17) 'Person' includes individual and entity.
  (18) 'Principal office' means the office (in or out of this State) so designated in the annual report where the principal executive offices of a domestic or foreign corporation are located.
  (19) 'Proceeding' includes civil suit and criminal, administrative, and investigatory action, and formal or informal arbitration.
  (20) 'Record date' means the date established under Chapter 6 or 7 on which a corporation determines the identity of its shareholders for purposes of this act.
  (21) 'Secretary' means the corporate officer to whom the board of directors has delegated responsibility under Section 33-8-400(c) for custody of the minutes of the meetings of the board of directors and of the shareholders and for authenticating records of the corporation.
  (22) 'Shares' means the units into which the proprietary interests in a corporation are divided.
  (23) 'Shareholder' means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. To the extent provided in a corporation's articles of incorporation, creditors of a corporation may have the rights of a shareholder.
  (24) 'State', when referring to a part of the United States, includes a state and commonwealth (and their agencies and governmental subdivisions), a territory and insular possession (and their agencies and governmental subdivisions) of the United States and the District of Columbia.
  (25) 'Subscriber' means a person who subscribes for shares in a corporation, whether before or after incorporation.
  (26) 'United States' includes district, authority, bureau, commission, department, and any other agency of the United States.
  (27) 'Voting group' means all shares of one or more classes or series that under the articles of incorporation or this act are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. All shares entitled by the articles of incorporation or this act to vote generally on the matter are for that purpose a single voting group.
CROSS REFERENCES
Annual report, see Sections 33- 16-220 and 12- 19-20.
Nominee certificate, see Section 33-7-230.
Special definitions:
  "Claim," see Section 33-14-107.
  "Conflict of interest transaction," see Section 33-8-310.
  "Corporation," see Sections 33-8-500 and 33-13-101.
  "Director," see Section 33-8-500.
  "Dissenter," see Section 33-13-101.
  "Dissenters' notice," see Section 33-13-220.
  "Dissolved corporation," see Section 33-14-103.
  "Expenses," see Section 33-8-500.
  "Fair value," see Section 33-13-101.
  "Interest," see Section 33-13-101.
  "Liability," see Section 33-8-500.
  "Official capacity," see Section 33-8-500.
  "Outstanding shares," see Section 33-6-103.
  "Parent," see Section 33-11-104.
  "Participating shares," see Section 33-11-103.
  "Party," see Section 33-8-500.
  "Proceeding," see Section 33-8-500.
  "Professional corporation," see Professional Corporation Supplement, Section 33-19-103. (Note: Section 33-19-103 contains special definitions of several terms that apply only to professional corporations).
  "Sale" with respect to a sale of assets, see Section 33- 12- 103.
  "Shares," see Sections 33-6-270 and 33-6-300.
  "Shareholder," see Sections 33-7-400, 33-13-101, and 33-7-210.
  "Statutory close corporation," see Statutory Close Corporation Supplement, Section 33-18-103.
  "Subsidiary," see Section 33- 1 - 104.
  "Voting shares," see Section 33-11-103.
OFFICIAL COMMENT
  [Note: Because this Act added the definition of Agreement to those in the Model Act Official Text, the subsection numbers in the Official Comment differ from those in this Act, which are shown in parentheses following the Model Act citation.]
  Section 1.40 (Section 33-1-400) collects in a single section definitions of terms used throughout the Model Act. Subchapters and sections of the Act in a few instances contain specialized definitions applicable only to those subchapters or sections. Most of the definitions of section 1.40 (Section 33-1-400) are drawn directly from earlier versions of the Model Act and are reasonably self-explanatory. A number of definitions, however, are new or deserve further explanation.
1. CONSPICUOUS
  "Conspicuous" is defined in section 1.40(3) (Section 33-1-400(5)) basically as defined in section 1-201(10) of the UNIFORM COMMERCIAL CODE. Even though the definition indicates some of the methods by which a provision may be made attention-calling, the test is whether attention can reasonably be expected to be called to it.
2. CORPORATION, DOMESTIC CORPORATION, AND FOREIGN CORPORATION
  "Corporation," "domestic corporation," and "foreign corporation" are defined in sections 1.40(4) and (10) (Section 33-1-400(4) and (11)). The word "corporation," when used alone, refers only to domestic corporations. In a few instances, the phrase "domestic corporation" has been used in order to contrast it with a foreign corporation.
3. DISTRIBUTION
  The term "distribution" defined in section 1.40(6) (Section 33-1-400(7) ) is a fundamental element of the financial provisions of the Model Act as amended in 1980. Section 6.40 (Section 33-6-400) sets forth a single, unitary test for the validity of any "distribution." Section 1.40(6) (Section 33-1-400(7) ) in turn defines "distribution" to include all transfers of money or other property made by a corporation to any shareholder in respect of the corporation's shares, except mere changes in the unit of interest such as share dividends and share splits. Thus, a "distribution" includes the declaration or payment of a dividend, a purchase by a corporation of its own shares, a distribution of evidences of indebtedness or promissory notes of the corporation, and a distribution in voluntary or involuntary liquidation. If a corporation incurs indebtedness in connection with a distribution (as in the case of a distribution of a debt instrument or an installment purchase of shares), the creation, incurrence, or distribution of the indebtedness is the event which constitutes the distribution rather than the subsequent payment of the debt by the corporation.
  The term "indirect" in the definition of "distribution" is intended to include transactions like the repurchase of parent company shares by a subsidiary whose actions are controlled by the parent. It also is intended to include any other transaction in which the substance is clearly the same as a typical dividend or share repurchase, no matter how structured or labeled.
4. ENTITY
  The term "entity," defined in section 1.40(9) (Section 33-1-400(10)), appears in the definition of "person" in section 1.40(16) (Section 33-1-400(17)) and is included to cover all types of artificial persons. See also the definitions of "governmental subdivision," in section 1.40(11) (Section 33-1-400(12)), "state," in section 1.40(23) (Section 33-1-400(24)), and "United States," in section 1.40(25) (Section 33-1-400(26)).
5. PRINCIPAL OFFICE Section 1.40(17) (Section 33-1-400(18)) defines the principal office of a corporation to be the office, within or without the state, where the principal executive office of the corporation is located. Many corporations maintain numerous offices, but there is usually one office, sometimes colloquially referred to as the home office, headquarters, or executive suite, where the principal corporate officers are located. The corporation must designate its principal office address in the annual report required by section 16.22 (Section 33-16-220). In case of doubt as to which corporate office is the principal office, the designation by the corporation in its annual report should be accepted as establishing the principal office of the corporation.
6. SHAREHOLDER
  The definition of "shareholder" in section 1.40(22) (Section 33-1-400(23)) includes a beneficial owner of shares named in a nominee certificate under section 7.23 (Section 33-7-230), but only to the extent of the rights granted the beneficial owner in the certificate - for example, the right to receive notice of, and vote at, shareholders' meeting. Various substantive sections of the Model Act also permit holders of voting trust certificates or beneficial owners of shares (not subJect to a nominee certificate under section 7.23 (Section 33-7-230) ) to exercise some of the rights of a "shareholder." See, for example, section 7.40 (Section 33-7-400) (derivative proceedings).
7. SECRETARY
  The term "secretary" is defined in section 1.40(20) (Section 33-1-400(21)) since the Model Act does not require the corporation to maintain any specific or titled officers. See section 8.40 (Section 33-8-400). However, some corporate officer, however titled, must perform the functions described in this definition, and that officer is referred to as the "secretary" in various sections of the Act that impose a duty on him.
8. PERSON
  The term "person" is defined in section 1.40(16) (Section 33-1-400(17) ) to include an individual or an entity. In the case of an individual the Model Act assumes that the person is competent to act in the matter under general state law independent of the corporation statute.
9. VOTING GROUP
  Section 1.40(26) (Section 33-1-400(27)) defines "voting group" for purposes of the Act as a matter of convenient reference. A "voting group" consists of all shares of one or more classes or series that under the articles of incorporation or the revised Model Act are entitled to vote and be counted together collectively on a matter. Shares entitled to vote "generally" on a matter under the articles of incorporation or this Act are for that purpose a single voting group. The word "generally" signifies all shares entitled to vote on the matter by the articles of incorporation or this Act that do not expressly have the right to be counted or tabulated separately. "Voting groups" are thus the basic units of collective voting at a shareholders' meeting, and voting by voting groups may provide essential protection to one or more classes or series of shares against actions that are detrimental to the rights or interests of that class or series.
  The determination of which shares form part of a single voting group must be made from the provisions of the articles of incorporation and of this Act. In a few instances under the Model Act, the board of directors may establish the right to vote by voting groups. On most matters coming before shareholders' meetings, only a single voting group, consisting of a class of voting or common shares, will be involved, and action on such a matter is effective when approved by that voting group pursuant to section 7.25 (Section 33-7-250). See section 7.26(a) (Section 33-7-260(a)). If a second class of shares is also entitled to vote on the matter, then a further determination must be made as to whether that class is to vote as a separate voting group or whether it is to vote along with the other voting shares as part of a single voting group.
  Members of the board of directors are usually elected by the single voting group of shares entitled to vote generally; in some circumstances, however, some members of the board may be selected by one voting group and other members by one or more different voting groups. See section 8.03 (Section 33-8-103).
  The definition of a voting group permits the establishment by statute of quorum and voting requirements for a variety of matters considered at shareholders' meetings in corporations with multiple classes of shares. See sections 7.25 (Section 33-7-250) and 7.26 (Section 33-7-260). Depending on the circumstances, two classes or series of shares may vote together collectively on a matter as a single voting group, they may be entitled to vote on the matter separately as two voting groups, or one or both of them may not be entitled to vote on the matter at all.
SOUTH CAROLINA REPORTERS' COMMENTS
This provision has both added, and deleted, various definitions.
  1. Deletions from the 1981 South Carolina Business Corporation Act
  Numerous previously defined terms no longer have a statutory definition. Many of these deletions relate to the overall revision of the financial provisions of the act. Under the prior law, concepts of par value, capital surplus, earned surplus, etc., were very significant. The overall revision makes these terms obsolete.
The terms for which there no longer is a definition are:
Assets
Bond
Cancel
Capital surplus
Court
Creditors
Debts
Earned surplus
Fraud
Insolvent
National Securities Exchange
Net assets
Preemptive rights
Secretary of State
Stated capital
Surplus
Treasury shares
2. New Terms
The following new terms now have a statutory definition:
Agreement
Conspicuous
Deliver
Distribution
Effective date of notice
Employee
Entity
Governmental subdivision
Includes
Individual
Means
Notice
Principal office
Proceeding
Secretary
Shareholder (revised)
United States
Voting group
As the Official Comment states, the new concept of "voting group" is the most significant new definition.
3. Non-Model Act Definitions
  The definition of "proceeding" in subsection (19) is explicitly broader than the Model Act Official Text. It specifically includes either a formal or informal arbitration within the definition of a proceeding. Likewise, a nonexclusive definition of "agreement" has been added (see subsection (1)) to specify that "agreement" includes an agreement between the shareholders and corporation and that the bylaws can constitute an agreement. Nothing in this definition, however, permits an agreement that is required by any statute or common-law principle to be in writing to be made orally.
  The definition of "shareholder" (subsection (23)) has been amended to recognize that debt instruments can be given voting or other rights if so specified in the articles. See the South Carolina Reporters' Comments to Section 33-7-210 for an explanation of this provision.
  Since South Carolina's nonprofit corporation laws are currently inadequate, Section 33-20-103 permits South Carolina nonprofit corporations to be generally governed by these provisions. Thus, the definition of "corporation" (subsection (4)) has been amended to reflect this fact.
DERIVATION: 1984 Model Act Section 1.40.
Section 33-1-410. Notice.
  (a) Notice under this act must be in writing unless oral notice is reasonable under the circumstances.
  (b) Notice may be communicated in person; by telephone, telegraph, teletype, or other form of wire or wireless communication; or by mail or private carrier. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published; or by radio, television, or other form of public broadcast communication.
  (c) Written notice by a domestic or foreign corporation to its shareholder, if in a comprehensible form, is effective when mailed, r mailed postpaid and correctly addressed to the shareholder's address shown in the corporation's current record of shareholders.
  (d) Written notice to a domestic or foreign corporation (authorized to transact business in I this State) may be addressed to its registered agent at its registered office or to the corporation or its secretary at its principal office shown in its most recent annual report or, in the case of a foreign corporation that has not yet delivered an annual report, in its application for a certificate of authority.
  (e) Except as provided in subsection (c), written notice, if in a comprehensible form, is effective at the earliest of the following:
  (1) when received;
  (2) five days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed;
  (3) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee.
  (f) Oral notice is effective when communicated if communicated in a comprehensible manner.
  (g) If this act prescribes notice requirements for particular circumstances, those requirements govern. If articles of incorporation or bylaws prescribe notice requirements, not inconsistent with this section or other provisions of this act, those requirements govern.
CROSS REFERENCES
Annual report, see Section 33-16-220 and 12-19-20.
Application for certificate of authority, see Section 33-15-103.
"Principal office": defined, see Section 33-1-400. designated in annual report, see Section 33-16-220. Record of shareholders, see Section 33-16-101. Special notice requirements:
derivative proceedings, see Section 33-7-400.
resignation of registered agent, see Sections 33-5-103 and 33-15-109.
service on corporation, see Sections 33-5-104 and 33-15-110.
OFFICIAL COMMENT
  Section 1.41 (Section 33-1-410) establishes rules for determining how notice may be given and when notice is effective for a variety of purposes under the Model Act.
1. NOTICE BY A CORPORATION TO ITS SHAREHOLDERS
  Section 1.41(c) (Section 33-1-410(c)) provides that notice by a corporation to its shareholders is effective when mailed if correctly addressed with sufficient postage. The correct address for this purpose is the address shown in the corporation's records. The effect of this section is to permit the corporation to compute the statutory time periods for notice of shareholders' meetings and other actions from the date the notice is mailed without regard to where its shareholders are located or the time it takes for the mail to reach them.
  Written notice to shareholders by persons other than the corporation is effective as provided in section 1.41(e) (Section 33-1-410(e)). Notice by the corporation to its shareholders that is not addressed to the record address of the shareholder is effective when received under section 1.41(e) (Section 33-1-410(e)).
2. NOTICE TO THE CORPORATION
  Section 1.41(d) (Section 33-1-410(d)) provides that notice to a corporation may be addressed to the registered agent of the corporation at its registered office or to the corporation or its secretary at the principal office of the corporation as shown in its most recent public filing. An officer, director, or shareholder of a corporation will normally give written notice to the corporation by delivering or mailing a copy of that notice to the corporation or to the secretary of the corporation at its principal office. Such a notice is effective when it is received. Such notice may be given for a variety of purposes under this Act, e.g., giving notice of intent to dissent (section 13.21 (Section 33-13-210)), notice of a demand to inspect books and records (section 16.02 (Section 33-16-102)), and notices of resignation (sections 8.07 (Section 33-8-107) and 8.43 (Section 33-8-430)). This method of giving notice to the corporation, however, is not exclusive, and an officer, director, or shareholder may give notice in other ways as well.
  Persons who have no prior relationship with the corporation may give notice either to the registered agent of the corporation, or if they wish, to the corporation or its secretary at its principal office.
3. MISCELLANEOUS PROVISIONS Section 1.41 (Section 33-1-410) also contains a variety of general provisions dealing with notice. It recognizes, for example, that notice on some occasions may be given orally if that is reasonable under the circumstances. It also deals with situations where notice may be sought to be given to persons for whom no current address is available, or where personal notice is impractical. Notice delivered to the person's last known address is effective as described in section 1.41(e) (Section 33-1-410(e)) even though never actually received by the person. Section 1.41(b) (Section 33-1-410(b)) also authorizes notice by publication in some circumstances, including radio, television, or other form of public wire or wireless communication.
  Section 1.41(g) (Section 33-1-410(g)) recognizes that other sections of the Act prescribe specific notice requirements for particular situations - e.g., service of process on a corporation's registered agent under section 5.04 (Section 33-5-104) - and that these specific requirements, rather than the general requirements of section 1.41 (Section 33-1-410), control. Finally, the second sentence of subsection 1.41(g) (Section 33-1-410(g)) permits a corporation's articles of incorporation or bylaws to prescribe the corporation's own notice requirements, if they are not inconsistent with the general requirements of this section or specific requirements of other sections of the Act.
  The rules set forth in section 1.41 (Section 33-1-410) permit many other sections of the Model Act to be phrased simply in terms of giving or delivering notice without repeating details with respect to how notice should be given and when it is effective in various circumstances.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1981 South Carolina Business Corporation Act provision labeled "Notice" (Section 33-1-80) dealt with how one determined whether a certain time period has elapsed. It was effectively the same provision which continues to be set forth in Section 15-1-200, which section has been construed to apply to nonlitigation situations. Therefore, Section 33-1-80 of the 1981 South Carolina Business Corporation Act was generally redundant and has thus been deleted.
  This provision dealing with notice is entirely different and its provisions are all new. Under prior South Carolina law, notice often was required to be given in writing (e.g., Section 33-11-210 of the 1981 South Carolina Business Corporation Act, notice of shareholders meeting). Although the new law specifies that written notice is the preferred method of communication, oral notice is permitted if "reasonable under the circumstances". In the normal situation, the giving of oral notice will not cause any problem and will be in keeping with standard business practice. However, the new provision may invite disputes as to whether proper notice has been given. One party may claim "I told you" and the other deny "ever hearing anything about the matter". Therefore, corporation officers, directors, and their advisors are cautioned not to utilize oral notice, particularly in matters potentially involving disputes among members of the corporation.
  Likewise, subsection (b) should be used cautiously. Questions are likely to be raised as to whether or not a more direct way of communication was practical. It is assumed that the provisions of subsection (b) for newspaper, television, or radio notice will be used only in the most unusual situations.
  Other provisions of this section effect technical changes in prior South Carolina law. Particular attention should be given to the fact that notice to a shareholder at the address on file with the corporation is effective even though he has moved (subsection (c)). There is a statutory presumption that notice is received within five days after a correct mailing (subsection (e)).
  Notice to the corporation is given to either the registered agent or company secretary. Prior South Carolina law often merely said "file with the corporation" (e.g., 1981 South Carolina Business Corporation Act Section 33-11-270 dealing with dissenter's rights) which created some ambiguity as to who within the company actually should be notified. As set forth in the Official Comments, other specific provisions of the act control over this one, and the company can specify other methods of notice so long as in accordance with the act (subsection (g)).
DERIVATION: 1984 Model Act Section 1.41.
  Section 33-1-420. Number of shareholders.
  (a) For purposes of this act, the following identified as a shareholder in a corporation's current record of shareholders constitutes one shareholder:
  (1) three or fewer co-owners;
  (2) a corporation, partnership trust, estate, or other entity;
  (3) the trustees, guardians, custodians, or other fiduciaries of a single trust, estate, or account. (b) For purposes of this act, shareholdings registered in substantially similar names constitute one shareholder if it is reasonable to believe that the names represent the same person.
CROSS REFERENCES
Board of directors, see Section 33-8-101.
Close corporations, see Statutory Close
Corporation Supplement, Chapter 18. "
Entity" defined, see Section 33-1-400.
Record of shareholders, see Sections 33-7-200
and 33-16-101.
"Shareholder" defined, see Section 33- 1-400.
Voting trusts, see Section 33-7-300.
OFFICIAL COMMENT
  Section 1.42 (Section 33- 1 -420) provides rules for determining the number of shareholders in a corporation. The Model Act generally avoids provisions that are based on the number of shareholders of a corporation, since these provisions may encourage individual shareholders to divide or combine their holdings for private strategic advantage. But in two instances the number of shareholders is critical: to permit a corporation to dispense with a board of directors as its principal form of corporate governance under section 8.01 (Section 33-8-101) and to elect close corporations status under the Model Statutory Close Corporation Supplement. The determination of the precise number of shareholders may also become important in other contexts in the future.
SOUTH CAROLINA REPORTERS' COMMENTS
  As noted in the Official Comment, this provision is entirely new. It merely clarifies who or what counts as one shareholder. Under the old law and new law, the number of shareholders, for state law purposes is relevant, for example, in determining whether ten percent of all the shareholders have called a special meeting (see Section 33-11-30(d)(4) of the 1981 South Carolina Business Corporation Act and Section 33-7-102 of this act).
  Attorneys and others should continue to be aware that there are different definitions as to whether a "group" is one or many shareholders depending upon whether one is applying the federal securities laws (e.g., Rule 501(e) of Regulation D. of the Securities Act of 1933), South Carolina securities laws (e.g., Section 35- 1 -20(9) ), or the tax laws (e.g., Subchapter S of the Internal Revenue Code).
  This act does not adopt the Model Act Official Text language preventing corporations with over fifty shareholders from dispensing with a board of directors or electing to become a statutory close corporation. See the South Carolina Reporters' Comments to Sections 33-8- 101 and 33-18-103. The reference to these limitations in the Official Comment, therefore, should be disregarded.
DERIVATION: 1984 Model act Section 1.42.
CHAPTER 2
Incorporation
Sec.
33-2-101. Incorporators.
33-2-102. Articles of incorporation.
33-2-103. Incorporation.
33-2-104. Liability for preincorporation transactions.
33-2-105. Organization of corporation.
33-2-106. Bylaws.
33-2-107. Emergency bylaws.
Section 33-2-101. Incorporators.
  Any person may act as the incorporator of a corporation by delivering articles of incorporation to the Secretary of State for filing.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102.
  "Deliver" includes mail, see Section 33-1-400.
Effective time and date of filing, see Section 33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Organization of corporation by incorporators,
see Section 33-2-105.
"Person" defined, see Section 33-1-400.
OFFICIAL COMMENT
  The only functions of incorporators under the Model Act are (1) to sign the articles of incorporation, (2) to deliver them for filing with the secretary of state, and (3) to complete the formation of the corporation to the extent set forth in section 2.05 (Section 33-2-105). One or more "persons" may serve as incorporator; "person" is defined in section 1.40 (Section 33-1-400) to include both individuals and entities; "entity" is also defined in that section to include corporations, unincorporated associations, partnerships, trusts, estates, and governments.
  The Model Act also simplifies the formalities of execution and filing. The requirement in earlier versions of the Model Act and in many state statutes that articles be acknowledged or verified has been eliminated. Also, the requirement that "duplicate originals" (each being executed as an original document) be submitted has been replaced with the requirement that a signed original and an "exact or conformed" copy be submitted. See the Official Comment to section 1.20 (Section 33-1-200).
SOUTH CAROLINA REPORTERS' COMMENTS
  Nothing contained in this Section 33-2-101 should be construed as requiring that the company may only have one incorporator. As is clearly spelled out in Section 33-2-102(a)(5), there may be more than one incorporator. There are only two substantive changes in this section:
  (1) Additional entities can serve as the incorporator.
  Although both the 1981 South Carolina Business Corporation Act and this act provide that either a corporation or other entity is a "person" and thus can be an incorporator, the definition of "entity" has been expanded. These additional organizations identified in the expanded definition of "entity" likewise can serve as an incorporator. Like the old law, the new law excludes "incompetents" from the definition of persons, and thus they cannot serve as incorporators.
  (2) No verification.
  The 1981 South Carolina Business Corporation Act required the articles to be verified. This act permits verification. but does not require it.
  The old law also spelled out that the incorporator did not need to be a resident of South Carolina. This is implicit in the new law, since the statute says "any person" can be the incorporator. If only South Carolina residents could qualify, the statute would have to mention specifically this. limitation. Although this section no longer states specifically that the articles must be executed, this is specified in Section 33-1-200.
  In one case, decided pursuant to the terms of an earlier version of the Model Business Corporation Act, the South Carolina Supreme Court stated:
  "The promoters of a corporation occupy a relation of trust and confidence towards the corporation which they are calling into existence as well as to each other, and the law requires of them the same good faith it exacts from directors and other fiduciaries."
Duncan v. Brookview House, Inc., 262 S.C. 449, 456, 205 S.E.2d 707, 710 (1974).
DERIVATION: 1984 Model Act Section 2.01.
Section 33-2-102. Articles of incorporation.
  (a) The articles of incorporation must set forth:
  (1) a corporate name for the corporation that satisfies the requirements of Section 33-4-101;
  (2) the number of shares the corporation is authorized to issue, itemized by classes;
  (3) the street address of the corporation's initial registered office and the name of its initial registered agent at that office;
  (4) the name and address of each incorporator;
  (5) the signature of each incorporator; and
  (6) a certificate, signed by an attorney licensed to practice in this State, that all of the requirements of this chapter have been complied with.
  (b) The articles of incorporation may set forth:
  (1) The names and addresses of the individuals who are to serve as the initial directors;
  (2) Provisions not inconsistent with the law regarding:
    (i) the purpose for which the corporation is organized;
    (ii) managing the business and regulating the affairs of the corporation;
    (iii) defining, limiting, and regulating the powers of the corporation, its board of directors, and shareholders;
    (iv) a par value for authorized shares or classes of shares;
    (v) the imposition of personal liability on shareholders for the debts of the corporation to a specified extent and upon specified conditions; and
    (3) any provision that under this act is required or permitted to be set forth in the bylaws. (c) The articles of incorporation need not set forth any of the corporate powers enumerated in this act.
  (d) To be filed, the articles of incorporation must additionally be accompanied by the initial annual report of the corporation as specified in Section 12-19-20.
  (e) The articles of incorporation of any corporation that either has a class of voting shares registered with the Securities and Exchange Commission or another federal agency under Section 12 of the Securities Exchange Act of 1934, has gross assets at the end of its most recent fiscal year totalling twenty-five million dollars or more or having five hundred or more shareholders of any class of stock, may also contain a provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, provided that the provision shall not eliminate or limit the liability of a director
(i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve gross negligence, intentional misconduct, or a knowing violation of law; (iii) imposed under Section 33-8-330; or (iv) for any transaction from which the director derived an improper personal benefit. No such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when the provision becomes effective. If any provision of this subsection or its application to any person is held invalid, unenforceable, or unconstitutional, this invalidity, unenforceability, or unconstitutionality shall negate the other provisions or applications of this subsection,
and to this end, the provisions of this subsection are not severable.
CROSS REFERENCES
Amendment of articles, see Chapter 10, Article 1.
Bylaws, see Sections 33-2-106, 33-2-107, and Chapter 10, Article 2.
Close corporations, see Statutory Close Corporation Supplement, see Section 33-18-103.
Conflict of interest, see Section 33-8-310.
Duration of corporate existence, see Section 33-3-102.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Incorporators, see Section 33-2-101.
Liability of shareholders, see Section 33-6-220.
Powers, see Section 39-3-102.
Professional corporations, see Professional Corporation Supplement, Section 33-19-103.
Purposes, see Section 33-1-101.
Restated articles, see Section 33-10-107.
Share classes, see Section 33-6-101.
OFFICIAL COMMENT
1. INTRODUCTION
  Section 2.02(a) (Section 33-2-102(a)) sets forth the minimum mandatory requirements for all articles of incorporation while section 33-2-102(b) describes optional provisions that may be included. A corporation that is formed solely pursuant to the mandatory requirements will generally have the broadest powers and least restrictions on activities permitted by the Model Act. The Model Act thus permits the creation of a "standard" corporation by a simple and easily prepared one-page document.
  No reference is made in section 2.02(a) (Section 33-2-102(a)) either to the period of duration of the corporation or to its purposes. A corporation formed under these provisions will
automatically have perpetual duration under section 3.02(1) (Section 33-3-102(1)) unless a special provision is included providing a shorter period. Similarly, a corporation formed without reference to a purpose clause will automatically have the purpose of engaging in any lawful business under section 3.01(a) (Section 33-3-101(a)). The option of providing a narrower purpose clause is also preserved in sections 2.02(b)(2) and 3.01 (Sections 33-2-102(b)(2) and 33-3-101). with the effect described in the Official Comment to section 3.01 (Section 33-3-101).
2. REQUIREMENTS
  The only information required in the articles of incorporation to form a "standard" corporation is:
  (1) The name, which must meet the requirements of chapter 4 of the Model Act.
  (2) The number of shares the corporation is authorized to issue. If a single class of shares is authorized, only the number of shares authorized need be disclosed; if more than one class of shares is authorized, however, both the number of authorized shares of each class and a description of the rights of each class must be included. See the Official Comment to sections 6.01 and 6.02 (Sections 33-6-101 and 33-6-102). It is unnecessary to specify par value, expected minimum capitalization, or contemplated issue price.
  (3) The street address of the corporation's initial registered office and the name of its initial registered agent. A mailing address consisting only of a post office box is not sufficient.
  (4) The name and address of each incorporator.
  No reference need be made in these "standard" articles to a variety of other matters that are referred to in earlier versions of the Model Act and the statutes of many states. For example, there is no need to refer to preemptive rights. See section 6.31 (Section 33-6-310) and the Official Comment. Generally, no substantive effect should be given to the absence of a specific reference to such matters in section 2.02 (Section 33-2-102) since they are referred to in other sections of the Model Act, which usually provide an "opt in" privilege that permits a draftsman to elect special treatment if he so desires. See particularly the list of optional provisions set forth in parts 4 and 5 of this Comment.
3. OPTIONAL PROVISIONS
  Section 2.02 (b) (Section 33-2-102(b)) describes specific options that may be elected by the draftsman and contains general authorization to include other provisions relevant to the authority of the corporation, Its officers and board of directors, or to the management of the corporation's internal affairs. These provisions include:
  a. Initial directors
  Under section 2.02(b)(1) (Section 33-2-102(b)(1)) an election may be made to have the corporation organized by a person or persons other than the incorporators. See the Official Comment to section 2.03 (Section 33-2-103). These persons, described as "initial directors," may be either the permanent directors or interim directors to be replaced by the shareholders after the corporation is organized.
  b. Purpose clause
  Under section 2.02(b)(2)(i) (Section 33-2-102(b)(2)(i)), the corporation may elect a limited purpose clause or provide for specific purposes without limiting the broad purposes provided in section 3.01 (Section 33-3-101). (Specific purposes may be needed, among other reasons, for qualification in certain domestic and foreign jurisdictions and in order to obtain licenses.)
  c. Duration
  Nearly every corporation today is formed with perpetual duration, but a corporation may elect a shorter duration under section 2.02 (b)(2)(iii) (Section 33-2-102(b)(2)(iii)).
  d. Par value
  While par value is no longer a mandatory statutory concept, section 2.02(b)(2)(iv) (Section 33-2-102(b)(2)(iv)) permits the inclusion of optional "par value" provisions with regard to shares. Special provisions may give effect or meaning to "par value" essentially as a matter of contract between the parties. These provisions, whether appearing in the articles or in other documents, have only the effect any permissible contractual provision has in the absence of a prohibition by statute. Provisions in the articles establishing an optional par value may also be of use to corporations which are to be qualified in foreign jurisdictions if franchise or other taxes are computed upon the basis of par value.
  For a general discussion of the treatment of par value, stated capital, and other historical concepts relating to capitalization, see the Official Comment to section 6.21 (Section 33-6-210).
  e. Shareholder liability
  The basic tenet of modern corporation law is that shareholders are not liable for the corporation's debts by reason of their status as shareholders. Section 2.02(b)(2)(v) (Section 33-2-102(b)(2)(v)) nevertheless permits a corporation to impose that liability under specified circumstances if that is desirable. If no provision of this type is included shareholders have no liability for corporate debts except to the extent they become liable by reason of their own conduct or acts. See section 6.22 (Section 33-6-220(b)).
  f. Corporate powers
  Section 2.02(c) (Section 33-2-102(c)) makes it unnecessary to set forth any corporate powers in the articles. Section 3.02 (Section 33-3-102) grants every corporation essentially the same power that an individual possesses with respect to his affairs. This grant of power, however, may be considered overboard for certain corporations; if so, it may be qualified or narrowed by appropriate provisions in the articles.
  g. Miscellaneous
  Under section 2.02(b)(2)(ii) and (iii) (Section 33-2-102(b)(2)(ii)) and (iii) the draftsman may include any provision not inconsistent with law for "managing the business and regulating the affairs of the corporation" and "defining, limiting, and regulating the powers of the corporation, its board of directors and shareholders." This language is designed to allow the draftsman to place in the articles any number of miscellaneous provisions that he believes sufficiently important to be of public record or subject to amendment only by the processes applicable to amendments of articles of incorporation. Basically, the process of amendment of articles of incorporation requires shareholder approval, while bylaws typically may be amended by the board of directors acting alone, though in some instances the power of directors to amend bylaws is restricted. See sections 10.20 - 10.22 (Sections 33-10-200 - 33-10-220) and the Official Comments to those sections. Provisions relating to the business or affairs of the corporation that may be included in the articles may be subdivided into three general classes:
  (1) Provisions that under the Model Act may be elected only by specific inclusion in the articles of incorporation. A list of these provisions is set forth in part 4 of this Comment.
  (2) Provisions that under the Model Act may be elected by specific inclusion in either the articles of incorporation or the bylaws, and the draftsman elects to include the provision in the articles. A list of provisions that may be elected in either the bylaws or the articles is set forth in part 5 of this Comment.
  (3) Other provisions not referred to in the Model Act that the draftsman decides should be included in the articles of incorporation. This includes but is not limited to any provision that the Act requires or permits to be set forth in the bylaws. See section 2.02(b)(3) (Section 33-2-102(b)(3)).
  h. Self-dealing transactions
  When subsidiaries or corporate joint ventures are being formed, special consideration should be given to the inclusion of provisions designed to limit or avoid the unexpected application of the doctrines of corporate opportunity and conflict of interest. While this type of clause will not provide total protection, it may be given limited effect, for example, by shifting the burden of proving unfairness or "exonerating" an arrangement from "adverse influences." See Spiegal v. Beacon Participations Inc., 297 Mass. 398, 8 N.E.2d 895 (1937); see generally the Official Comment to section 8.31 (Section 33-8-310).
4. OPTIONS IN MODEL ACT THAT MAY BE ELECTED ONLY IN THE ARTICLES OF INCORPORATION
  a. Options with respect to directors
  (1) Board of directors may be dispensed with entirely in limited circumstances or its functions may be restricted, section 8.01 (Section 33-8-101).
  (2) Power to compensate directors may be restricted or eliminated, section 8.11 (Section 33-8-111).
  (3) Election of directors by cumulative voting may be authorized, section 7.28 (Section 33-7-280) .
  (4) Election of directors by greater than plurality of vote may be authorized, section 7.28 (Section 33-7-280)
  (5) Directors may be elected by classes of shares, section 8.04 (Section 33-8-104).
  (6) Power to remove directors without cause may be restricted or eliminated, section 8.08 (Section 33-8- 108).
  (7) Terms of directors may be staggered so that all directors are not elected in the same year, section 8.06 (Section 33-8-106).
  (8) Power to fill vacancies may be limited to the shareholders, section 8.10 (Section 33-8- 100).
  (9) Power to indemnify directors, officers, and employees may be limited, sections 8.50 - 8.58 (Sections 33-8-500 - 33-8-580).
  b. Options with respect to shareholders
  (1) Special voting groups of shareholders may be authorized, section 7.25 (Section 33-7-250).
  (2) Quorum for voting groups of shareholders may be increased or reduced, sections 7.25, 7.60 and 7.27 (Sections 33-7-250, 33-7-260, and 33-7-270).
  (3) Quorum for voting by voting groups of shareholders may be prescribed, section 7.26 (Section 33-7-260).
  (4) Greater than majority vote may be required for action by voting groups of shareholders, section 7.27 (Section 33-7-270), see also section 10.21 (Section 33-10-210).
  c. Options with respect to shares
  (1) Shares may be divided into classes and classes into series, sections 6.01 and 6.02 (Sections 33-6-101 and 33-6-102).
  (2) Cumulative voting for directors may be permitted, section 7.28 (Section 33-7-280).
  (3) Distributions may be restricted, section 6.40 (Section 33-6-400).
  (4) Share dividends may be restricted, section 6.23 ( Section 33-6-230).
  (5) Voting rights of classes of shares may be limited or denied, section 6.01 (Section 33-6-101).
  (6) Classes of shares may be given more or less than one vote per share, section 7.21 (Section 33-7 -210).
  (7) Shares may be redeemed at the option of the corporation or the shareholder, section 6.01 (Section 33-6-101).
  (8) Reissue of redeemed shares may be prohibited, section 6.31 (Section 33-6-310).
  (9) Shareholders may be given preemptive rights to acquire unissued shares, section 6.30 (Section 33-6-300).
  (10)Redemption preferences may be ignored in determining lawfulness of distributions, section 6.40 (Section 33-6-400).
5. OPTIONS IN MODEL ACT THAT MAY BE ELECTED EITHER IN THE ARTICLES OF INCORPORATION OR IN THE BYLAWS
  a. Options with respect to directors
  (1) Number of directors may be fixed or changed within limits, section 8.03 (Section 33-8- 103).
  (2) Qualifications for directors may be prescribed, section 8.02 ( Section 33-8- 102).
  (3) Notice of regular or special meetings of board of directors may be prescribed, section 8.22 (Section 33-8-220).
  (4) Power of board of directors to act without meeting may be restricted, section 8.21 (Section 33-8-210).
  (5) Quorum for meeting of board of directors may be increased or decreased (down to one-third) from majority, section 8.24 (Section 33-8-240).
  (6) Action at meeting of board of directors may require a greater than majority vote, section 8.24 (Section 33-8-240).
  (7) Power of directors to participate in meeting without being physically present may be prohibited, section 8.20 (Section 33-8-200).
  (8) Board of directors may create committees and specify their powers, section 8.25 (Section 33-8-250).
  (9) Power of board of directors to amend bylaws may be restricted, sections 10.20 and 10.22 (Sections 33- 10-200 and 33- 10-220).
  b. Options with respect to shares
  (1) Shares may be issued without certificates, section 6.26 (Section 33-6-260).
  (2) Procedure for treating beneficial owner of street name shares as record owner may be prescribed, section 7.23 (Section 33-7-230).
  (3) Transfer of shares may be restricted, section 6.27 (Section 33-6-270).
SOUTH CAROLINA REPORTERS' COMMENTS
  Significant changes have been made in the requirements for the articles of incorporation. The most significant change is that now very little is mandatory. Most of the provisions which were required under the predecessor statute, Section 33-7-30 of the 1981 South Carolina Business Corporation Act, are now optional.
  1. Optional Provisions Previously Required
  The following previously mandatory provisions are now specifically mentioned only as optional provisions:
  (1) a specific purpose clause (new subsection (b)( 2 )(i)). It should be noted that the articles can specify more than one purpose.
  (2) the names of any initial or permanent directors (new subsection (b)(1));
  Neither actual directors, nor dummy directors, must be named since the incorporators now are given the power to formally organize the company (see Section 33-2-105 of this act). Previously, the organization could be done only by real or interim directors;
  (3) description of shares.
  Unless there is more than one class of shares, the articles now are required to state only the number of shares authorized. However, if there is more than one class, then similar to prior requirements, the articles must describe carefully the characteristics of each type. Section 33-6-101 of this act, which sets forth these requirements, should be reviewed carefully in drafting the articles.
  2. Retention of Attorney Certification, Deletion of Verification
  The former law required all articles to be accompanied by a South Carolina attorney certification that all requirements for incorporation had been complied with (see Section 33-7-30(d) of the 1981 South Carolina Business Corporation Act). This section has been retained. Empirical research showed that a large percentage of the articles certified by South Carolina attorneys had significant errors noticeable on the face of the application.
  On the other hand, prior to the adoption of the attorney certification, the Secretary of State's office would receive forms filled out in pencil, many of which made no sense. Many of these forms were prepared by non-lawyers for the use of others. Many of these were drafted very poorly.
  As discussed in Section 33-2-101, the incorporator, although free to do so, no longer is required to verify the articles (see the South Carolina Reporters' Comments to Section 33-1-200).
  3. Provisions Moved to Other Sections
  Although this act omits certain provisions which appeared in the 1981 South Carolina Business Corporation Act, many of these requirements still exist in other sections:
  (1) All corporations still are deemed to have perpetual duration unless otherwise specified in the articles (see Section 33-3-102).
  (2) Shareholders have preemptive rights unless otherwise specified (see Section 33-6-300).
  (3) Articles may have a delayed effective date (see Section 33-1-230).
  4. New Optional Provisions
  There are no new mandatory provisions, but there are new optional provisions specifically mentioned in this new section.
  First, subsection (b)(2)(v) permits the articles to impose personal liability on shareholders.
  Second, although new subsection (b)(2)(ii) looks similar to the language found in Section 33-7-30(a)(7)(c) of the 1981 South Carolina Business Corporation Act, as discussed in the Official Comment (3)(g) above, the new language is much broader. It allows the articles to include provisions regarding managing the business - not merely provisions that "relate to" the business (the old language). For example, Section 33-8-101(c) provides that certain corporations can dispense with, or limit, the authority of the board, if the articles provide who will perform the director's duties.
  Third, new subsection (e) authorizes large corporations that meet one of three criteria (1) a class of shares registered with the Securities and Exchange Commission or another federal agency under Section 12 of the Securities Exchange Act of 1934, (2) has gross assets at the end of its most recent fiscal year of twenty-five million dollars or more, or (3) has at least five hundred shareholders of any class of stock to include in the articles of incorporation a provision exempting directors from liability for simple negligence in suits for damages based on a lack of due care brought by one or more of the corporation's shareholders. This subsection, which is a modification of director limited liability I statutes adopted in Delaware and many other j states in the past few years, creates a very narrow exemption. The articles of incorporations cannot exempt a director:
  (1) from injunctive liability; or
  (2) for any actions by a third party; or
  (3) in suits by shareholders for damage liability for any breach of loyalty, for any transaction from which the director derived an improper personal benefit, liability for acts and omissions which involve gross negligence, intentional misconduct or a knowing violation of law, or for improper distributions. Furthermore, any provision in the articles of incorporation limiting the liability of directors pursuant to this subsection has no effect on any liability arising out of an act or omission occurring prior to the date when the provision in the articles of incorporation becomes effective. Finally, the subsection contains a nonseverability clause which clearly states that if any part of the subsection is held invalid, unenforceable or unconstitutional, then the entire subsection will be invalid and any exemption from liability in a corporation's articles of incorporation based on this subsection would likewise be invalid and unenforceable.
  This subsection is intended to apply only to large solvent corporations. In determining whether any corporation has gross assets of twenty-five million dollars, the board may base a determination either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances (cf. the Official Comments and South Carolina Reporters' Comments to Section 33-6-400 (d) for an explanation of similar language). The board of directors may, of course, rely on various financial statements and data as provided in Section 33-8-300(b).
  It should be noted that each separate corporation in a group of affiliated companies, e.g. parent and subsidiary, will each have to meet the requisite size requirement and have specifically adopted the provision of Section 33-2-102(e) in order for the directors of each company to claim protection under this subsection.
  The directors of all corporations, regardless of their eligibility for the limited exemption from liability authorized by this subsection, can invoke the business judgment rule as a defense to any action against them. See Dockside Association, Inc. v. Detyen, 294 S.C. 1986, 362 S.E. 2d 874.
  5. Other Optional Provisions Found in Other Sections
  Other provisions which may be included in the articles are discussed in other sections and chapters of this title. Some of these are new. The Official Comment lists many of the optional provisions which are set forth in other parts of the act and which the attorney should consider in drafting any set of articles.
  One important optional provision not found in the Model Act is the definition of "shareholder" ln Section 33-1-400(23) which permits a company to give voting rights to debt instruments but only if included in the articles of incorporation.
  6. Similar Provisions
  Most of the other provisions in this section, although often reworded, are substantively the same as the prior law.
  For example, the language changes in subsections (a)(1), (a)(3), and (b)(2)(iv) do not appear significant. Subsection (b)(3) allows inclusion in the articles any provision which is permitted in the bylaws. This language seems slightly more restrictive than the predecessor section which allowed placing in the articles anything which the corporate code permitted in "an agreement or other instrument" (see Section 33-7-30(a)(7)(B) of the 1981 South Carolina Business Corporation Act). However, when you combine this new subsection (b)(3) with new subsection (b)(2)(ii) of this act, which permits provisions regarding management of the business and regulating the affairs of the corporation to be put in the articles, there is probably an expansion of items which can properly be included in the articles.
  Some of the provisions now in this section were previously found in sections dealing with other topics. Both subsections (b)(2)(iii), dealing with limits on the board or shareholder power, and subsection (c), specifying that the articles need not contain all the statutory powers, are effectively the same as provisions found in Section 33-3-20 of the 1981 South Carolina Business Corporation Act.
  7. Must be Accompanied by First Report and License Fee In order to file the articles in South Carolina, in keeping with existing practices, the articles must be accompanied by the initial annual report of the corporation to the Tax Commission and the payment of all fees and taxes owed to the Tax Commission, as is specified in Section 12-19-20.
  As of the date these comments were written, the license fee to be paid with the initial annual report was twenty-five dollars.
DERIVATION: 1984 Model Act Section 2.02.
  Section 33-2-103. Incorporation.
  (a) Unless a delayed effective date is specified, the corporate existence begins when the articles of incorporation are filed.
  (b) The Secretary of State's filing of the articles of incorporation is conclusive proof that the incorporators satisfied all conditions precedent to incorporation except in a proceeding by the State to cancel or revoke the incorporation or involuntarily dissolve the corporation.
CROSS REFERENCES
Corporations de facto, see Section 33-2-104.
Dissolution, see Chapter 14.
Duration, see Section 33-3-102.
Effective time and date of filing, see
Section 33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Secretary of State's filing duty, see Section 33-1-250.
OFFICIAL COMMENT
  Section 2.03(a) (Section 33-2-103(a)) provides that the existence of a corporation begins when the articles of incorporation are filed, unless a delayed effective date is specified under section 1.23 (Section 33-1-230). Chapter contains detailed rules for the filing and effective dates of documents, all of which are applicable to articles of incorporation and other documents. These filing rules simplify the process of creating a corporation in several respects.
1. WHAT TO FILE
  Section 1.20 (Section 33-1-200) requires that only one executed original and an exact or conformed copy of the articles need be delivered to the secretary of state for filing. This delivery must be accompanied by the applicable filing fee.
2. NATURE OF FILING
  Section 1.25 (Section 33-1-250) provides that the secretary of state files the articles by stamping them "filed" and recording the date and time of receipt; he then retains the signed original articles of incorporation for his records and returns the exact or conformed copy to the incorporators along with a receipt for the fee. The return of this copy and the fee receipt establishes that the articles have bee filed in the form of the copy.
3. CERTIFICATE OF INCORPORATION ELIMINATED
  Section 1.25 (Section 33-1-250) provides that approval by the secretary of state is in the form of return of the copy of the articles wit a fee receipt rather than a certificate o incorporation, as was the older practice still followed in many states. See the Official Comment to section 1.25 (Section 33-1-250).
4. PRECISE TIME OF INCORPORATION
  Section 1.03(a) (Section 33-1-103(a)) ties to precise time of incorporation to the date ar time stamped on the articles. Section 1. (Section 33-1-230) provides in turn that this i the date and time the articles are received the secretary of state; in other word< consistent with the practice of many secretaries of state, processing time is ignored and the date and time of receipt of the articles are the date and time of incorporation. The creators of the corporation may, however, specify that the corporation's existence will begin on a later date than the date of filing, and at a precise time on such a date, to the extent permitted by section 1.23 (Section 33-1-230).
5. CONCLUSIVENESS OF SECRETARY OF STATE'S ACTION ON QUESTION OF INDIVIDUAL LIABILITY FOR CORPORATE ACTIONS
  Under section 2.03(b) (Section 33-2-103(b)) the filing of the articles of incorporation as evidenced by return of the stamped copy of the articles with the fee receipt is conclusive proof that all conditions precedent to incorporation have been met, except in proceedings brought by the state. Thus the filing of the articles of incorporation is conclusive as to the existence of limited liability for persons who enter into transactions on behalf of the corporation. If articles of incorporation have not been filed, section 2.04 (Section 33-2-104) generally imposes personal liability on all persons who prematurely act as or on behalf of a "corporation" knowing that articles have not been filed. Section 2.04 (Section 33-2-104) may protect some of these persons to a limited extent, however; see the Official Comment to that section.
SOUTH CAROLINA REPORTERS' COMMENTS
  It has long been the case in South Carolina that the grant of the corporate charter is the operative act, and its issuance establishes the corporation regardless that there is a later failure to carry out other steps in the formation process. See McKay v. Beard, 20 S.C. 156, 163 (1883). See also, however, the discussion of de facto and corporations by estoppel in the Official and South Carolina Reporters' Comments to Section 33-2-104.
  The contents of this section, as amplified by Section 33-1-230, essentially provide the same requirements as were previously set forth in Section 33-7-50 of the 1981 South Carolina Business Corporation Act. Unless a delayed date is set forth, the articles continue to be effective when filed. As was true under prior law, the term "filed" means the time a document which meets all the statutory requirements (see Section 33-1-200) is accepted by the Secretary of State and endorsed as being accepted (see Sections 33-1-230 and 33-1-250).
  The only change from the old law is that Section 33-7-50(b)(2) of the 1981 South Carolina Business Corporation Act stated that the mere filing of articles did not prohibit the State of South Carolina from "enjoining any person from acting as a corporation within this State without being duly incorporated." This language has not been adopted as part of the new law since this provision did not grant to the State any new rights.
DERIVATION: 1984 Model Act Section 2.03.
  Section 33-2-104. Liability for preincorporation transactions. All persons purporting to act as or on behalf of a corporation, when there has been no incorporation under this act, are jointly and severally liable for .all liabilities created while so acting, provided that any person so acting while believing in good faith that the articles have been filed shall not have any liability under this section.
CROSS REFERENCES
Incorporation, see Section 33-2-103.
"Person" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Earlier versions of the Model Act, and the statutes of many states, have long provided that corporate existence begins only with the acceptance of articles of incorporation by the secretary of state. Many states also have statutes that provide expressly that those who prematurely act as or on behalf of a corporation are personally liable on all transactions entered into or liabilities incurred before incorporation. A review of recent case law Indicates, however, that even in states with such statutes courts have continued to rely on common law concepts of de facto corporations, de Jure corporations, and corporations by estoppel that provide uncertain protection against liability for preincorporation transactions. These cases caused a review of the underlying policies represented in earlier versions of the Model Act and the adoption of a slightly more flexible or relaxed standard.
  Incorporation under modern statutes is so simple and inexpensive that a strong argument may be made that nothing short of filing articles of incorporation should create the privilege of limited liability. A number of situations have arisen, however, in which the protection of limited liability arguably should be recognized even though the simple incorporation process established by modern statutes has not been completed.
  (1) The strongest factual pattern for immunizing participants from personal liability occurs in eases in which the participant honestly and reasonably but erroneously believed the articles had been filed. In Cranson v. International Business Machines CorP., 234 Md. 477, 200 A.Zd 33 (1964), for example, the defendant had been shown executed articles of incorporation some months earlier before he invested in the corporation and became an officer and director. He was also told by the corporation's attorney that the articles had been filed, but in fact they had not been filed because of a mix-up in the attorney's office. The defendant was held not liable on the "corporate" obligation.
  (2) Another class of cases, which is less compelling but in which the participants sometimes have escaped personal liability, involves the defendant who mails in articles of incorporation and then enters into a transaction in the corporate name; the letter is either delayed or the secretary of state's office refuses to file the articles after receiving them or returns them for correction. E.g., Cantor v. Sunshine Greenery, Inc., 165 N.J. Super. 411, 398 A.2d 571 (1979). Many state filing agencies adopt the practice of treating the date of receipt as the date of issuance of the certificate even though delays and the review process may result in the certificate being backdated. The finding of nonliability in cases of this second type can be considered an extension of this principle by treating the date of original mailing or original filing as the date of incorporation.
  (3) A third class of cases in which the participants sometimes have escaped personal liability involves situations where the third person has urged immediate execution of the contract in the corporate name even though he knows that the other party has not taken any steps toward incorporating. E.g., Quaker Hill v. Parr, 148 Colo. 45, 364 P.2d 1056 (1961).
  (4) In another class of cases the defendant has represented that a corporation exists and entered into a contract in the corporate name when he knows that no corporation has been formed, either because no attempt has been made to file articles of incorporation or because he has already received rejected articles of incorporation from the filing agency. In these cases, the third person has dealt solely with the "corporation" and has not relied on the personal assets of the defendant. The imposition of personal liability in this class of cases, it has sometimes been argued, gives the plaintiff more than he originally bargained for. On the other hand, to recognize limited liability in this situation threatens to undermine the incorporation process, since one then may obtain limited liability by consistently conducting business in the corporate name. Most courts have imposed personal liability in this situation. E.g., Robertson v. Levy, 197 A.2d 443 (D.C. App. 1964).
  (5) A final class of cases involves inactive investors who provide funds to a promoter with the instruction, "Don't start doing business until you incorporate." After the promoter does start business without incorporating, attempts have been made, sometimes unsuccessfully, to hold the investors liable as partners. E.g. Frontier Refining Co. v. Kunkels, Inc., 407 P.2d 880 (Wyo. 1965). One case held that the language of section 146 of the 1969 Model Act ["persons who assume to act as a corporation are liable for preincorporation transactions"] creates a distinction between active and inactive participants, makes only the former liable as partners, and therefore relieves the latter of personal liability. Nevertheless, "active" participation was defined to include all investors who actively participate in the policy and operational decisions of the organization and is, therefore, a larger group than merely the persons who incurred the obligation in question on behalf of the "corporation." Timberline Equipment Co. v. Davenport, 267 Or. 64, 72-76, 514 P.2d 1109, 1113-14 (1973).
  After a review of these situations, it seemed appropriate to impose liability only on persons who act as or on behalf of corporations "knowing" that no corporation exists. Analogous protection has long been accorded under the uniform limited partnership acts to limited partners who contribute capital to a partnership in the erroneous belief that a limited partnership certificate has been filed. UNIFORM LIMITED PARTNERSHIP ACT Section 12 (1916); REVISED UNIFORM LIMITED PARTNERSHIP ACT Section 3.04 (1976). Persons protected under Section 3.04 of the latter are persons who "erroneously but in good faith" believe that a limited partnership certificate has been filed. The language of section 2.04 (Section 33-2-104) has essentially the same meaning.
  While no special provision is made in section 2.04 (Section 33-Z-104), the section does not foreclose the possibility that persons who urge defendants to execute contracts in the corporate name knowing that no steps to incorporate have been taken may be esto M ed to impose personal liability on individual defendants. This estoppel may be based on the inequity perceived when persons, unwilling or reluctant to enter into a commitment under their own name, are persuaded to use the name of a nonexistent corporation, and then are sought to be held personally liable under section 2.04 (Section 33-2-104) by the party advocating that form of execution. By contrast, persons who knowingly participate in a business under a corporate name are jointly and severally liable on "corporate" obligations under section 2.04 (Section 33-2-104) and may not argue that plaintiffs are "estopped" from holding them personally liable because all transactions were conducted on a corporate basis.
SOUTH CAROLINA REPORTERS' COMMENTS
  1. History
  It has long been the case in South Carolina that the grant of the corporate charter establishes the corporation, regardless of failures to carry out other steps of the formation process:
  "After a corporation, duly constituted by act of the legislature, which corporation is composed of only two persons, has entered upon the work for which the corporation was established, appointed an agent, expended large sums of money on such work, and done acts which it would not have been lawful to do but for the charter granted by the legislature, it is too late to say that such corporation had never accepted the charter, or been organized as such, even though it does not appear that there was ever any formal organization by a meeting of the corporators and an election of the usual officers." McKay v. Beard, 20 S.C. 156, 163 (1883).
  Although the actual conclusion of the court is far from clear, it would appear that the holding of Bulova Watch Co. v. Roberts Jewelers, 240 S.C. 280, 125 S.E.2d 643 (1962), is to disapprove specifically of the doctrine of de *racto corporations. In this case Bulova had dealt with Roberts Jewelers of Rock Hill, Inc. prior to the corporation losing its charter in 1955. From 1955 through 1959, Mr. Roberts, either in his individual capacity, or possibly on behalf of the old (defunct) corporation continued to order goods. Mr. Roberts testified that the business was being operated by him, that he continued the business under the name "Roberts Jewelers", and all dealings were in the corporate name. Since the court was not able to conclude that Roberts was acting other than in his individual capacity (or possibly only for an undisclosed principal), the court was not required to determine if the doctrine of de facto corporations could be a defense for Mr. Roberts. However, language in the case indicates a strong dislike for the doctrine.
  There are two South Carolina cases, one a Supreme Court opinion and one a Fourth Circuit opinion, which could be read to infer that South Carolina continued to recognize the doctrine of de facto corporation in spite of Section 33-7-60 in the 1981 South Carolina Business Corporation Act which reads: "Section 33-7-60. Requirements of capital before commencing business; personal liability.
  (a) A corporation shall not transact any business or incur any indebtedness except such as shall be incidental to its organization or obtaining subscriptions or payment for its shares until the articles of incorporation have been filed with the Secretary of State.
  (b) If a corporation has transacted any business in violation of this section, any person (whether a promoter, incorporator, shareholder, subscriber, or director) who has participated therein shall be jointly and severally liable for the debts or liabilities of the corporation arising therefrom. No such person shall be personally liable if he (1) dissented from such violation and caused his dissent to be recorded in the records of the corporation, or (2) being absent, recorded and filed his dissent promptly upon learning of the action." However, both of these cases are much more properly viewed as situations where a person who represented he was a shareholder in a corporation later attempted to deny there was a corporation.
  In Dargan v. Graves, 252 S.C. 641, 168 S.E.2d 306 (1969), a person who functioned not only as a shareholder, but also as a director and officer, later denied he and his "co-owner" were shareholders. He claimed that since, as was then required, no shares were issued, that the relationship between him and his co-owner was that of partners. He claimed that his "partner" therefore personally owed him certain debts owed to him by the business. The court prohibited him from denying his earlier representations that he was a shareholder and estopped him from claiming he was a partner. In addition, the court estopped him from denying the corporation's existence. (Interestingly, it is difficult to see why estoppel is really proper in this case, since the other co-owner was totally aware of all facts and could not really be said to have reasonably relied on the plaintiff's acknowledgment that they were shareholders.) It could be argued that neither this section, as drafted, nor the prior South Carolina version of this statute (Section 33-2-104 of the 1981 South Carolina Business Corporation Act) has anything to do with a situation such as Dargan v. Graves and that estoppel still would apply. On the other hand, if the corporation was not properly formed in Dargan v. Graves, the plain meaning of the new section might seem to Indicate that the purported shareholder would be automatically liable unless he had a good faith belief that the corporation had been properly formed.
  The Fourth Circuit and the Federal District Court in United States v. Theodore, 347 F.Supp 1070 (1972), aff'd 479 F.2d 752 (1973), both cite Dargan v. Graves, supra, for the proposition that:
  "We further agree with the District Court that South Carolina continues to recognize de facto corporations and corporations by estoppel…" 479 F.2d at 753.
  However, the Theodore case, similar to Dargan v. Graves, involves an estoppel type situation. Theodore refused to disclose "corporate" books and records to the Internal Revenue Service on the theory that although he held himself out as a corporation (P.A.) that he never filed articles and thus there was no corporation. If there were no corporation, the government could not have obtained the books since they were personal and such disclosure would violate the Fifth Amendment protection against self-incrimination.
  The court held the individual was denied the right to challenge his prior claim of corporateness. Like Dargan, and except for a question of reasonable reliance on the government's part, this Theodore case is more properly just an application of normal estoppel principles and does not need to rise to the level of de facto corporation. It would seem that nothing in this section (or in the 1981 South Carolina Business Corporation Act) would necessarily change the outcome in Theodore.
  One other case is mentioned in Theodore allegedly showing that South Carolina continues to recognize the de facto doctrine. This is the case of Bethea v. Allen, 177 S.C. 534, 181 S.E 893 (1935). However, the statute under which the Bethea corporation was organized did not specifically prohibit de facto corporations, and in fact, recognized the de facto doctrine. (See also, Francis Marion Hotel v. Chico, 131 S.C. 344, 127 S . E . 436 (1924) ).
  In the context of liability of incorporators, or those who act thinking they are a corporation and are not, the statements in Duncan v. Brookview House, Inc., 262 S.C. 449, 456, 205 S.E.2d 707, 710 (1974) should not be forgotten:
  "The promoters of a corporation occupy a relation of trust and confidence toward the corporation which they are calling into existence as well as to each other, and the law requires of them the same good faith it exacts from directors and other fiduciaries."
  Nothing in this section changes this standard, and, in fact, it would seem that it is strengthened.
2. Intent of South Carolina Modification
  This section is significantly different than Section 2.04 of the 1984 Model Act upon which it is based. The Official Text of the Model Act imposes liability only upon a promoter acting on behalf of a nonexistent corporation with actual knowledge that it has not been incorporated under the act. There are several problems with this standard. First, the test is subjective ("knowing") rather than objective ("knew or should have known") and thus is insusceptible of proof or certain judicial determination. Second, the knowledge required is not that of a fact but of a legal conclusion - that incorporation has not occurred. Finally, the impossible burden of proving this subjective knowledge of a legal effect is upon the person asserting a claim instead of the person whose knowledge is at issue. This section cures those shortcomings. First, although it uses a subJective standard, it is conditioned with the requirement that the belief be held in good faith - a requirement that invites the court to scrutinize the surrounding circumstances. Second, the belief is to be that an operative fact, the filing of the articles, has occurred. Finally, the burden of proof is placed upon the person whose good faith belief is at issue, since he will usually be in a better position to provide evidence on the issue.
  A person who merely agrees to subscribe to shares in a not-yet formed corporation will not incur personal liability under this section if the promoters do something wrong before the formation is complete. Those subscribers would not be acting personally as or on behalf of the not-formed corporation.
DERIVATION: 1984 Model Act Section 2.04.
Section 33-2-105. Organization of
corporation.
  (a) After incorporation:
  (1) If initial directors are named in the articles of incorporation, the initial directors shall hold an organizational meeting, at the call of a majority of the directors, to complete the organization of the corporation by appointing officers, adopting bylaws, and carrying on any other business brought before the meeting.
  (2) If initial directors are not named in the articles, the incorporator or incorporators shall hold an organizational meeting at the call of a majority of the incorporators:
  (i) to elect directors and complete the organization of the corporation; or
  (ii) to elect a board of directors who shall complete the organization of the corporation.
  (b) Action required or permitted by this act to be taken by incorporators at an organizational meeting may be taken without a meeting if the action taken is evidenced by one or more written consents describing the action taken and signed by each incorporator.
  (c) An organizational meeting may be held In or out of this State.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102.
Bylaws, see Sections 33-2-106 and 33-2-107.
Director action without meeting, see Section 33-8-210.
Incorporators, see Section 33-2-101.
OFFICIAL COMMENT
  Following incorporation, the organization of a new corporation must be completed so that it may engage in business. This usually requires adoption of bylaws, the appointment of officers and agents, the raising of equity capital by the Issuance of shares to the participants in the venture, and the election of directors.
  Earlier versions of the Model Act required initial directors to be named in the articles and provided that they complete the organization of the corporation. Many states followed this pattern, but others provided that the incorporators organize the corporation or meet to elect a board of directors to organize the corporation. The goal of all these provisions has usually to permit the completion of the organization of the corporation with minimum expense and formality, though in many cases it was felt necessary for business decisions to be made at an early stage by the persons with responsibility for business operation.
  Experience in states that followed the Model Act pattern revealed that multiple organizational meetings were often necessary, particularly where for reasons of convenience or secrecy both the incorporators and initial directors were "dummies" without any financial interest in the enterprise who were not expected to make any significant business decisions. In this situation, the initial directors formally organized the corporation, including issuing of at least some shares; immediately following this organizational meeting, the new shareholders met to elect a permanent board of directors who were to manage the business. In many instances, the permanent board of directors also had to meet immediately after its selection by the shareholders to consider business questions that must be resolved promptly, such as authorization of employment contracts or the valuation of property or services to be accepted as consideration for shares.
  Section 2.05 (Section 33-2-105) simplifies the formation process by allowing alternative methods of completing the formation of the corporation.
  First, section 2.05(a)(1) (Section 33-2-105(a)(1)) contemplates that if the draftsman elects to set forth the names of the initial directors in the articles of incorporation, the persons so named will organize the corporation. It is expected that initial directors will be named only if they will be the permanent board of directors and there is no objection to the disclosure of their identity in the articles of incorporation.
  Section 2.05(a)(2) (Section 33-2-105(a)(2)) provides alternative methods for completing the organization of the corporation if initial directors are not named in the articles of incorporation. The incorporators may themselves complete the organization, or they may simply meet to elect a board of directors who are then to complete the organization. It is contemplated that in routine incorporations, the first alternative will be elected, while in more complex situations when prompt business decisions must be made, the second alternative will be chosen and the completion of the organization will be turned over to the board of directors representing the investment interests in the corporation.
  Sections 2.05(b) and (c) (Sections 33-2-105(b) and (c)) are limited to meetings of incorporators since sections 8.21 and 8.22 (Sections 33-8-210 and 33-8-220) permit the same actions by the board of directors. If a meeting of shareholders is necessary, sections 7.01 and 7.04 (Sections 33-7-101 and 33-7-104) give them the same flexibility that is given incorporators under sections 2.05(b) and (c) (Section 33-2-105(b) and (c)).
SOUTH CAROLINA REPORTERS' COMMENTS
  South Carolina was one of the states which has traditionally required naming the initial directors in the articles. Often, for purposes of privacy, the initially named directors were "dummy directors" whose sole purpose was to complete the organizational process. After this was complete, the new shareholders would replace the initial or "dummy directors" with permanent directors. This section, which follows 1984 Model Act Section 2.05, avoids the need for dummy directors since it now allows the incorporators to complete the organizational formalities. If the actual directors are named in the articles, the call of the first meeting must be by a majority of the directors, rather than by a majority of the incorporators, as was the case under prior law (Section 33-9-70(a) of the 1981 South Carolina Business Corporation Act). As was true under the old law, the purpose of the organizational meeting is to adopt bylaws, elect officers, and elect directors (if the incorporators are the ones acting). Both the new and old statute provide that other actions can be taken (see Section 33-2-105(a)(1) of this act) which for most corporations also will include approval of a form for a share certificate, issuance of shares (and acceptance that are publicly traded, on the other hand, must contain reasonable safeguards against fraudulent duplication; for this reason, regulations by exchanges contain technical requirements relating to design, workmanship, engraving, and printing. Also, exchange requirements may require signatures of a transfer agent and registrar as well as designated corporate officers. All these requirements are in addition to the minimum requirements of the Model Act.
  Certificateless shares are permitted under section 6.25(a) (Section 33-6-250(a)) upon compliance with section 6.26 (Section 33-6-260). Section 6.25(a) (Section 33-6-250(a)) makes it clear that there are no differences in the rights and obligations of shareholders, whether or not their shares are represented by certificates, other than mechanical differences, such as the means by which instructions for transfer are communicated to the issuer, necessitated by the use or nonuse of certificates. If share transfer restrictions are imposed, conspicuous references must appear on the certificate if they are to be binding on third persons without knowledge of the restrictions. See section 6.27 (Section 33-6-270).
  Under section 6.25 (Section 33-6-250) all signatures on a share certificate may be facsimiles. This change, which has been adopted recently in several states, gives recognition to the fact that a purchaser of publicly traded shares will hardly ever be in a position to determine whether a manual signature on a stock certificate is in fact the authorized signature of an officer or the transfer agent or registrar. From the standpoint of the issuing corporation of publicly traded securities, if a share certificate requiring a manual signature is stolen and the signature thereafter forged, the corporation may defend on lack of
genuineness under section 8-202(3) of the UNIFORM COMMERCIAL CODE (see Section 36-8-202(3) of the 1976 South Carolina Code). But this defense is not effective against a bona fide purchaser when the forged signature has been placed on the certificate by an employee of the issuer or registrar or transfer agent entrusted with handling the certificates (UCC Section 8-205) (Section 36-8-205 of the 1976 South Carolina Code). It is likely that a corporation would therefore follow the same security precautions for blank certificates requiring manual signatures as for those not requiring them. At the same time, the time and expense required for manual signatures has been eliminated.
SOUTH CAROLINA REPORTERS' COMMENTS
  Corporations are permitted to issue shares not evidenced by certificates subject to the enactment of rules governing the issuance, registration, and transfer of such shares. See the Reporters' Comments to Section 33-6-260.
  Section 33-6-250 effectively requires corporations not summarizing terms of shares on the certificate to stand ready to provide them upon request. With respect to appearance on share certificates of share transfer restrictions, see Section 33-6-270.
  Section 33-6-250 does not require an authenticating agent's original signature on shares signed by corporate officers only in facsimile, as did the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 6.25.
  Section 33-6-260. Shares without certificates.
  (a) Unless the articles of incorporation or bylaws provide otherwise, the board of directors of a corporation may authorize the issue of some
or all of the shares of any or all of its classes
or series without certificates to the extent that
investment securities not evidenced by certificates are authorized by Chapter 8 of Title
36 of the South Carolina Uniform Commercial Code.
The authorization does not affect shares already represented by certificates until they are surrendered to the corporation to the extent that investment securities not evidenced by certificates are contemplated by Chapter 8 of Title 36 of the South Carolina Uniform Commercial Code.
  (b) Within a reasonable time after the issue or transfer of shares without certificates, the corporation shall send the shareholder a written statement of the information required on certificates by Section 33-6-250(b) and (c), and,
if applicable, Section 33-6-270.
CROSS REFERENCES
None.
OFFICIAL COMMENT
  Section 6.26(a) (Section 33-6-260(a)) authorizes the creation of uncertificated shares either by original issue or in substitution for shares previously represented by certificates. This subsection gives the board of directors the widest discretion so that a particular class and series of shares might be entirely represented by certificates, entirely uncertificated, or represented partly by each. The second sentence ensures that a corporation may not treat as uncertificated, and accordingly transferable on its books without due presentation of a certificate, any shares for which a certificate is outstanding.
  The statement required by section 6.26(b) (Section 33-6-260(b)) ensures that holders of uncertificated shares will receive from the
corporation the same information that the holders
of certificates receive when certificates are issued. There is no requirement that this information be delivered to purchasers of uncertificated shares before purchase.
  Detailed rules with respect to the issuance, transfer, and registration of both certificated and uncertificated shares appear in article 8 of the UNIFORM COMMERCIAL CODE. In general terms there are no differences between certificated and
uncertificated securities except in matters such as their manner of transfer. See the Official Comment to section 6.25 (Section 33-6-250).
SOUTH CAROLINA REPORTERS' COMMENTS
  Permitting securities to be issued without certificates enables the securities industry to operate more efficiently. This efficiency depends in part on recognition of uniform rules of issuance, registration, and transfer of such securities. A widely accepted set of such rules was incorporated in the 1978 amendments to Chapter 8 of Title 36 of the South Carolina Uniform Commercial Code. South Carolina had not adopted these rules at the time this act was enacted. Until the revised Article 8 is enacted, corporations formed in South Carolina will be required to issue share certificates for all issued shares. See Chapter 8 of Title 36 of the 1976 Code.
DERIVATION: 1984 Model Act Section 6.26.
  Section 33-6-270. Restriction on transfer of shares and other securities.
  (a) The articles of incorporation, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction does not affect
shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.
  (b) A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by Section 33-6-260(b). Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.
  (c) A restriction on the transfer or registration of transfer of shares is authorized:
    (1) to maintain the corporation's status when it is dependent on the number or identity of its shareholders;
    (2) to preserve exemptions under federal or state securities law;
    (3) for any other reasonable purpose.
  (d) A restriction on the transfer or registration of transfer of shares may:
    (1) obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares;
    (2) obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares;
    (3) require the corporation, the holders of any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable;
    (4) prohibit the transfer of the restricted shares to designated persons or classes of
persons, if the prohibition is not manifestly unreasonable.
  (e) For purposes of this section, 'shares' includes a security convertible into or carrying a right to subscribe for or acquire shares.
CROSS REFERENCES
Certificates for shares, see Section 33-6-250.
Classes of shares, see Section 33-6-101.
Close corporations, see Statutory Close
  Corporation Supplement, Chapter 18.
Consideration for shares, see Section 33-6-210.
"Conspicuously" defined, see Section 33-1-400.
Debt securities, see Section 33-3-102.
Dissenters' rights, see Section 33-13-240.
Information statement, see Sections
  33-6-250 and 33-6-260.
Professional corporations, see Professional
  Corporation Supplement, Chapter 19.
OFFICIAL COMMENT
  Share transfer restrictions are widely used by both publicly held and closely held corporations for a variety of appropriate purposes. Although most courts have upheld reasonable share transfer restrictions, a few have rigidly followed the common law rule that they constituted restraints on alienation and should be strictly construed. As a result, some cases have invalidated restrictions outright or construed them narrowly so as not to cover specific transfers. By prescribing reasonable rules to govern the use of transfer restrictions, section 6.27 (Section 33-6-270) should guide practitioners in their use and encourage a more uniform and favorable judicial reception.
  Examples of the uses of share transfer restrictions include:
(1)a close corporation may impose share transfer restrictions to qualify for the close corporation election under the Model Statutory Close Corporation Supplement (See Ch. 18);
(2)a corporation with relatively few shareholders may impose share transfer restrictions to ensure that current shareholders will be able to control who may participate in the corporation's business;
(3)a corporation with relatively few shareholders may impose share transfer restrictions to ensure that shareholders who wish to retire will be able to liquidate their investment without disrupting corporate affairs;
(4)a corporation with few shareholders may impose share transfer restrictions in an effort to ensure that estates of deceased shareholders will be able to liquidate the closely held shares and that the Internal Revenue Service will accept the liquidated value of the shares as their value for estate tax purposes;
(5)a professional corporation may impose share transfer restrictions to ensure that its treatment of retiring or deceased shareholders is consistent with the canons of ethics applicable to the profession in question;
(6)a corporation may impose share transfer restrictions to ensure that its election of subchapter S treatment under the Internal Revenue Code will not be unexpectedly terminated; and
(7)a publicly held or closely held corporation issuing securities pursuant to an exemption from federal or state securities act registration may impose share transfer restrictions to ensure that subsequent transfers of shares will not result in the loss of the exemption being relied upon.
  This listing, while not exhaustive, illustrates
the flexibility of share transfer restrictions, their widespread use, and the importance of having a statute dealing with them.
  Section 6.27(a) (Section 33-6-270(a)) generally authorizes the imposition of transfer restrictions on "shares," although the caption of the section refers to "shares and other securities." Section 6.27(e) (Section 33-6-270(e)) defines "shares" for purposes of section 6.27 (Section 33-6-270) to include securities "convertible into or carrying a right to subscribe for or acquire shares;" the phrase "other securities" in the title thus describes the broader scope of this section resulting from the definition in section 6.27(e) (Section 33-6-270(e)).
  Share transfer restrictions are usually created by provisions in the bylaws or articles of incorporation but may also be created by contract between the corporation and some or all the shareholders or between or among the shareholders themselves. However, if shares are originally issued free of restriction, they may not thereafter be subjected to a transfer restriction
without the consent of the holder, evidenced by a vote in favor of the amendment to the articles or bylaws creating the restriction, or by being a party to the contract creating the restriction.
  The terms of a restriction on transfer do not need to be set forth in full or summarized in detail on a certificate or information statement required by section 6.26(b) (Section 33-6-260(b)) for uncertificated securities. Rather, section 6.27(b) (Section 33-6-270(b)) provides that in the case of a certificated security, the existence of the restriction must be conspicuously set forth on the front or back of the certificate; in the case of an uncertificated security, the existence of the restriction must be noted in the information
statement. There is no requirement that the notation on an information statement be conspicuous.
  If a transferee knows of the restriction he is bound by it even though the restriction is not noted on the certificate or information statement.
  Section 6.27(c) (Section 33-6-270(c)) describes the purposes for which restrictions may be imposed while section 6.27(d) (Section 33-6-270(d)) describes the types of restrictions that may be imposed.
  Section 6.27(c) (Section 33-6-270(c)) enumerates certain purposes for which share transfer restrictions may be imposed, but does not limit the purposes since section 6.27(c)(3) (Section 33-6-270(c)(3)) permits restrictions "for any other reasonable purpose." Examples of the "status" referred to in section 6.27(c)(1) (Section 33-6-270(c)(1)) are the election of close corporation status under the Model Statutory Close Corporation Supplement, the subchapter S election under the Internal Revenue Code, and entitlement to a program or eligibility for a privilege administered by governmental agencies or national securities exchanges. Specific references in section 6.27 (Section 33-6-270) to subchapter S and other statutes were not made because of the possibility that the Internal Revenue Code or other statute may be amended or recodified after the adoption of the Model Act.
  Section 6.27(c)(2) (Section 33-6-270(c)(2)) permits restrictions on transfers of shares to ensure availability of exemptions under state or federal securities acts. Share transfer restrictions for other purposes are permitted by section 6.23(c)(3) (Section 33-6-230(c)(3)) so long as the purpose is reasonable. It is unnecessary to inquire into the reasonableness of the purposes specifically enumerated in
sections 6.27(c)(1) and (2) (Section 33-6-270(c)(1) and (2).
  The types of restrictions referred to in section 6.27(d)(1) (Section 33-6-270(d)(1)) (option agreements) and (2) (buy-sell agreements) are imposed as a matter of contractual negotiation and do not prohibit the outright transfer of shares. Rather, they designate to whom shares or other securities must be offered at a price established in the agreement or by a formula or method agreed to in advance. By contrast, the restrictions described in sections 6.27(d)(3) and (4) (Section 33-6-270(d)(3) and (4)) may permanently limit the market for shares by disqualifying all or some potential purchasers. As a result the restriction imposed by these two provisions must not be "manifestly unreasonable."
SOUTH CAROLINA REPORTERS' COMMENTS
  Free transferability of ownership is a basic characteristic of corporations. Restrictions on share transfer were disfavored strongly at common law as restraints on alienation, and continue to be controversial. The majority of states have enacted statutes permitting share transfer restrictions in limited circumstances.
  Prior to adoption of Section 33-6-270, restrictions on transfer of securities were a matter of common law in South Carolina, they but generated little litigation. In Alderman v. Alderman, 178 S.C. 9, 181 S.E. 897 (1935), the South Carolina Supreme Court took the view that shares of stock were shareholder property (as opposed to contracts between shareholder and issuer) of which the holder could dispose in reasonable ways not offensive to public policy. In Alderman, a disposition was upheld which had the effect of restricting transfer. In McLeod v. Sandy Island Corp., 265 S.C. 1, 216 S.E.2d 746 (1975), the Court reaffirmed that shares are
property and may be disposed of as the owner chooses unless such right of disposition is "properly restricted". Restrictions, the Court held, are to be construed narrowly.
  Uniformity is desirable particularly in rules governing the circulation of securities. Section
33-6-270 is intended to promote uniformity in share transfer restrictions by codifying generally accepted rules addressing the purpose for which share transfer restrictions may be used, the manner in which such transfers may be restricted, and against whom such restrictions can be enforced.
  Section 33-6-270(c) describes the purposes for which share transfer restrictions may be used. Subsections (c)(1) and (c)(2) permit restrictions
related to compliance with regulatory schemes. Subsection (c)(3) permits restraints for any other purpose which is "reasonable." In general,
restrictions have been found reasonable when they
have related to the purposes for which the corporation was formed. For example, restrictions for the purpose of limiting the share ownership in a close corporation are reasonable in purpose.
  Section 33-6-270(d) permits four manners of restriction. Those permitted by subsections (d)(1) (right of first refusal) and (d)(2) (a "put" option), strictly speaking, do not restrain
alienation; they permit control over the first offeree only. Such arrangements are not highly controversial at common law. Restrictions permitted by subsections (d)(3) and (d)(4), however, can have the effect of limiting the market for shares, and at common law their acceptability is less clear. At present, the common law trend is to allow such restrictions if
they are not unreasonable. Section 33-6-270(d) permits them if they are not "manifestly unreasonable." Reasonableness refers, as under subsection (c), to purpose. The intention of the section is to permit Subsections (d)(3)
and (d)(4) restrictions when they are related to some purpose for which the corporation was formed
and do not restrain alienation in a scope or manner unrelated to such purpose. To defeat the restriction, such unreasonableness must be "manifest" -- clear, requiring no subtle analysis to be recognized. The phrasing of subsections (d)(3) and (d)(4) places the burden on the one who alleges unreasonableness.
  In effect, Section 33-6-270(d) describes narrowly drawn circumstances, to be narrowly construed, in which the presumption of free transferability of shares can be rebutted. The presumption may reasonably be relied on even in the face of permissible restrictions, in circumstances described in Section 33-6-270(a) and (b). Section 33-6-270(a) provides that restrictions applied to outstanding shares are not enforceable against holders who do not agree to the restrictions. Subsection (b) provides that even if "authorized by this section" a restriction is not enforceable unless it is "noted conspicuously on the front or back of the certificate." Section 36-8-240 of the South Carolina Uniform Commercial Code is to similar effect, although it applies only to restrictions "imposed by the issuer", while Section 33-6-270 applies to restrictions imposed either by the issuer or by shareholders.
DERIVATION: 1984 Model Act Section 6.27.
  Section 33-6-280. Expense of issue.
  A corporation may pay the expenses of selling or underwriting its shares, and of organizing or reorganizing the corporation, from the consideration received for shares.
CROSS REFERENCES
Consideration for shares, see Section 33-6-210.
Fully paid shares, see Section 33-6-210.
Liability for share consideration, see
  Section 33-6-220.
OFFICIAL COMMENT
  The original purpose of this section was to deal with the problems created by the concepts of "par value" and "stated capital;" it permitted the corporation to expend its capital for "the reasonable charges and expenses of" organization without fear of making the shares not fully paid or assessable because the assets were reduced below the aggregate par value of the issued shares.
  Under the modern capitalization principles set forth in the Model Act (see the Official Comment to section 6.21 (Section 33-6-210)), there is no basis for the fear that shares issued properly under section 6.21 (Section 33-6-210) can be made assessable because of the subsequent use of the proceeds. While section 6.28 (Section 33-6-280) thus may be technically unnecessary, it was believed to be desirable to retain in the Model Act a general authorization to the corporation to pay its expenses of formation and raising capital out of its original capitalization. The reference to "reasonable" charges and expenses was deleted on the theory that the test for these expenses should be no different from the test for expenses of any other type.
  The concluding language in the original Model Act, "without rendering the shares not fully paid or assessable," was also deleted as unnecessary and confusing in the context of the revisions to the financial provisions of the Model Act.
  This section has been rarely cited or referred to in court decisions even though it appears in a large number of state statutes.
SOUTH CAROLINA REPORTERS' COMMENTS
  A similar provision was found in 1981 South Carolina Business Corporation Act Section 33-9-100(b).
  Compensation in the form of discounts from issue price granted to participants in the distribution of an issuance of shares, such as selling group members, dealers, or underwriters, would be considered "expenses" for purpose of this section. Accordingly, shares would not be rendered assessable because of having been distributed subject to such discounts.
Article 3
Subsequent Acquisition of Shares
by Shareholders and Corporation
Sec.
33-6-300. Shareholders' preemptive rights.
33-6-310.Corporation's acquisition of own shares.
  Section 33-6-300. Shareholders' preemptive rights.
  (a) The shareholders of a corporation have a preemptive right to acquire the corporation's unissued shares except to the extent the articles of incorporation otherwise provide.
  (b) Unless a statement is included in the articles of incorporation that 'the corporation elects not to have preemptive rights' (or words of similar import), the following principles apply except to the extent the articles of incorporation expressly provide otherwise:
    (1) The shareholders of the corporation have a preemptive right, granted on uniform terms and
conditions prescribed by the board of directors to provide a fair and reasonable opportunity to exercise the right, to acquire proportional amounts of the corporation's unissued shares upon the decision of the board of directors to issue them.
    (2) A shareholder may waive his preemptive right. A waiver evidenced by a writing is irrevocable even though it is not supported by consideration.
    (3) There is no preemptive right with respect to:
      (i) shares issued as compensation to directors, officers, agents, or employees of the corporation, its subsidiaries, or affiliates;
    (ii) shares issued to satisfy conversion or option rights created to provide compensation to directors, officers, agents, or employees of the corporation, its subsidiaries, or affiliates;
    (iii) shares authorized in the articles of incorporation that are issued within six months from the effective date of incorporation;
    (iv) shares sold otherwise than for money.
    (4) Holders of shares of any class without general voting rights but with preferential rights to distributions or assets have no preemptive rights with respect to shares of any class.
    (5) Holders of shares of any class with general voting rights but without preferential rights to distributions or assets have no preemptive rights with respect to shares of any class with preferential rights to distributions or assets unless the shares with preferential rights are convertible into or carry a right to subscribe for or acquire shares without preferential rights.
    (6) Shares subject to preemptive rights that are not acquired by shareholders may be issued to any person for a period of one year after
being offered to shareholders at a consideration set by the board of directors that is not lower than the consideration set for the exercise of preemptive rights. An offer at a lower consideration or after the expiration of one year is subject to the shareholders' preemptive rights.
  (c) For purposes of this section, 'shares' includes a security convertible into or carrying a right to subscribe for or acquire shares.
  (d) The sale or other disposition by the corporation of shares or securities not subject to a preemptive right under this section, or under the articles of incorporation as permitted by this section, shall not impair any remedy which any shareholder may have for a breach of duty by the board of directors.
CROSS REFERENCES
Articles of incorporation, see Section
  33-2-102.
Consideration for shares, see Section 33-6-210.
Debt securities, see Section 33-3-102.
Director standards of conduct, see Sections 33-8-300 through 33-8-320.
Distributions, see Sections 33-1-400 and
  33-6-400.
Fractional shares, see Section 33-6-104.
Share classes and series, see Sections 33-6-101
  and 33-6-102.
Share options, see Section 33-6-240.
OFFICIAL COMMENT
  [Note: This Act retains the "opt-out" format in Section 33-11-210 of the 1981 South Carolina Business Corporation Act rather than the "opt-in" format of the 1984 Model Act. See the South Carolina Reporters' Comments.]
  Section 6.30(a) (Section 33-6-300(a)) adopts an "opt in" provision for preemptive rights: Unless an affirmative reference to these rights appears in the articles of incorporation, no preemptive rights exist. Whether or not preemptive rights are elected, however, the directors' fiduciary duties extend to the issuance of shares. Issuance of shares at favorable prices to directors (but excluding other shareholders) or the issuance of shares on a nonproportional basis for the purpose of affecting control rather than raising capital may violate that duty. These duties, it is believed, form a more rational structure of regulation than the technical principles of traditional preemptive rights.
  Section 6.30(b) (Section 33-6-300(b)) provides a standard model for preemptive rights if the corporation desires to exercise the "opt in" alternative of section 6.30(a) (Section 33-6-300(a)). The simple phrase, "the corporation elects to have preemptive rights," or words of similar import, results in the rest of subsection (b) becoming applicable to the corporation. But a corporation may qualify or limit any of the rules set forth in subsection (b) by express provisions in the articles of incorporation if the rules are felt to be undesirable or inappropriate for the specific corporation. The purposes of this standard model for preemptive rights are (1) to simplify drafting articles of incorporation and (2) to provide a simple checklist of business considerations for the benefit of attorneys who are considering the inclusion of preemptive rights in articles of incorporation.
  The provisions of section 6.30(b) (Section 33-6-300(b)) establish rules for most of the problems involving preemptive rights. Thus subsection (b)(1) defines the general scope of the preemptive right giving appropriate recognition to the discretion of the board of
directors in establishing the terms and conditions for exercise of that right. Subsection (b)(2) creates rules with respect to the waiver of these rights. Subsection (b)(3) lists the principal exceptions to preemptive rights, including a six-month period during which initial capital can be raised by a newly formed corporation without regard to the preemptive rights of persons who have previously acquired shares. Subsections (b)(4) and (b)(5) provide rules for the often-difficult problems created when preemptive rights are recognized in corporations with more than a single class of shares. These problems are discussed further below. Subsection (b)(6) defines the status of preemptive rights after a shareholder has elected not to exercise a proffered preemptive right: for a period of one year thereafter the corporation may dispose of the shares at the same or a higher price. A corporation deciding to offer shares at a lower price must reoffer the shares preemptively to the shareholders before selling them to third persons.
  As indicated above, any portion of section 6.30(b) (Section 33-6-300(b)) that is felt not to be appropriate for a specific corporation may be amended or deleted by appropriate provision in the articles of incorporation.
  The model provision dealing with preemptive rights in section 6.30(b) (Section 33-6-300(b)) is primarily designed to protect voting power within the corporation from dilution. For this reason, section 6.30(c) (Section 33-6-300(c)) contains a special definition of "shares" to ensure that the preemptive rights of shareholders, if these rights are granted, apply to all securities that are convertible into or carry a right to acquire voting shares.
  On the other hand, preemptive rights also may serve in part the function of protecting the equity participation of shareholders. This combination of functions creates no problem in a
corporation that has authorized only a single class of shares but may occasionally create problems in corporations with more complex capital structures. In many multiple-class corporate financial structures, the issuance of additional shares of one class does not adversely affect other classes. For example, the issuance of additional general voting shares without preferential rights normally does not affect either the limited voting power or equity participation of holders of shares with preferential rights; holders of shares with preferential equity participation rights but without general voting rights should therefore have no preemptive rights with respect to general voting shares without preferential rights. See subsections (b)(4) and (b)(5). Classes of shares that may give rise to possible conflict between the protection of voting interests and equity participation when the board of directors desires to issue additional shares include classes of nonvoting shares without preferential rights and classes of shares with both preferential rights to distributions and general voting rights. Attorneys who draft articles of incorporation with classes of shares that may give rise to these conflicts should consider the precise application of section 6.30(b) (Section 33-6-300(b)) with respect to preemptive rights for these classes and define more carefully the scope of the preemptive rights desired.
SOUTH CAROLINA REPORTERS' COMMENTS
  This section carries forward the "opt-out" format for preemptive rights in Section 33-11-210 of the 1981 South Carolina Business Corporation Act. Therefore, preemptive rights automatically apply unless the articles of incorporation otherwise provide. The 1984 Model Act, on the other hand, utilizes an "opt-in"
format under which preemptive rights only apply if the articles of incorporation so provide. Continuation of the "opt-out" format in the 1981 Act avoids potential transition problems for corporations existing at the effective date of this act. Corporations in existence at the effective date of this act having provisions in their articles of incorporation opting out of preemptive rights will not have to take any action to continue to be exempt from this section.
  Although this section uses the "opt-out" format, it incorporates the substantive provisions in subsection (b) of the Model Act, which sets forth statutory rules that apply if a corporation has preemptive rights. These rules offer more protection to existing shareholders than the equivalent provisions of Section 33-11-220 of the 1981 South Carolina Business Corporation Act.
  Subsection (d) of this section also carries forward subsection (e) of former Section 33-11-210. This subsection makes it clear that a sale of shares not subject to preemptive rights by a corporation is nevertheless subject to the director's usual duties (see Section 33-8-300). This subsection is applicable even if a corporation has a provision in its articles of incorporation exempting it from any preemptive rights.
  Section 33-6-300(b)(6) is similar to Section 33-11-210(c)(9) of the 1981 South Carolina Business Corporation Act in permitting shares not taken up by shareholders to be offered generally for sale at the issue price; the new provision adds, however, that the price of such shares may be lowered after one year and that any preemptive
rights are revived at the new price.
  The two-year, new-corporation suspension of preemptive rights of Section 33-11-210(c)(4) of the 1981 South Carolina Business Corporation Act
is shortened to six months by new Section 33-6-300(b)(3)(iii).
DERIVATION: 1984 Model Act Section 6.30, with major amendments. See South Carolina Reporters' Comments.
  Section 33-6-310. Corporation's acquisition of its own shares.
  (a) A corporation may acquire its own shares, and shares so acquired constitute authorized but unissued shares.
  (b) If the articles of incorporation prohibit the reissue of acquired shares, the number of authorized shares is reduced by the number of shares acquired, effective upon amendment of the articles of incorporation.
  (c) The board of directors may adopt articles of amendment under this section without shareholder action and deliver them to the Secretary of State for filing. The articles must set forth:
    (1) the name of the corporation;
    (2) the reduction of the number of authorized shares, itemized by class and series; and
    (3) the total number of authorized shares, itemized by class and series, remaining after reduction of the shares.
CROSS REFERENCES
Acquisition as "distribution," see Section
  33-1-400.
Amendment of articles of incorporation, see
  Chapter 10, Article 1.
Annual report, see Section 33-16-220.
"Deliver" includes mail, see Section 33-1-400.
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
Distributions generally, see Section 33-6-400.
Effective time and date of amendment, see
  Section 33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Issuance of shares, see Section 33-6-210.
OFFICIAL COMMENT
  The elimination of the concepts of "par value" and "stated capital" in the 1980 amendments to the Model Act (see the Official Comment to section 6.21 (Section 33-6-210)) permitted the simplification of a number of other sections of the Act and the elimination of several historical concepts that primarily served the purpose of ameliorating problems created by retention of the concepts of "par value" and "stated capital."
  One concept eliminated by the 1980 amendments was that of treasury shares. The status of once-issued but reacquired shares was an uneasy one under the traditional statutes. It was universally recognized that a corporation's shares in its own hands are not an asset any more than authorized but unissued shares. As an economic matter payments made by a corporation to repurchase its own shares must be viewed as a distribution of corporate assets by the corporation rather than as an acquisition of an asset. Further, conventional statutes gave treasury shares an intermediate status between issued and unissued: they were treated as outstanding shares for some purposes, and they could be resold or disposed of by the corporation (presumably) without regard to restrictions that might be imposed on the original issuance of shares by the corporation. Finally, the accounting treatment for treasury shares was complex, confusing, and to some extent unrealistic since the capital accounts often did not reflect transactions in treasury shares.
  Under the 1980 revisions of the financial provisions in the Model Act the concept of treasury shares is unnecessary. Authorized but unissued shares of the corporation may be issued on the same basis and with the same freedom as treasury shares under earlier statutes. Attorneys' opinions on the legality of the issuance of shares under the revised Model Act will therefore be unaffected by the elimination of the technical distinction between original shares and treasury shares. A possible exception to these statements is that the concept of treasury shares may have permitted listed companies to save modestly on stock exchange listing fees in some cases that may not be available under the revised Model Act provisions.
  Section 6.31(a) (Section 33-6-310(a)) restates the fundamental power of a corporation to reacquire its own shares. Such a transaction constitutes a "distribution" by the corporation (see the definition of that term in section 1.40 (Section 33-1-400)) and is subject to the limitations of section 6.40 (Section 33-6-400).
  Shares that are reacquired by the corporation become authorized but unissued shares under section 6.31(b) (Section 33-6-310(b)) unless the articles prohibit reissue, in which event they are cancelled. Section 6.31(c) (Section 33-6-310(c)) requires a simplified official filing to reflect the reduction of authorized shares. This provision is included in order that there be a public record of the number of authorized shares that a corporation may issue. The amendment may be made without shareholder action. See section 10.02 (Section 33-10-102).
  Until the amendment referred to in section 6.31(c) (Section 33-6-310(c)) is effective, the corporation has power to reissue the reacquired shares despite a prohibition in the articles of incorporation. In such a case, the action of the directors in issuing the shares may be
challengeable but the shares so issued would be fully paid and nonassessable if issued in conformity with section 6.21 (Section 33-6-210).
SOUTH CAROLINA REPORTERS' COMMENTS
  A share repurchase is a "distribution" under Section 33-1-400(6), so that legal funds for share repurchase must be determined according to Section 33-6-400.
DERIVATION: 1984 Model Act Section 6.31.
Article 4
Distributions
Sec.
33-6-400. Distributions to shareholders.
  Section 33-6-400. Distributions to shareholders.
  (a) A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the articles of incorporation and the limitation in subsection (c).
  (b) If the board of directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a repurchase or reacquisition of shares), it is the date the board of directors authorizes the distribution.
  (c) No distribution may be made if, after giving it effect:
    (1) the corporation would not be able to pay its debts as they become due in the usual course of business; or
    (2) the corporation's total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
  (d) The board of directors may base a determination that a distribution is not prohibited under subsection (c) either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.
  (e) The effect of a distribution under subsection (c) is measured:
    (1) in the case of distribution by purchase, redemption, or other acquisition of the corporation's shares, as of the earlier of (i) the date money or other property is transferred or debt incurred by the corporation or (ii) the date the shareholder ceases to be a shareholder with respect to the acquired shares;
    (2) in the case of any other distribution of indebtedness, as of the date the indebtedness is distributed;
    (3) in all other cases, as of (i) the date the distribution is authorized if the payment occurs within one hundred twenty days after the date of authorization or (ii) the date the payment is made if it occurs more than one hundred twenty days after the date of authorization.
  (f) A corporation's indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section is at parity with the corporation's indebtedness to its general, unsecured creditors except to the extent subordinated by agreement.
CROSS REFERENCES
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
"Distribution" defined, see Section 33-1-400.
Liability for unlawful distributions, see
  Section 33-8-330.
Record date, see Section 33-7-107.
Redemption, see Sections 33-6-101 and 33-6-310.
Share dividends, see Section 33-6-230.
OFFICIAL COMMENT
  The reformulation of the statutory standards governing distributions is another important change made by the 1980 revisions to the financial provisions of the Model Act. It has long been recognized that the traditional "par value" and "stated capital" statutes do not provide significant protection against distributions of capital to shareholders. While most of these statutes contained elaborate provisions establishing "stated capital," "capital surplus," and "earned surplus" (and often other types of surplus as well), the net effect of most statutes was to permit the distribution to shareholders of most or all of the corporation's net assets - its capital along with its earnings - if the shareholders wished this to be done. However, statutes also generally imposed an equity insolvency test on distributions that prohibited distributions of assets if the corporation was insolvent or if the distribution had the effect of making the corporation insolvent or unable to meet its obligations as they were projected to arise.
  The financial provisions of the revised Model Act, which are based on the 1980 amendments, sweep away all the distinctions among the various
types of surplus but retain restrictions on distributions built around both the traditional
equity insolvency and balance sheet tests of earlier statutes.
1. THE SCOPE OF SECTION 6.40 (Section 33-6-400)
  Section 1.40 (Section 33-1-400) defines "distribution" to include virtually all transfers of money, indebtedness of the corporation or other property to a shareholder in respect of the corporation's shares. It thus includes cash or property dividends, payments by a corporation to purchase its own shares, distributions of promissory notes or indebtedness, and distributions in partial or complete liquidation or voluntary or involuntary dissolution. Section 1.40 (Section 33-1-400) excludes from the definition of "distribution" transactions by the corporation in which only its own shares are distributed to its shareholders. These transactions are called "share dividends" in the revised Model Business Corporation Act. See section 6.23 (Section 33-6-230).
  Section 6.40 (Section 33-6-400) imposes a single, uniform test on all distributions. Many of the old "par value" and "stated capital" statutes provided tests that varied with the type of distribution under consideration or did not cover certain types of distributions at all.
2. EQUITY INSOLVENCY TEST
  As noted above, older statutes prohibited payment of dividends if the corporation was, or as a result of the payment would be, insolvent in the equity sense. This test is retained, appearing in section 6.40(c)(1) (Section 33-6-400(c)(1)).
  For an on-going business enterprise the equity insolvency test requires that decisions be based on a cash flow analysis that is itself based on a business forecast and budget for a sufficient period of time to permit a conclusion that known
obligations of the corporation can reasonably be expected to be satisfied over the period of time that they will mature. It is not sufficient simply to measure current assets against current liabilities, or determine that the present estimated "liquidation" value of the corporation's assets would produce sufficient funds to satisfy the corporation's existing liabilities.
  In determining whether a corporation is, or as a result of a proposed distribution would be rendered, insolvent, the board of directors may rely on information supplied by the officers of the corporation. It is not necessary for them to know of the details of the cash flow analysis if the proposed distribution involves no significant risk of equity insolvency. Judgments, further, must of necessity be made on the basis of information in the hands of the board of directors when a distribution is authorized. See section 8.30 (Section 33-8-300).
3.RELATIONSHIP TO THE FEDERAL BANKRUPTCY ACT AND OTHER FRAUDULENT CONVEYANCE STATUTES
  The revised Model Business Corporation Act establishes the validity of distributions from the corporate law standpoint under section 6.40 (Section 33-6-400) and determines the potential liability of directors for improper distributions under sections 8.30 and 8.33 (Section 33-8-300 and 33-8-330). The federal Bankruptcy Act and state fraudulent conveyance statutes, on the other hand, are designed to enable the trustee or other representative to recapture for the benefit of creditors funds distributed to others in some circumstances. In light of these diverse purposes, it was not thought necessary to make the tests of section 6.40 (Section 33-6-400) identical with the tests for insolvency under these various statutes.
4. BALANCE SHEET TEST
  Section 6.40(c)(2) (Section 33-6-400(c)(2)) requires that, after giving effect to any distribution, the corporation's assets equal or exceed its liabilities plus (with some exceptions) the dissolution preferences of senior equity securities. Section 6.40(d) (Section 33-6-400(d)) authorizes asset and liability determinations to be made for this purpose on the basis of either (1) financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or (2) a fair valuation or other method that is reasonable in the circumstances. The determination of a corporation's assets and liabilities and the choice of the permissible basis on which to do so are left to the judgment of its board of directors. In making a judgment under section 6.40(d) (Section 33-6-400(d)), the board may rely under section 8.30 (Section 33-8-300) upon opinions, reports, or statements, including financial statements and other financial data prepared or presented by public accountants or others.
  Section 6.40 (Section 33-6-400) does not incorporate technical accounting terminology and specific accounting concepts. Accounting terminology and concepts are constantly under review and subject to revision by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, and others. In making determinations under this section, the board of directors may make judgments about accounting matters, taking into account its right to rely upon professional or expert opinion and its obligation to be reasonably informed as to pertinent standards of importance that bear upon the subject at issue.
  In a corporation with subsidiaries, the board of directors may rely on unconsolidated
statements prepared on the basis of the equity method of accounting (see American Institute of Certified Public Accountants, APB Opinion No. 18 (1971)) as to the corporation's investee corporations, including corporate joint ventures and subsidiaries, although other evidence would be relevant in the total determination.
  a. Generally accepted accounting principles
  The directors will normally be entitled to use generally accepted accounting principles and to give presumptive weight to the advice of professional accountants with respect to their application. But section 6.40 (Section 33-6-400) only requires the use of accounting practices and principles that are reasonable in the circumstances, and does not constitute a statutory enactment of generally accepted accounting principles. The widespread controversy concerning various accounting principles, and their continuous reevaluation, suggest that a statutory standard of reasonableness, rather than of generally accepted accounting principles, is appropriate. The Model Act does not reject generally accepted accounting principles; on the contrary, it is expected that their use will be the basic rule in most cases. The statutory language does, however, require informed business judgment applying particular accounting principles to the entire circumstances that exist at the time.
  b. Other principles
  If a corporation's financial statements are not presented in accordance with generally accepted accounting principles, a board of directors should normally consider the extent to which the assets may not be fairly stated or the liabilities may be understated in determining the aggregate amount of assets and liabilities.
  Section 6.40(d) (Section 33-6-400(d)) specifically permits determinations to be made
under section 6.40(c)(2) (Section 33-6-400(c)(2))
on the basis of a fair valuation or other method that is reasonable in the circumstances. Thus the statute authorizes departures from historical cost accounting and sanctions the use of appraisal methods to determine the funds available for distributions. No particular method of valuation is prescribed in the statute, since different methods may have validity depending upon the circumstances, including the type of enterprise and the purpose for which the determinations is made. For example, it is inappropriate to apply a "quick-sale liquidation" value to an enterprise in most cases, particularly with respect to the payment of normal dividends. On the other hand, a "quick-sale" valuation might be appropriate in certain circumstances for an enterprise in the course of liquidation or of reducing its asset or business base by a material degree. In most cases, a fair valuation method or a going-concern basis would be appropriate if it is believed that the enterprise will continue as a going concern.
  In determining the value of assets, all of the assets of a corporation, whether or not reflected in the financial statements (e.g., a valuable executory contract), should be considered. Ordinarily a corporation should not selectively revalue assets. Likewise, all of a corporation's obligations and commitments should be considered and quantified to the extent appropriate and possible. In any event, section 6.40(d) (Section 33-6-400(d)) imposes upon the board of directors the responsibility of applying under section 6.40(c)(2) (Section 33-6-400(c)(2)) a method of determining the aggregate amounts of assets and liabilities that is reasonable in the circumstances.
  Section 6.40(d) (Section 33-6-40(d)) also refers to some "other method that is reasonable in the circumstances." This phrase is inserted
to comprehend within section 6.40(c)(2) (Section 33-6-40(c)(2)) the wide variety of possibilities that might not be considered to fall under a "fair valuation" but might be reasonable in the circumstances of a particular case.
5.PREFERENTIAL DISSOLUTION RIGHTS AND THE BALANCE SHEET TEST
  Section 6.40(c)(2) (Section 33-6-400(c)(2)) provides that a distribution may not be made unless the total assets of the corporation exceed its liabilities plus the amount that would be needed to satisfy any shareholders' superior preferential rights upon dissolution if the corporation were to be dissolved at the time of the distribution. This requirement in effect treats preferential dissolution rights of classes or series of shares for distribution purposes as equivalent to liabilities rather than as equity interests, and carries forward analogous treatment of shares having preferential dissolution rights from earlier versions of the Model Act. In making the calculation of the amount that must be added to the liabilities of the corporation to reflect the preferential dissolution rights, the assumption should be made that the preferential dissolution rights are to be established pursuant to the articles of incorporation (or resolution creating a series having preferential dissolution rights) as of the date of the distribution or proposed distribution. The amount so determined must include arrearages in preferential dividends if the articles of incorporation or resolution require that they be paid upon the dissolution of the corporation. In the case of shares having both a preferential right upon dissolution and additional nonpreferential rights, only the preferential portion of the rights should be taken into account. The treatment of preferential dissolution rights of classes of shares set forth
in section 6.40(c)(2) (Section 33-6-400(c)(2)) is applicable only to the balance sheet test and is not applicable to the equity insolvency test of section 6.40(c)(1) (Section 33-6-400(c)(1)). The treatment of preferential rights mandated by this section may always be eliminated by an appropriate provision in the articles of incorporation.
6. TIME OF MEASUREMENT
  Section 6.40(e)(3) (Section 33-6-400(e)(3)) provides that the time for measuring the effect of a distribution for compliance with the insolvency and balance sheet tests for all distributions not involving the reacquisition of shares or the distribution of indebtedness is the date of authorization, if the payment occurs within 120 days following the authorization; if the payment occurs more than 120 days after the authorization, however, the date of payment must be used. If the corporation elects to make a distribution in the form of its own indebtedness under section 6.40(e)(2) (Section 33-6-400(e)(2)), the validity of that distribution must be measured as of the time of distribution.
  Section 6.40(e)(1) (Section 33-6-400(e)(1)) provides a different rule for the time of measurement when the distribution involves a reacquisition of shares. See part 8a below.
7. RECORD DATE
  Section 6.40(b) (Section 33-6-400(b)) fixes the record date (if the board of directors does not otherwise fix it) for distributions other than those involving a repurchase or reacquisition of shares as the date the board of directors authorizes the distribution. No record date is necessary for a repurchase or reacquisition of shares from one or more specific shareholders. The board of directors has discretion to set a record date for a
repurchase or reacquisition if it is to be pro rata and to be offered to all shareholders as of a specified date.
8.APPLICATION TO REPURCHASES OR REDEMPTION OF SHARES
  The application of the equity insolvency and balance sheet tests to distributions that involve the purchase or redemption of shares creates unique problems; section 6.40 (Section 33-6-400) provides specific rules for the resolution of these problems as described below.
  a. Time of measurement
  Section 6.40(e)(1) (Section 33-6-400(e)(1)) provides that the time for measuring the effect of a distribution under section 6.40(c) (Section 33-6-400(c), if shares of the corporation are reacquired, is the earlier of (i) the payment date, or (ii) the date the shareholder ceased to be a shareholder with respect to the shares.
  b.When tests are applied to redemption-related debt
  In an acquisition of its shares, a corporation may transfer property or incur debt to the former holder of the shares. The case law on the status of this debt is conflicting. However, share repurchase agreements involving payment for shares over a period of time are of special importance in closely held corporate enterprises. Section 6.40(e) (Section 33-6-400(e)) provides a clear rule for this situation; the legality of the distribution must be measured at the time of the issuance or incurrence of the debt, not at a later date when the debt is actually paid. Of course, this does not preclude a later challenge of a payment on account of redemption-related debt by a bankruptcy trustee on the ground that it constitutes a preferential payment to a creditor.
  c.Priority of debt distributed directly or incurred in connection with a redemption
  Section 6.40(f) (Section 33-6-400(f)) provides that indebtedness created to purchase shares or issued as a distribution is on a parity with the indebtedness of the corporation to its general, unsecured creditors, except to the extent subordinated by agreement. General creditors are better off in these situations than they would have been if cash or other property had been paid out for the shares or distributed (which is proper under the statute), and no worse off than if cash had been paid out to the shareholders, which was then lent back to the corporation, making the shareholders creditors. The parity created by section 6.40(f) (Section 33-6-400(f)) therefore is logically consistent with the rule established by section 6.40(e) (Section 33-6-400(e)) that these transactions should be judged at the time of the issuance of the debt.
SOUTH CAROLINA REPORTERS' COMMENTS
  1. Introduction
  The law governing the Anglo-American concept of business corporations has long had as an aim that those investing in or lending to a corporation have a basis for confidence that the capital of the corporation will not be dissipated unduly, but will be preserved insofar as possible to generate new value or to be available in liquidation. This aim has traditionally been approached through statutory employment of the capital accounts concept: Corporations have been required to prepare a balance sheet including prescribed accounts reflecting the source of a corporation's capital and the relative permanence of that capital in the corporation. These accounts were determined on the basis of par value. The concept of par value developed early in the law of corporations as a way to prevent jobbers from charging
different investors different prices for shares of the same offering. Par value was the established initial offering price; purchasers "at par" each came in on an equal basis. Accordingly, par value multiplied by the number of shares sold in a venture yielded the capitalization of the venture. This capitalization would be represented on the balance sheet by an account with a name such as "restricted capital". The amount of capital represented by such an account was not available for distributions (that is, disbursements of value in respect of shares, such as dividends). When value was added to the company by profit or by sales of shares at prices higher than par value, such value was represented in the balance sheet by accounts with such names as "capital surplus" and "earned surplus". Distributions were permitted, in appropriate circumstances, up to the amounts represented by these accounts. The point was to make distributions only out of value added and to preserve intact the fundamental capitalization upon which investors and lenders had relied in deciding whether to invest or lend. Distributions were not to be permitted to diminish or "impair" capital.
  Present-day methods of share distribution have rendered par value unnecessary to serve its initial function; virtually the sole function of the concept in present business corporation statutes is to assist in computing the capital accounts, although most statutes provide means of calculating the accounts without using par value, to enable corporations to issue no-par stock. The concept of par value, in short, no longer is needed.
  Compliance with a capital accounts system adds considerable complexity and restriction to corporate accounting in respect of shares and distributions. Does such a system provide protection worth the added complexity and restriction? In the view of many, the answer is
no. The capital accounts system, with its emphasis on liquidation value, no longer addresses the concerns of investors or lenders. It is capable of being manipulated and is therefore potentially misleading. It founds legality of distributions upon a fiction bearing little relationship to legitimate corporate financial practices and goals.
  These matters are addressed in more detail in B. Manning, A CONCISE TEXTBOOK ON LEGAL CAPITAL (Foundation Press, 2d ed. 1981).
  Prior to 1985, legality of distributions by South Carolina corporations was calculated on the basis of the capital accounts concept. In 1985, Section 33-11-260 was engrafted upon the 1981 South Carolina Business Corporation Act, ending the required use of the capital accounts method of calculating legal distributions. The operative provisions of former Section 33-11-260 were in all material respects identical to those of Section 33-6-400 of this act. Accordingly, the adoption of this section represented not the appearance of something new but acknowledgement that references in the prior South Carolina Business Corporation Acts to the capital accounts concept were surplusage, subsumed by the breadth of discretion permitted by Section 33-6-400. The provisions of Section 33-6-400 are sufficiently broad that boards of directors wishing to continue to calculate legality of distributions using capital accounts may continue to do so if to do so would be reasonable under the circumstances (see Section 33-6-400(d)).
  The departure of the capital accounts concept from the South Carolina Business Corporation Act ended the usefulness of par value for corporation finance purposes.
  The purpose of Section 33-6-400 is to protect creditors and shareholders from misapplication of capital. Compared to its predecessor provisions in the former South Carolina Business
Corporation Act, Section 33-6-400 is intended to broaden the acceptable basis for determining that a distribution is permitted. The method for making such a determination is simplified and rationalized with modern views of creditor and shareholder security. In these ways, Section 33-6-400 is intended to provide more meaningful protection to creditors and shareholders while diminishing directors' exposure to lawsuits based on illegal distributions.
  The 1981 South Carolina Business Corporation Act contained different tests for legality of share repurchase than for other kinds of distributions. The present Code contains only one set of tests, found at Section 33-6-400(c), and the broad definition of "distribution" at Section 33-1-400(6) makes these tests applicable to share repurchase and every other transfer of value from the corporation to shareholder in respect of shares, except stock dividends.
  2. Subsection (c)
  Subsection (c) preserves the two tests of Section 33-9-260(c) of the 1981 South Carolina Business Corporation Act: an equity insolvency test at subsection (c)(1) and a balance sheet test at subsection (c)(2).
  The equity insolvency test was the basic test in the 1981 South Carolina Business Corporation Act even before the 1985 amendment. Former Section 33-9-150 provided that dividends were not to be paid "when the corporation is insolvent or when the payment of the dividend would render the corporation insolvent". "Insolvent" was defined at Section 33-1-20(15) of the 1981 South Carolina Business Corporation Act as "inability of the corporation to pay its debts as they become overdue [sic] in the usual course of its business." These words are virtually identical to those of Section 33-6-400(c)(1) and are intended to have the same
meaning, so that South Carolina corporations are confronted with nothing new or unfamiliar in this respect.
  The balance sheet test of subsection (c)(2) performs the same function as did the old capital-accounts rules, which is to demonstrate that on a pro forma basis a contemplated distribution would leave the corporation's capital unimpaired. The basis on which this demonstration may be made is broadened considerably (see the discussion of subsection (d) below).
  "Total liabilities" in subsection (c)(2) includes preferences upon liquidation. In many cases, depending upon the provisions of covenants accompanying the issue of senior securities, such preferences will include accrued cumulative dividends. Because the amount of preferences is to be calculated as though the corporation were being liquidated on the date of the proposed distribution, accrued cumulative dividends which would have been payable only upon some contingency which had not occurred by such date would not be included in the total amount of preferences.
  3. Subsection (d)
  Subsection (d) is intended to protect directors while affording them wide discretion in choosing a basis on which to make the calculations required by subsection (c). For example, if in the circumstances generally accepted accounting principles furnish a reasonable basis for preparing financial statements for use in the calculations required by subsection (c), then subsection (d) provides that such principles "may" be used. Generally accepted accounting principles are so broadly applicable that the Official Comment to this section observes that "directors will normally be entitled" to employ them "and to give presumptive weight to the advice of professional
accountants with respect to their application." Directors are not required to employ such principles, however, and, even when such principles would be reasonable, in the words of subsection (d), may use "any other method that is reasonable in the circumstances."
  The directors' determination that a distribution is not prohibited under subsection (c) is a business judgment to be measured against the standard of care of Sections 33-8-300 and 33-8-330. Once it is shown that directors formed their judgment in good faith, using ordinary prudence and in the reasonable belief that the action taken was in the corporation's best interests, courts do not look behind the directors' judgment or substitute their judgment for that of the directors. It is not intended that courts consider whether every available source of information was exhausted by the directors in forming their judgment, or whether certain sources of information should have been taken into account by the directors but were not.
DERIVATION: 1984 Model Act Section 6.40.
CHAPTER SEVEN
Shareholders
Article 1. Meetings.
Article 2. Voting.
Article 3. Voting Trusts and Agreements.
Article 4. Derivative Proceedings.
Article 1
Meetings
Sec.
33-7-101. Annual meeting.
33-7-102. Special meeting.
33-7-103. Court-ordered meeting.
33-7-104. Action without meeting.
33-7-105. Notice of meeting.
33-7-106. Waiver of notice.
33-7-107. Record date.
  Section 33-7-101. Annual meeting.
  (a) A corporation shall hold a meeting of shareholders annually at a time stated in or fixed in accordance with the bylaws or, in the alternative, may take such action as would be taken at an annual meeting by taking action by unanimous written consent under Section 33-7-104.
  (b) Annual shareholders' meetings may be held in or out of this State at the place stated in or fixed in accordance with the bylaws. If no place is stated in or fixed in accordance with the bylaws, annual meetings must be held at the corporation's principal office.
  (c) The failure to hold an annual meeting at the time stated in or fixed in accordance with a corporation's bylaws does not affect the validity of any corporate action.
CROSS REFERENCES
Action without meeting, see Section 33-7-104.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
Close corporations, see Statutory Close
  Corporation Supplement, Section 33-18-230.
Court-ordered meeting, see Section 33-7-103.
Director holdover terms, see Section 33-8-105.
Notice of meeting, see Section 33-7-105.
"Principal office":
  defined, see Section 33-1-400.
  designated in annual report, see
    Section 33-16-220.
Proxies, see Section 33-7-220.
Quorum and voting requirements, see Sections
  33-7-250 through 33-7-270.
Shareholders' list at meeting, see
  Section 33-7-200.
Special meeting, see Section 33-7-102.
Voting entitlement generally, see Section
  33-7-210.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 7.01(a) (Section 33-7-101(a)) requires every corporation to hold an annual meeting each year of shareholders entitled to participate in the election of directors and to consider other matters coming before the meeting of shareholders. In most instances, the meeting will involve only the holders of a single class of voting shares. The principal action to be taken at the annual meeting is the election of directors pursuant to section 8.03 (Section 33-8-103), but the purposes of an annual meeting are not limited and all matters appropriate for shareholder action may also be considered at that
meeting. An annual meeting is also the appropriate forum for a shareholder to raise any relevant question about the corporation's operations.
  The requirement of section 7.01 (Section 33-7-101(a)) that an annual meeting be held is phrased in mandatory terms to ensure that every shareholder entitled to participate in the meeting has the unqualified rights (1) to demand that the annual meeting be held and (2) to compel the holding of the meeting under section 7.03 (Section 33-7-103) if the corporation does not promptly hold the meeting. Many corporations,
such as non-public subsidiaries and closely held corporations, do not regularly hold annual meetings, and if no shareholder objects, that practice creates no problem under section 7.01 (Section 33-7-101), since section 7.01(c) (Section 33-7-101(c)) provides that failure to hold an annual meeting does not affect the
validity of any corporate action. Rather than holding an annual meeting, the shareholders may elect directors and take other appropriate action by unanimous written consent under section 7.04 (Section 33-7-104). And, even if the shareholders fail to elect directors, the directors currently in office continue in office under section 7.05 (Section 33-8-105) beyond the expiration of their terms.
  The time and place of the annual meeting may be "stated in or fixed in accordance with the bylaws." If the bylaws do not themselves fix a time and place for the annual meeting, authority to fix them may be delegated to the board of directors or to a specified corporate officer. This section thus gives corporations the flexibility to hold annual meetings in varying places at varying times as convenience may dictate.
  The annual meeting may be held either inside or outside the state or in a foreign country, but if the bylaws do not fix, or state the method of fixing, the place of the meeting, the meeting must be held at the "principal office" of the corporation. The principal office is defined in section 1.40 (Section 33-1-400) as the location of the principal executive office of the corporation and may or may not be its registered or official office under section 5.01 (Section 33-5-101). Section 16.22 (Section 33-16-220) requires that the address of the principal office be specified in the corporation's annual report.
  If the annual meeting is not held either within 6 months of the close of the corporation's fiscal year or within 15 months of the last annual meeting, a shareholder may compel an annual meeting to be held under section 7.03 (Section 33-7-103). In the absence of a demand for a meeting, a corporation can operate indefinitely without actually holding an annual meeting. The shareholders may act by
unanimous consent under section 7.04 (Section 33-7-104), and in any event directors, once duly elected, remain in office until their successors are qualified. See section 8.05 (Section 33-8-105).
  Authority granted to the board of directors or some individual to fix the time and place of the annual meeting must be exercised in good faith. See Schnell v. Chris-Craft Industries, Inc., 285 A.2d 437 (Del. 1971).
SOUTH CAROLINA REPORTERS' COMMENTS
  The location of the meeting, if none is fixed by the bylaws, is the corporation's "principal office" (defined in Section 33-1-400(18)) as the office designated in the company's annual report where the principal executive offices are located) rather than its "registered office." Otherwise, there is no significant change.
  Prior South Carolina law, Section 33-11-30(b) of the 1981 South Carolina Business Corporation Act, made the obligation to hold a meeting subject to Section 33-11-180, which provided for action by unanimous consent without a meeting. The Official Text of Section 7.01 of the 1984 Model Act demands point blank that there be an annual meeting of shareholders; yet, the Official Comment indicates that action by unanimous written consent under Section 33-7-104 is an alternative to holding a meeting. It was decided to make clear in the statute that the option of acting through unanimous written consent without a meeting is still available.
DERIVATION: 1984 Model Act Section 7.01.
  Section 33-7-102. Special meeting.
  (a) A corporation shall hold a special meeting of shareholders:
    (1) on call of its board of directors or the person authorized to do so by the articles of incorporation or bylaws; or
    (2) if the holders of at least ten percent of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date, and deliver to the corporation's secretary one or more written demands for the meeting describing the purpose for which it is to be held.
  (b) If not otherwise fixed under Section 33-7-103 or 33-7-107, the record date for determining shareholders entitled to demand a special meeting is the date the first shareholder signs the demand.
  (c) Special shareholders' meetings may be held in or out of this State at the place stated in or fixed in accordance with the bylaws. If no place is stated or fixed in accordance with the bylaws, special meetings must be held at the corporation's principal office.
  (d) Only business within the purpose described in the meeting notice required by Section 33-7-105(c) may be conducted at a special shareholders' meeting.
CROSS REFERENCES
Action without meeting, see Section 33-7-104.
Annual meeting, see Section 33-7-101.
Articles of incorporation, see Section
  33-2-102.
Bylaws, see Section 33-2-106, Chapter 10,
  Article 2.
Court-ordered meeting, see Section 33-7-103.
Notice of meeting, see Section 33-7-105.
Objection to extraneous business, see
  Section 33-7-106.
"Principal office":
  defined, see Section 33-1-400.
  designated in annual report, see Section
    33-16-220.
Quorum and voting requirements, see Sections
  33-7-250 through 33-7-270.
"Secretary" defined, see Section 33-1-400.
Shareholders' list at meeting, see
  Section 33-7-200.
Voting entitlement generally, see
  Section 33-7-210.
"Voting group" defined, see Section 33-1-400.
Waiver of notice, see Section 33-7-106.
OFFICIAL COMMENT
  Any meeting other than an annual meeting is a special meeting under section 7.02 (Section 33-7-102). The principal formal differences between an annual and a special meeting are that at an annual meeting directors are elected and, subject to the special notice requirements of section 7.05(b) (Section 33-7-105(b)), any relevant issue pertaining to the corporation may be considered, while a special meeting must be called for specific purposes and may only consider matters within those purposes.
1. WHO MAY CALL A SPECIAL MEETING
  A special meeting may be called under section 7.02(a) (Section 33-7-102 (a)) by the board of directors or the person or persons authorized to do so by the articles of incorporation or bylaws. Typically, the person or persons holding certain designated offices within the corporation, e.g., the president, chairman of the board of directors, or chief executive officer, are given authority to call special meetings of the shareholders. In addition, the holders of at least 10 percent of the votes entitled to be cast on a proposed issue at the special meeting may require the corporation to hold a special meeting by signing, dating, and delivering one or more writings that demand a special meeting and set forth the purpose or purposes of the desired meeting. Shareholders
demanding a special meeting do not have to sign a single piece of paper, but the writings signed must all describe essentially the same purpose or purposes. Upon receipt of writings evidencing a demand by holders of 10 percent of the votes, the corporation (through an appropriate officer) must call the special meeting at a reasonable time and place. The shareholders' demand may suggest a time and place but the final decision on such matters is the corporation's. If no meeting is held within the time periods specified in section 7.03 (Section 33-7-103), the shareholders may obtain a summary court order under that section requiring that the meeting be held.
  Section 7.02(b) (Section 33-7-102(b)) fixes a record date for determining the shareholders entitled to sign a demand for a special shareholders' meeting. Unless a record date is otherwise fixed for this purpose, the record date is the date the first shareholder signs the demand. If a shareholder initially signs a demand but later seeks to withdraw his demand, the corporation may permit the shareholder to do so.
2. DISCRETION AS TO CALLS OF SPECIAL MEETING
  Under section 7.02(a)(2) (Section 33-7-102(a)(2)) it is possible that more than one faction of shareholders may demand meetings at roughly the same time or that a single (or changing) faction of shareholders may request consecutive, overlapping, or repetitive meetings.
The responsible corporate officers have some discretion as to the call and purposes of a meeting, and where demands are repetitious or overlapping, they may refuse to call a meeting for a purpose identical or similar to a purpose for which a previous special meeting was held in the recent past. Similarly, they may decline to call a special meeting when an annual meeting will be held in the near future. This limited
discretion of the corporation to deny repetitive or overlapping demands may ultimately be tested under section 7.03 (Section 33-7-103), which itself gives the court discretion whether or not to compel the holding of a special meeting under these circumstances. See the Official Comment to section 7.03 (Section 33-7-103).
3.THE BUSINESS THAT MAY BE CONDUCTED AT A SPECIAL MEETING
  Section 7.05(c) (Section 33-7-105(c)) provides that a notice of a special meeting must include a "description of the purpose or purposes for which
the meeting is called." Section 7.02(d) (Section 33-7-102(d)) states that only business that is within that purpose or those purposes may be conducted at a special meeting. The word "within" was chosen, rather than a broader phrase like "reasonably related to," to describe the relationship between the notice and the authorized business to assure a shareholder who does not attend a special meeting that new or unexpected matters will not be considered in his absence.
SOUTH CAROLINA REPORTERS' COMMENTS
  Under the revision, the president and the chairman of the board lack authority to call a special meeting absent express authorization in the articles or bylaws. Bylaws generally identify persons who may call special meetings, however. Under the 1981 South Carolina Business Corporation Act, the articles allowed a meeting to be called by shareholders having less than ten percent of the shares entitled to vote. The revision establishes ten percent as the absolute minimum.
  The revision adds clarity by specifying steps to be followed by a shareholder who wishes to call a special meeting (subsection (a)(2)); a means of fixing a record date for calculation of
the percentage of stock ownership (subsection (b)); where the meetings may be held (subsection (c)); and what may be on the agenda (subsection (d)).
  Section 33-8-100(d) specifically empowers any shareholder to call a special meeting for the election of directors in cases where the corporation has no directors in office.
DERIVATION: 1984 Model Act Section 7.02.
  Section 33-7-103. Court-ordered meeting.
  (a) The circuit court of the county where a corporation's principal office (or, if none in this State, its registered office) is located may order a meeting to be held:
    (1) on application of any shareholder of the corporation entitled to participate in an annual meeting if an annual meeting was not held within the earlier of six months after the end of the corporation's fiscal year or fifteen months after its last annual meeting; or
    (2) on application of a shareholder who signed a demand for a special meeting valid under Section 33-7-102 if:
      (i) notice of the special meeting was not given within thirty days after the date the demand was delivered to the corporation's secretary; or
    (ii) the special meeting was not held in accordance with the notice.
  (b) The court may fix the time and place of the
meeting, determine the shares entitled to participate in the meeting, specify a record date
for determining shareholders entitled to notice of and to vote at the meeting, prescribe the form
and content of the meeting notice, fix the quorum
required for specific matters to be considered at
the meeting (or direct that the votes represented
at the meeting constitute a quorum for action on those matters), and enter other orders necessary to accomplish the purpose of the meeting.
CROSS REFERENCES
Annual meeting, see Section 33-7-101.
Effective date of notice, see Section 33-1-410.
Notice of meeting, see Section 33-7-105.
"Principal office":
  defined, see Section 33-1-400.
  designated in annual report, see Section
    33-16-220.
Quorum and voting requirements, see Sections
  33-7-250 through 33-7-270.
Registered office:
  designated in annual report, see
    Section 33-16-220.
  required, see Sections 33-2-102 and 33-5-101.
Shareholders' list for voting at meeting, see
  Section 33-7-200.
Voting entitlement generally, see Section
  33-7-210.
OFFICIAL COMMENT
  Section 7.03 (Section 33-7-103) provides the remedy for shareholders if the corporation refuses or fails to hold a shareholders' meeting as required by section 7.01 (Section 33-7-101) or 7.02 (Section 33-7-102). A shareholder entitled to participate in a meeting may apply for a summary court order to command the holding of a meeting if (1) an annual meeting is not held within 6 months after the end of the corporation's fiscal year or 15 months after its last annual meeting, or (2) a special meeting is not properly noticed within 30 days after a valid demand is delivered to the secretary of the corporation, or, if properly noticed, is not held in accordance with the notice. Since the meeting must be held within 60 days of the notice date under section 7.05 (Section 33-7-105), the maximum delay between the demand for a special meeting and the right to petition a court for a summary order is 90 days.
1.THE COURT WITH JURISDICTION TO ADMINISTER SECTION 7.03 (Section 33-7-103)
  The identity of the specific court with jurisdiction to order a shareholder's meeting under section 7.03(a) (Section 33-7-103(a)) must be supplied by each state when enacting this section. It is intended that this should be a court of general civil jurisdiction. Generally, all matters relating to a corporation should be addressed to the court in the county where the corporation's principal office is located in the state or, if the corporation does not have a principal office in the state, to the court in the county in which its registered office is located.
2. THE DISCRETION OF THE COURT
  The court has discretion under section 7.03 (Section 33-7-103) since the language of the statute is that the court "may summarily order" that a meeting be held. A court, for example, may refuse to order a special meeting if the specified purpose is repetitive of the purpose of a special meeting held in the recent past. See the Official Comment to section 7.02 (Section 33-7-102). Alternatively, the court may view the demand as a good faith request for reconsideration of an action taken in the recent past and may order a meeting to be held. Similarly, even though a demand for an annual meeting is not a formal prerequisite for an application for a summary order under this section, the court may withhold setting a time and date for the annual meeting for a reasonably short period in order to permit the corporation to do so.
3. BURDEN OF PROOF
  In any event, a shareholder applying for a summary order to hold a meeting has the burden of showing that he is entitled to the order. In the case of a special meeting, he has the burden
of showing that the demand was executed by the holders of at least 10 percent of the votes entitled to be cast on the record date and that the demand was duly delivered to the corporation's secretary.
4. NOTICE, TIME, PLACE, AND QUORUM REQUIREMENTS
  If the court orders that a meeting be held, it may fix the time and place of the meeting, determine the voting groups entitled to participate in the meeting, set the record date, order notice to be given as required by section 7.05 (Section 33-7-105), and enter such other orders as may be appropriate for the holding of the meeting. The court may also establish the quorum requirements for specific matters to be considered at the meeting or direct that the votes represented at the meeting automatically constitute a quorum for the taking of any action without regard to section 7.25 (Section 33-7-250) or any provision to the contrary in the corporation's articles of incorporation or bylaws. The latter alternative prevents a holder of the majority of the votes (who may not desire that a meeting be held) from frustrating the court-ordered meeting by not attending to prevent the existence of a quorum. In order to prevent misunderstanding about a special quorum requirement, if one is imposed, it is appropriate for the court to order that the notice of the meeting state specifically and conspicuously that a special quorum requirement is applicable to the court-ordered meeting.
5. STATUS AS ANNUAL MEETING
  The court may provide that a meeting it has ordered is to be the annual meeting. If so provided, the meeting should be viewed as compliance with section 7.01 (Section 33-7-101), precluding all other shareholder requests for an annual meeting for that year.
SOUTH CAROLINA REPORTERS' COMMENTS
  The revision gives management more time to hold a meeting before being sued. It also gives the court more leeway in fixing the quorum requirement for the substitute annual meeting. Under present law an eighty percent shareholder can frustrate the court's intervention by refusing to attend, thereby preventing the existence of a quorum. Under the revision, the court can fix a quorum requirement as low as one share.
  Under Section 33-11-30(c)(1) of the 1981 South Carolina Business Corporation Act, persons entitled to call special meetings could call substitute annual meetings. Thus, a ten percent shareholder could call a substitute annual meeting under prior law. This power no longer exists. The shareholder's remedy is to go to court.
  The revision departs from the Model Act by elimination of "summarily" before "order" in subsection (a). The change is to eliminate any implication that an order compelling corporate action could be issued without giving the corporation notice and an opportunity to be heard.
DERIVATION: 1984 Model Act Section 7.03.
  Section 33-7-104. Action without meeting.
  (a) Action required or permitted by this act to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by all the shareholders entitled to vote on the action, and delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  (b) If not otherwise fixed under Section 33-7-103 or 33-7-107, the record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent under subsection (a).
  (c) A consent signed under this section has the effect of a meeting vote and may be described as such in any document.
  (d) If this act requires that notice of proposed action be given to nonvoting shareholders and the action is to be taken by unanimous consent of the voting shareholders, the corporation must give its nonvoting shareholders written notice of the proposed action at least ten days before the action is taken. The notice must contain or be accompanied by the same material that must be sent to nonvoting shareholders in a notice of meeting at which the proposed action is submitted to the shareholders for action.
CROSS REFERENCES
Acceptance of consents, see Section 33-7-240.
Amendment of articles of incorporation, see
  Chapter 10, Article 1.
Dissolution, see Chapter 14.
Merger and share exchange, see Chapter 11.
"Notice" defined, see Section 33-7-410.
Sale of assets, see Chapter 12.
"Secretary" defined, see Section 33-1-400.
Voting entitlement generally, see
  Section 33-7-210.
OFFICIAL COMMENT
  Section 7.04 (Section 33-7-104) provides that all the shareholders entitled to vote on an issue may validly act by unanimous written consent without a meeting. Unanimous written consent is obtainable, as a practical matter,
only on matters on which there are only a relatively few shareholders entitled to vote.
  Section 7.04 (Section 33-7-104) is based on the fundamental premise that if all the voting shareholders desire some action to be taken, no purpose is served by requiring the formality of holding a meeting of shareholders. Action by unanimous written consent has the same effect as a meeting vote and may be described as such in any document, including documents delivered to the secretary of state for filing. Section 7.04 (Section 33-7-104) is applicable to any shareholder action, including, without limitation, election of directors, approval of mergers or sales of substantially all the corporate property not in the ordinary course of business, amendments of articles of incorporation, and dissolution.
1. FORM OF WRITTEN CONSENT
  To be effective, consents must be in writing, signed by all the shareholders entitled to vote, and delivered to the secretary of the corporation. The phrase "one or more written consents" is included in section 7.04(a) (Section 33-7-104(a)) to make it clear that all shareholders do not need to sign the same piece of paper. The record date for determining who is entitled to vote, if not otherwise fixed by or in accordance with the bylaws, is the date the first shareholder signs the consent.
2. REVOCATION OF CONSENT
  Action by unanimous written consent is effective only when the last shareholder has signed the appropriate written consent and all consents have been delivered to the secretary of the corporation. Before that time, any shareholder may withdraw his consent simply by advising the secretary of that fact. Cf. Calumet Industries, Inc. v. McClure, 464 F. Supp. 19 (N.D. III. 1978). The withdrawal of a
single consent, of course, destroys the unanimous written consent required by this section. If a shareholder seeks to withdraw his consent after all shareholders have signed written consents and filed them with the secretary of the corporation, the corporation may treat the attempted withdrawal as too late or give it effect, thereby requiring the matter to be presented at a shareholders' meeting.
3. CONSENT TO FUNDAMENTAL CORPORATE CHANGES
  Section 7.04 (Section 33-7-104) is applicable to all shareholder actions, including the approval of fundamental corporate changes described in chapters 10, 11, 12, and 14. If these actions were taken at an annual or special meeting, shareholders who were not entitled to vote on the matter would nevertheless be entitled to receive notice of the meeting, including a description of the transaction proposed to be considered at the meeting. See, e.g., sections 10.03 (Section 33-10-103) (notice of proposed amendment), 11.03 (Section 33-11-103) (notice of proposed merger). In order to ensure that nonvoting shareholders have essentially the same right if action is taken by consent rather than at a meeting, section 7.04(d) (Section 33-7-104(d)) provides that all nonvoting shareholders must be given at least 10 days' written notice of the fundamental corporate changes that are proposed for approval by consent.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 33-11-180(b) of the 1981 South Carolina Business Corporation Act allows shareholder action by unanimous consent without a meeting through a written consent signed by a shareholder's agent (attorney-in-fact or proxyholder). The Model Act provision does not speak to use of agents; Section 7.04(a) of the
1984 Model Act Official Text calls for written consents signed by "all the shareholders." Section 7.22 of the Model Act specifies that a proxy may "vote or otherwise act for" a shareholder but does not mention whether a proxy has authority to sign consents or waivers. Since Model Act Section 7.24(a) seems to contemplate that consents and waivers may be signed only by shareholders, subsection (a) was amended to make clear that proxy holders have power to sign consents and waivers under this act.
  Prior law was likewise more detailed in requiring the consents to be filed with the secretary of the corporation; the revision merely calls for delivery to the corporation. Prior law envisioned only one consent signed by all; the revision allows use of more than one document to gather the requisite consents.
  The Model Act adds in subsection (b) helpful clarification by stating a method for determining a record date for shareholders entitled to take action without a meeting.
  Model Act subsection (d) treats the problem of giving notice to nonvoting shareholders. This problem was not dealt with in the old statute.
  The issue of waiver of notice, previously given duplicative coverage by Sections 33-11-50 and 33-11-180(a) of the 1981 South Carolina Business Corporation Act, is covered by Section 33-7-106) of this act, infra.
DERIVATION: 1984 Model Act Section 7.04.
  Section 33-7-105. Notice of meeting.
  (a) A corporation shall notify shareholders of the date, time, and place of each annual and special shareholders' meeting no fewer than ten nor more than sixty days before the meeting date. Unless this act or the articles of incorporation require otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting.
  (b) Unless this act or the articles of incorporation require otherwise, notice of an annual meeting need not include a description of the purpose for which the meeting is called.
  (c) Notice of a special meeting must include a description of the purpose for which the meeting is called.
  (d) If not otherwise fixed under Section 33-7-103 or 33-7-107, the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders' meeting is the close of business on the day before the first notice is delivered to shareholders.
  (e) Unless the bylaws require otherwise, if an annual or special shareholders' meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, or place if the new date, time, and place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed under Section 33-7-107, however, notice of the adjourned meeting must be given under this section to persons who are shareholders as of the new record date.
CROSS REFERENCES
Annual meeting, see Section 33-7-101.
"Deliver" includes mail, see Section 33-1-400.
Effective date of notice, see Section 33-1-410.
"Notice" defined, see Section 33-1-410.
Notice otherwise required:
  amendment, see Section 33-10-103.
  dissolution, see Section 33-14-102.
  merger and share exchange, see
    Section 33-11-103.
  sale of assets, see Section 33-12-102.
Special meeting, see Section 33-7-102.
Waiver of notice, see Section 33-7-106.
OFFICIAL COMMENT
  Shareholders entitled to notice must be given notice of annual and special meetings pursuant to section 7.05 (Section 33-7-105) unless the notice is waived pursuant to section 7.06 (Section 33-7-106). Notice must be given at least 10 but not more than 60 days before the meeting date.
1. SHAREHOLDERS ENTITLED TO NOTICE
  Generally, only shareholders who are entitled to vote at a meeting are entitled to notice. Thus, notice usually needs to be sent only to holders of shares entitled to vote for an election of directors or generally on other matters (in the case of an annual meeting), and on matters within the specified purposes set forth in the notice (in the case of a special meeting), and only to holders of shares of those classes or series of shares on the record date. The last sentence of section 7.05(a) (Section 33-7-105(a)), however, recognizes that other sections of the Act require that notice of meetings at which certain types of fundamental corporate changes are to be considered must be sent to all shareholders, including holders of shares who are not entitled to vote on any matter at the meeting. See sections 10.03 (Section 33-10-103), 11.03 (Section 33-11-103), 12.02 (Section 33-12-102), and 14.02 (Section 33-14-102). In addition, the articles of incorporation may require that notice of meetings be given to all or specified voting groups of shareholders who are not entitled to vote on the matters considered at those meetings.
2.STATEMENT OF MATTERS TO BE CONSIDERED AT AN ANNUAL MEETING
  Notice of all special meetings must include a description of the purpose or purposes for which
the meeting is called and the matters acted upon at the meeting are limited to those within the notice of meeting. By contrast, the notice of an annual meeting usually need not refer to any specific purpose or purposes, and any matter appropriate for shareholder action may be considered. As recognized in subsection (b), however, other provisions of the revised Model Act provide that certain types of fundamental corporate changes may be considered at an annual meeting only if specific reference to the proposed action appears in the notice of meeting. See sections 10.03 (Section 33-10-103), 11.03 (Section 33-11-103), 12.02 (Section 33-12-102), and 14.02 (Section 33-14-102). In addition, if the board of directors chooses, a notice of an annual meeting may contain references to purposes or proposals not required by statute. In either event, if a notice of an annual meeting refers specifically to one or more purposes, the meeting is not limited to those purposes.
3. RECORD DATE
  Section 7.05(d) (Section 33-7-105(d)) is a catch-all record date provision for both annual and special meetings. If the record date for notice and for voting entitlement is not otherwise fixed pursuant to section 7.03 (Section 33-7-103) or 7.07 (Section 33-7-107), the record date for purposes of determining who is entitled to notice and to vote at the meeting is the close of business on the day before the notice is mailed to the voting groups of shareholders. If notice is mailed to shareholders over a period of more than one day, the day before the notice is delivered to the first shareholders is the record date.
  The selection of the close of business on the day before the notice is mailed as the catch-all record date is intended to permit the corporation to mail notices to shareholders on a
given day without regard to any requests for transfer that may have been received during that day. For this reason, this section is not inconsistent with the general principle set forth in the last sentence of section 7.07(a) (Section 33-7-107(a)) that the board of directors may not fix a retroactive record date.
4. NOTICE OF ADJOURNED MEETINGS
  Section 7.05(e) (Section 33-7-105(e)) provides rules for adjourned meetings and determines whether new notice must be given to shareholders. Under this subsection, a meeting may be adjourned to a different date, time, or place without additional notice to the shareholders (unless the bylaws require otherwise) if the new date, time, or place is announced before adjournment. But new notice is required if a new record date is or must be fixed under section 7.07(c) (Section 33-7-107(c)). If a new record date is or must be fixed, the 10-to-60 day notice requirement and all other requirements of section 7.05 (Section 33-7-105) must be complied with as notice is given to the persons who are shareholders as of the new record date. A new quorum for the adjourned meeting must also be established. See section 7.25 (Section 33-7-250).
  Section 7.25 (Section 33-7-250) provides that if a quorum exists for a meeting, it is deemed to continue to exist automatically for an adjourned meeting unless a new record date is or must be set for the adjourned meeting.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 33-7-105(a) extends the maximum lead time for giving notice from fifty days under prior law to sixty days. Otherwise, Section 33-7-105(a), (b), and (c) merely restate the
requirements of Section 33-11-40(a) of the 1981 South Carolina Business Corporation Act. Under Section 33-1-400(6), mailing is a form of delivery, and, under Section 33-1-400(23), shareholders are those persons "whose names are registered on the books of the corporation" or beneficial owners shown by a nominee certificate on file with the corporation. The definition of shareholders has been enlarged to provide that creditors may have such rights enjoyed by shareholders as allowed by the corporation's articles of incorporation.
  Notice as to a special meeting called by shareholders is dealt with in Sections 33-7-102 and 33-7-103. Previous law, Section 33-11-40(b), had a self-help provision which allowed the shareholder calling the special meeting to set a date and send the notice if management refused to cooperate. The revision leaves the decision as to time and place up to the corporation. See Section 33-7-102, Official Comment 1. The snubbed shareholders may petition for judicial relief under Section 33-7-103. The revision's treatment is preferable. If management refuses to discharge its obligation to call a meeting on request, it is preferable to have judicial intervention, rather than self-help (which usually is futile).
  Section 7.05(e) of the Model Act Official Text made a significant change in the law by not requiring, absent bylaw provision, the giving of notice of an adjourned meeting if the new date, time, or place is announced at the meeting prior to adjournment. It was decided to change the "or" to "and" to assure full notice is given.
DERIVATION: 1984 Model Act Section 7.05.
  Section 33-7-106. Waiver of notice.
  (a) A shareholder may waive any notice required by this act, the articles of incorporation, or bylaws before or after the
date and time stated in the notice. The waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  (b) A shareholder's attendance at a meeting:
    (1) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting;
    (2) waives objection to consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.
CROSS REFERENCES
Acceptance of waiver, see Section 33-7-240.
Action without meeting, see Section 33-7-104.
Meeting notice, see Section 33-7-105.
"Notice" defined, see Section 33-1-410.
Proxies, see Section 33-7-220.
Waiver of quorum objection, see Section
  33-7-250.
OFFICIAL COMMENT
  Section 7.06(a) (Section 33-7-106(a)) permits any shareholder to waive any notice required by section 7.05 (Section 33-7-105) by a written waiver, signed by the shareholder and delivered to the corporation. A waiver is effective even though it is signed at or after the time set for the meeting.
1. INFORMAL WAIVER OF NOTICE
  A notice of shareholder meetings serves two principal purposes: (1) it advises shareholders of the date, time and place of the annual or special meeting, and (2) in the case of a
special meeting (or an annual meeting at which fundamental changes may be made), it advises shareholders of the purposes of the meeting. If a shareholder attends a meeting, he has probably received some form of notice of the date, time, and place of the meeting whether from the corporation or from another source. As a result, section 7.06(b)(1) (Section 33-7-106(b)(1)) provides that attendance at a meeting constitutes waiver of any failure to receive the notice or defects in the statement of the date, time, and place of any meeting. Defects waived by attendance for this purpose include a failure to send the notice altogether, delivery to the wrong address, a misstatement of the date, time, or place of the meeting, and a failure to notice the meeting within the time periods specified in section 7.05(a) (Section 33-7-105(a)). If a shareholder believes that the defect in or failure of notice was in some way prejudicial, he may preserve his objection by stating at the beginning of the meeting that he objects to holding the meeting or transacting any business. If this objection is made, the corporation may correct the defect by sending proper notice to the shareholders for a subsequent meeting or by obtaining written waivers of notice from all shareholders who did not receive the notice required by section 7.05 (Section 33-7-105).
  For purposes of this section, "attendance" at a meeting involves the presence of the shareholder in person or by proxy. A shareholder who attends a meeting solely for the purpose of objecting to the notice may be counted as present for purposes of determining whether a quorum is present. See the Official Comment to section 7.25 (Section 33-7-250).
  In the case of special meetings, or annual meetings at which fundamental corporate changes are considered, a second purpose of the notice is to tell shareholders what is to be considered
at the meeting. An objection that a particular matter is not within the stated purposes of the meeting obviously cannot be raised until the matter is presented. Thus section 7.06(b)(2) (Section 33-7-106(b)(2)) provides that a shareholder waives this kind of objection if he fails to object promptly after the matter is first presented. If this objection is made, the corporation may correct the defect by sending proper notice to the shareholders for a subsequent meeting or obtaining written waivers of notice from all shareholders. Of course, whether or not a specific matter is within a stated purpose of a meeting is ultimately a matter for judicial determination, typically in a suit to invalidate action taken at the meeting brought by a shareholder who was not present at the meeting or who was present at the meeting and preserved his objection under section 7.06(b) (Section 33-7-106(b)).
  The purpose of both waiver rules in section 7.06(b) (Section 33-7-106(b)) is to require shareholders with technical objections to holding the meeting or considering a specific matter to raise them at the outset and not reserve them to be raised only if they are unhappy with the outcome of the meeting. The rules set forth in this section differ in some respects from the waiver rules for directors set forth in section 8.23 (Section 33-8-230) where a waiver is inferred if the director acquiesces in the action taken at a meeting even if he raised a technical objection to the notice of a meeting at the outset.
2.WAIVER OF NOTICE WHERE FUNDAMENTAL CORPORATE ACTIONS ARE CONSIDERED
  Other sections of the Model Act require that shareholders who are not entitled to vote are entitled to notice of meetings at which certain fundamental corporate changes are to be considered. See sections 10.03 (Section
33-10-103), 11.03 (Section 33-11-103), 12.02 (Section 33-12-102), and 14.02 (Section 33-14-102). In order to obtain an effective waiver of notice for these meetings under this section, waivers must be obtained from the nonvoting shareholders who are entitled to notice as well as from the voting shareholders.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1981 South Carolina Business Corporation Act provided for written waiver of notice by a shareholder or proxy. The revision requires that the waiver be signed by the shareholder; the possibility of waiver by a shareholder's proxy is handled by Section 33-7-220.
  The Model Act specifies the need for delivery of the waiver to the corporation; the 1981 South Carolina Business Corporation Act did not, although consents to action without a meeting were required to be filed with the secretary of the corporation under former Section 33-11-180.
  Prior law also contemplated waivers by attendance without objection from shareholders or proxies, whereas the revision speaks only of shareholders. Again, however, this issue is resolved by the change in Section 33-7-220(b) to make clear that proxies may give waivers and consents.
  The revision contemplates and requires objections based on technical deficiencies in the notice, such as lack of timeliness, as well as deficiencies based on consideration of matters beyond the scope of those described in the notice. Failure to object to consideration of an extraneous matter waives the objection. The 1981 South Carolina Business Corporation Act did not consider the possibility of a shareholder raising, in the course of a meeting, an objection to corporate action based on inadequate notice caused by faulty disclosure.
DERIVATION: 1984 Model Act Section 7.06.
  Section 33-7-107. Record date.
  (a) The bylaws may fix or provide the manner of
fixing the record date for one or more voting groups in order to determine the shareholders entitled to notice of a shareholders' meeting, to
demand a special meeting, to vote, or to take any
other action. If the bylaws do not fix or provide
for fixing a record date, the board of directors of the corporation may fix a future date as the record date.
  (b) A record date fixed under this section may not be more than seventy days before the meeting or action requiring a determination of shareholders.
  (c) A determination of shareholders entitled to
notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty days after the date fixed for the original meeting.
  (d) If a court orders a meeting adjourned to a date more than one hundred twenty days after the date fixed for the original meeting, it may provide that the original record date continues in effect or it may fix a new record date.
CROSS REFERENCES
Annual meeting, see Section 33-7-101.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
Court-ordered meeting, see Section 33-7-103.
Other record date provisions:
  action without meeting, see Section 33-7-104.
  distributions to shareholders, see Section
    33-6-400.
  notice of meeting, see Section 33-7-105.
  special meeting, see Section 33-7-102.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 7.07 (Section 33-7-107) authorizes the board of directors to fix record dates for any action unless the bylaws themselves fix or provide for the fixing of a record date. A separate record date may be established for each voting group entitled to vote separately on a matter at a meeting, or a single record date may be established for all voting groups entitled to participate in the meeting. If neither the bylaws nor the board of directors fix a record date for a specific action, the section of this Act that deals with that action itself fixes the record date. For example, section 7.05(d) (Section 33-7-105(d)), relating to giving notice of a meeting, provides that the record date for determining who is entitled to notice of a meeting (if not fixed by the directors or the bylaws) is the close of business on the day before the date the corporation first gives notice to shareholders of the meeting.
  A record date may not be fixed more than 70 days before the meeting or action in question and may not be fixed retroactively. Once set, the same record date may be utilized for an adjournment of the meeting that reconvenes within 120 days after the date fixed for the original meeting or the board of directors may fix a new record date. If the adjourned meeting takes place more than 120 days after the date fixed for the original meeting, section 7.07(c) (Section 33-7-107(c)) requires that a new record date be fixed. But if an adjournment is ordered by a court, section 7.07(d) (Section 33-7-107(d)) allows the court to provide that the original record date continues to be applicable or to fix a different date. In any
event, if a different record date is or must be fixed under this section, section 7.05 (Section 33-7-105) requires that new notice be given to the persons who are shareholders as of the new record date, and section 7.25 (Section 33-7-250) requires that a quorum be reestablished for that meeting.
SOUTH CAROLINA REPORTERS' COMMENTS
  The revision is more permissive in allowing a record date any time within seventy days of the action, whereas the 1981 South Carolina Business Corporation Act required that the record date be at least ten, but no more than fifty, days in advance of the action. If neither the bylaws nor the board fixes a record date, then the specific statute governing the action fixes the record date (see, e.g., Section 33-7-105(d) dealing with record dates for meetings).
  The revision abandons the practice allowed under 1981 South Carolina Business Corporation Act Section 33-11-60(d) of allowing the directors to close the stock transfer books for a stated period in lieu of fixing a record date. The mandatory selection of a new record date for adjournments of more than one hundred twenty days (absent judicial intervention) is new. If the adjournment lasts more than one hundred twenty days and is provoked by court order, the setting of a new record date is discretionary with the court.
DERIVATION: 1984 Model Act Section 7.07.
Article 2
Voting
Sec.
33-7-200. Shareholders' list of meeting.
33-7-210. Voting entitlement of shares.
33-7-220. Proxies.
33-7-230. Shares held by nominees.
33-7-240. Corporation's acceptance of votes.
33-7-250.Quorum and voting requirements for voting groups.
33-7-260.Action by single and multiple voting groups.
33-7-270. Greater quorum or voting requirements.
33-7-280.Voting for directors: cumulative voting.
  Section 33-7-200. Shareholders' list for meeting.
  (a) After fixing a record date for a meeting, a corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of a shareholders' meeting. The list must be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each shareholder.
  (b) The shareholders' list must be available for inspection by any shareholder, beginning on the date on which notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting is to be held. A shareholder, his agent, or attorney is entitled on written demand to inspect and, subject to the requirements of Section 33-16-102(c), to copy the list, during regular business hours and at his expense, during the period it is available for inspection.
  (c) The corporation shall make the shareholders' list available at the meeting, and any shareholder, his agent, or attorney is entitled to inspect the list at any time during the meeting or any adjournment.
  (d) If the corporation refuses to allow a shareholder, his agent, or attorney to inspect the shareholders' list before or at the meeting
(or copy the list as permitted by subsection (b)), the circuit court of the county where a corporation's principal office (or, if none in this State, its registered office) is located, on application of the shareholder, may summarily order the inspection or copying at the corporation's expense and may postpone the meeting for which the list was prepared until the inspection or copying is complete.
  (e) Refusal or failure to prepare or make available the shareholders' list does not affect the validity of action taken at the meeting.
CROSS REFERENCES
Annual meeting, see Section 33-7-101.
Charge for providing copy, see Section
  33-16-103.
Effective date of notice, see Section 33-1-410.
Inspection of corporate records generally, see
  Chapter 16, Article 1.
"Notice" defined, see Section 33-1-410.
Notice of meeting, see Section 33-7-105.
"Principal office":
  defined, see Section 33-1-400.
  designated in annual report, see
    Section 33-16-220.
Proper purpose for copying, see
  Section 33-16-102.
Record date, see Section 33-7-107.
Record of shareholders, see Section 33-16-101.
Registered office:
  designated in annual report, see
    Section 33-16-220.
  required, see Sections 33-2-102
    and 33-5-101.
"Shareholder" defined, see Section 33-1-400.
Special meeting, see Section 33-7-102.
Voting entitlement generally, see Section
  33-7-210.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 7.20 (Section 33-7-200) requires the preparation of a list of shareholders entitled to notice of a meeting and requires that this list be made available on request to shareholders within two business days after the meeting notice is given.
  The list of shareholders is often referred to as the "voting list" and usually the list will include only the names of those shareholders entitled to vote at the meeting. The list, however, must also include the names and shareholdings of shareholders of nonvoting shares if they are entitled to notice of the meeting by reason of the nature of the actions proposed to be taken at the meeting. See section 7.05 (Section 33-7-105) and its Official Comment.
  Making the list of shareholders available before the meeting marks a change from the 1969 version of the Model Act. Through this device, a shareholder may learn the identity of the owners of substantial blocks of shares or the owners of shares similarly situated and communicate with them to see if his concerns are shared and should be pursued.
1. WHEN THE LIST MUST BE AVAILABLE
  The list must generally be available for inspection two business days after notice of the meeting is given and continuously thereafter until the meeting occurs. If, however, notice of the meeting is waived by all the shareholders, the list need be available only at the meeting itself under section 7.20(c) (Section 33-7-20(c)) unless one or more waivers are conditioned upon receipt of the list.
2. WHERE THE LIST MUST BE MAINTAINED
  Section 7.20(b) (Section 33-7-200(b)) permits the list to be maintained either at the corporation's principal office or at another location in the city in which the meeting is to be held, the precise location to be designated in the notice of meeting. If the corporation changes the location of its annual meeting, it thus may correspondingly change the location of the list of shareholders pursuant to this subsection.
  Section 7.20(c) (Section 33-7-200(c)) also requires a copy of the shareholders' list to be available at the meeting itself for inspection. This list may be used to determine attendance, the presence or absence of a quorum, and the right to vote.
3. THE FORM IN WHICH THE LIST IS MAINTAINED
  Section 7.20 (Section 33-7-200) does not require the list of shareholders to be in any particular form. It may be maintained, for example, in electronic form. If the list is maintained in other than written form, however, suitable equipment must be provided so that a comprehensible list may be inspected by a shareholder as permitted by this section.
4.CONSEQUENCES OF FAILING TO PREPARE THE LIST OR REFUSAL TO MAKE IT AVAILABLE
  Section 7.20 (Section 33-7-200) creates a corporate obligation rather than an obligation imposed upon a corporate officer. If the corporation fails to prepare the list or refuses to permit a shareholder to inspect it, either before the meeting as required by section 7.20(b) (Section 33-7-200(b)) or at the meeting itself as required by section 7.20(c) (Section 33-7-200(c)), a shareholder may apply to the appropriate court under section 7.20(d) (Section 33-7-200(d)) for a summary order permitting inspection of the list; the court may further
order the meeting to be postponed for a reasonable time. If the court orders a copy of the list to be provided to the shareholders, the copying is at the corporation's expense; if the corporation produces the list voluntarily pursuant to section 7.20(b) or (c) (Section 33-7-200(b) or (c)), any inspection and copying are at the shareholder's expense.
  This judicial remedy is the only sanction for violation of section 7.20 (Section 33-7-200) since section 7.20(e) (Section 33-7-200(e)) provides that the failure to prepare, maintain, or produce the list does not affect the validity of any action taken at the meeting.
5. THE RIGHT TO OBTAIN A COPY OF THE LIST
  Section 7.20(b) (Section 33-7-200(b)) permits shareholders to "inspect" the list without limitation, but permits the shareholder to "copy" the list only if the shareholder complies with the requirement of section 16.02(c) (Section 33-16-102(c)), that the demand be "made in good faith and for a proper purpose." The right to copy the list includes, if reasonable, the right to receive a copy of the list upon payment of a reasonable charge. See sections 16.03(b) and (c) (Section 33-16-103(b) and (c)). The distinction between "inspection" and "copying" set forth in section 7.20(b) (Section 33-7-200(b)) reflects an accommodation between competing considerations of permitting shareholders access to the list before a meeting and possible misuse of the list.
6.RELATIONSHIP TO RIGHT TO INSPECT CORPORATE RECORDS GENERALLY
  Section 7.20 (Section 33-7-200) creates a right of shareholders to inspect a list of shareholders in advance of and at a meeting that is independent of the rights of shareholders to inspect corporate records under chapter 16A. A shareholder may obtain the right to inspect the
list of shareholders as provided in chapter 16, Art. 1 without regard to the provisions relating to the pendency of a meeting in section 7.20 (Section 33-7-200), and similarly the limitations of chapter 16A are not applicable to the right of inspection created by section 7.20 (Section 33-7-200) except to the extent the shareholder seeks to copy the list in advance of the meeting.
  The right to inspect under chapter 16, Art. 1 is also broader in the sense that in some circumstances the shareholder may be entitled to receive copies of the documents he may inspect. See section 16.03 (Section 33-16-103).
SOUTH CAROLINA REPORTERS' COMMENTS
  The revision expands the content of the list by requiring inclusion of data for all shareholders entitled to notice of the meeting, not just those entitled to vote. The 1981 South Carolina Business Corporation Act required the list to be made available for inspection as soon as notice is given (Section 33-11-70(a)). The Official Text of the 1984 Model Act, which is incorporated into this act, does not require that the list be made available until two business days after notice is given. Thus, mailing of notice Friday morning will permit a delay until the following Tuesday in supplying the list. This was considered undesirable. The requirement that the list be made available when notice is given was retained accordingly.
  Under the revision, a shareholder's sole recourse in the event of mistreatment concerning the list, before or at the meeting, is to seek an
order from the circuit court allowing inspection or copying at the corporation's expense and granting postponement of the meeting "until the inspection or copying is complete." The order is to be issued only after the corporation has an opportunity to appear and be heard.
  The revision abandons the provision in the 1981 South Carolina Business Corporation Act, Section 33-11-70(e), allowing adjournment of a meeting "on the demand of any shareholder in person or by
proxy," until the list inspection requirements are honored. Under the revision the sole sanction for abusing a shareholder's inspection rights is that the corporation might be ordered to pay the shareholder's copying costs.
  Under Sections 33-11-250 and 33-11-260 of the 1981 South Carolina Business Corporation Act, shareholders were entitled to inspect and copy the corporation's record of shareholders, provided assurances were given that the information would not be misused. While Section 33-7-200(b) freely permits inspection, copying is made subject to the requirements of Section 33-16-102(c), which generally parallels the requirements of Section 33-11-260(b) of the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 7.20.
  Section 33-7-210. Voting entitlement of shares.
  (a) Except as provided in subsections (b) and (c), unless the articles of incorporation provide otherwise, each outstanding share, regardless of class, is entitled to one vote on each matter voted on at a shareholders' meeting.
  (b) Absent special circumstances, the shares of a corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and the first corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation.
  (c) Subsection (b) does not limit the power of a corporation to vote any shares, including its own shares, held by it in a fiduciary capacity.
  (d) Redeemable shares are not entitled to vote after notice of redemption is mailed to the
holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares.
CROSS REFERENCES
Acceptance of votes, see Section 33-7-240.
Articles of incorporation, see Section 33-2-102.
Cumulative voting, see Section 33-7-280.
Director establishment of voting rights,
  see Section 33-6-102.
"Notice" defined, see Section 33-1-410.
Proxy voting, see Section 33-7-220.
Redeemable shares, see Section 33-6-101.
Series of shares, see Section 33-6-102.
"Share" defined, see Section 33-1-400.
Shareholders' meetings, see Sections
  33-7-101 through 33-7-103.
Voting by nominees, see Section 33-7-230.
Voting by voting groups, see Sections
  33-1-400, 33-7-250, and 33-7-260.
Voting rights generally, see Section 33-7-101.
OFFICIAL COMMENT
  Section 7.21 (Section 33-7-210) deals with the entitlement of shareholders to vote, while section 7.22 (Section 33-7-220) deals with voting by proxy and section 7.24 (Section 33-7-240) establishes rules for the corporation's acceptance or rejection of proxy votes.
1. VOTING POWER OF SHARES
  Section 7.21(a) (Section 33-7-210(a)) provides that each outstanding share, regardless of class, is entitled to one vote per share unless otherwise provided in the articles of incorporation. See section 6.01 and its Official Comment. The articles of incorporation
may provide for multiple or fractional votes per share, and may provide that some classes of shares are nonvoting on some or all matters, or that some classes have a single vote per share or different multiple or fractional votes per share, or that some classes constitute one or more separate voting groups and are entitled to vote separately on the matter.
  The articles of incorporation may also authorize the board of directors to create classes or series of shares with preferential rights, which may be voting or nonvoting in whole or in part. See section 6.02 (Section 33-6-102) and its Official Comment.
  Fractional or multiple votes per share, or nonvoting shares, are often used in the planning of business ventures, particularly closely held ventures, when the contributions of participants vary in kind or quality. It is possible through these devices, for example, to give persons with relatively small financial contributions a relatively large voting power within the corporation.
  The power to vary or condition voting power is also often used to give increased protection to financial interests in the corporation. It is customary, for example, to make classes of shares with preferential rights nonvoting, but the power
to vote may be granted to those classes if distributions are omitted for a specified period.
This conditional right to vote may permit the class of shares with preferential rights to vote separately as a voting group to elect one or more
directors or to vote with the shares having general voting rights in the election of the directors.
  In order to reflect the possibility that shares may have multiple or fractional votes per share, all provisions relating to quorums, voting, and similar matters in the Model Act are phrased in terms of "votes" rather than "shares".
2. VOTING POWER OF NONSHAREHOLDERS
  Under the last sentence of section 7.21(a) (Section 33-7-210(a)), the power to vote cannot be granted generally to nonshareholders. The statutes of some states permit bondholders to be given the power to vote under certain specified circumstances; this option is not available under the Model Act. But creditors may in effect be given the power to vote, e.g., by creating a special class of redeemable voting shares for them, by creating a voting trust at the time the credit is extended with power in the creditors to name the voting trustees, by registering the shares in the name of the creditors as pledgees with power to vote, or by granting the creditors a revocable or irrevocable proxy to vote some or all of the outstanding shares. See the Official Comment to section 7.22 (Section 33-7-220).
3. CIRCULAR HOLDINGS
  Section 7.21(b) (Section 33-7-210(b)) prohibits the voting of shares held by a domestic or foreign corporation that is itself a majority-owned subsidiary of the corporation issuing the shares. The purpose of this prohibition is to prevent management from using a corporate investment to perpetuate itself in power. Similar public policy considerations may be present in situations where the issuing corporation owns a large but not a majority interest in the corporation voting the shares. The inclusion of section 7.21(b) (Section 33-7-210(b)) is not intended to affect the possible application of common law principles that may invalidate circular holding situations not within its literal prohibition. As to the possible existence of these common law principles, see, e.g., Cleveland Trust Co. v. Eaton, 11 Ohio Misc. 151, 229 N.E.2d 850 (1967), rev'd on the basis of statutory amendment, 20 Ohio St. 2d 129, 256 N.E.2d 198 (1970). The
phrase "absent special circumstances" is included to enable a court to permit the voting of shares where it deems that the purpose of the section is not violated.
4. SHARES HELD IN A FIDUCIARY CAPACITY
  Section 7.21(c) (Section 33-7-210(c)) makes the prohibition against voting of circularly-owned shares of section 7.21(b) (Section 33-7-210(b)) inapplicable to shares held in a fiduciary capacity. Compare DEL. GEN. CORP. LAW Section 160(c). The Ohio statute involved in the Eaton case authorized a bank to vote its own shares that were held by it in a fiduciary capacity. A state may grant or prohibit such voting by another statute; section 7.21(c) (Section 33-7-210(c)) provides only that such voting is not prohibited by the Model Act.
5. REDEEMABLE SHARES
  Redeemable shares are often redeemed in connection with a transaction such as a merger or the issuance of a new senior class of shares that requires shareholder approval. Section 7.21(d) (Section 33-7-210(d)) avoids subjecting a transaction to approval by a class of redeemable shares that will be redeemed as a result of the transaction if adequate provision has been made to ensure that the holders of the redeemable shares will in fact receive the amount payable to them on redemption.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 33-11-110(d) of the 1981 South Carolina Business Corporation Act defined the rights of bondholders to vote. The last sentence of Model Act Section 7.21(a), the section on which this provision is modeled, abolishes the right of bondholders to vote. That sentence has been deleted and a provision that creditors may be treated as shareholders to
the extent provided in the corporation's articles of incorporation has been added to Section 33-1-400(23).
  The treatment of circular holdings in Section 33-7-210(b) and (c) is new. The treatment of redeemable shares in Section 33-7-210(d) parallels prior law. See Section 33-11-120(k) of the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 7.21.
  Section 33-7-220. Proxies.
  (a) A shareholder may vote his shares in person or by proxy.
  (b) A shareholder may appoint a proxy to vote or otherwise act for him, including giving waivers and consents, by signing an appointment form, either personally or by his attorney-in-fact. All proxies must have an effective date. If not dated by the person giving the proxy, the effective date of the proxy is the date on which it is received by the person appointed to serve as proxy, which date must be noted by the appointee on the appointment form.
  (c) An appointment of a proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. Unless a time of expiration is otherwise specified, an appointment is valid for eleven months.
  (d) An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointee is:
    (1) a pledgee;
    (2) a person who purchased or agreed to purchase the shares;
    (3) a creditor of the corporation who extended it credit under terms requiring the appointment;
    (4) an employee of the corporation whose employment contract requires the appointment; or
    (5) a party to a voting agreement created under Section 33-7-310.
  (e) The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment.
  (f) An appointment made irrevocable under subsection (d) is revoked when the interest with which it is coupled is extinguished.
  (g) A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if he did not know of its existence when he acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares or on the information statement for shares without certificates.
  (h) Subject to Section 33-7-240 and to an express limitation on the proxy's authority appearing on the face of the appointment form, a corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment.
  (i) No proxy can be solicited on the basis of any proxy statement or other communication, written or oral, containing any statement which, at the time and in light of the circumstances under which it was made, was false or misleading with respect to any material fact or which omits to state any material fact necessary in order to make the statements made therein not false or misleading.
CROSS REFERENCES
Acceptance of proxy votes, see Section
  33-7-240.
Certificateless shares, see Section 33-6-260.
"Conspicuously" defined, see Section 33-1-400.
Information on share certificates, see
  Section 33-6-250.
"Notice" defined, see Section 33-1-410.
"Secretary" defined, see Section 33-1-410.
OFFICIAL COMMENT
  Section 7.22 (Section 33-7-220) provides that shareholders may vote in person or by proxy and establishes the basic rules for appointing a proxy. As business organizations have increased in size and complexity, the number of shareholders has also increased. As a result, proxy voting is an essential step in the governance of many corporations.
1. NOMENCLATURE
  The word "proxy" is often used ambiguously, sometimes referring to the grant of authority to vote, sometimes to the document granting the authority, and sometimes to the person to whom the authority is granted. In the revised Model Act the word "proxy" is used only in the last sense; the term "appointment form" is used to describe the document appointing the proxy; and the word "appointment" is used to describe the grant of authority to vote.
2. APPOINTMENT OF PROXY
  A shareholder may appoint a proxy to vote for him simply by signing an appointment form, either personally or by his attorney-in-fact. The appointment is effective when it is received by the secretary or other officer or agent authorized to receive and tabulate votes. The proxy has the same power to vote as that
possessed by the shareholder, unless the appointment form contains an express limitation on the power to vote or direction as to how to vote the shares on a particular matter, in which event the corporation must tabulate the votes in a manner consistent with that limitation or direction. See section 7.22(h) (Section 33-7-220(h)).
3. DURATION OF PROXY
  An appointment form that contains no expiration date is valid for 11 months. See section 7.22(c) (Section 33-7-220(c)). This ensures that in the normal course a new appointment will be solicited at least once every 12 months. But an appointment form may validly specify a longer period if the parties agree.
  The appointment of a proxy is essentially the appointment of an agent and is revocable in accordance with the principles of agency law unless it is "coupled with an interest." See section 7.22(d) (Section 33-7-220(d)). Thus, an appointment may be revoked either expressly or by implication, as when a shareholder later executes a second appointment form inconsistent with an earlier one, or attends the meeting in person and seeks to vote on his own behalf. The revised Model Act does not attempt to codify these common law principles of agency law.
  While death or incapacity of the appointing shareholder revokes an agency appointment under common law principles, section 7.22(e) (Section 33-7-220(e)) modifies the common law rule to provide that the corporation may accept the vote of the proxy until the appropriate corporate officer or agent receives notice of the shareholder's death or incapacity. In view of the widespread dispersal of shareholders in many corporations, it is not feasible for the corporation to learn of these events independently of notice. On the other hand,
section 7.22(e) (Section 33-7-220(e)) does not affect the validity of the proxy appointment or its manner of exercise as between the proxy and the personal representatives of the decedent or incompetent. That relationship is governed by the law of agency independent of the Model Act.
4. IRREVOCABLE PROXIES
  Section 7.22(d) (Section 33-7-220(d)) deals with the irrevocable appointment of a proxy. The general test adopted is the common law test that all appointments are revocable unless "coupled with an interest." But section 7.22(d) (Section 33-7-220(d)) provides considerable certainty since it describes several accepted forms of relationship as revocable unless "coupled with an interest." But section 7.22(d) (Section 33-7-220(d)) provides considerable certainty since it describes several accepted forms of relationship as examples of "proxies coupled with an interest." These examples are not exhaustive and other arrangements may also be held to be "coupled with an interest." See Comment, "The Irrevocable Proxy and Voting Control of Small Business Corporations," 98 U. PA. L. REV. 40l, 405-7 (1950); see generally 1 RESTATEMENT OF AGENCY (SECOND) Section 138 (1958).
  Section 7.22(f) (Section 33-7-220(f)) provides that an irrevocable proxy is revoked when the interest with which it was coupled is extinguished - for example, by repayment of the loan or release of the pledge.
  A transferee for value of shares that are subject to an irrevocable appointment takes free of the appointment if (1) he did not know of the existence of the appointment; and (2) the existence of the irrevocable appointment was not noted conspicuously on the certificate or information statement. See section 7.22(g) (Section 33-7-220(g)). Under this subsection, both the appointment and the irrevocable nature
of the appointment must conspicuously appear on the certificate.
SOUTH CAROLINA REPORTERS' COMMENTS
  The Model Act Official Text has been modified by adding to subsection (b) after "otherwise act for him" the phrase "including giving waivers and consents,". This was done to resolve the issues mentioned above in connection with Sections 33-7-104 and 33-7-106. See the South Carolina Reporters' Comments to those sections.
  The requirement found in Section 33-11-140(c) of the 1981 South Carolina Business Corporation Act that the proxy be dated was deemed desirable and was incorporated into the revision in subsection (b). If not dated by the person giving the proxy, the burden of supplying a date is put on the proxyholder. In order to comply with the dating requirement, the proxyholder is required to note on the proxy form the date he received the proxy.
  Under prior law a revocable proxy was valid only until the next meeting or any adjournment thereof. See Section 33-11-140(c) of the 1981 South Carolina Business Corporation Act. The Model Act Official Text provides for an eleven-month duration, subject to providing expressly for a longer period in the appointment form. The Model Act was modified to allow for proxies having a duration of less than eleven months. See subsection (c).
  The 1981 South Carolina Business Corporation Act attempted to codify common law agency principles relating to revocation of authority in Section 33-11-140(c). It was considered unnecessary to incorporate these principles expressly for they apply as a matter of common law agency theory.
  The attempted reintroduction through Model Act subsection (d) of the concept of "powers coupled with an interest" was opposed; instead the basic
format in Section 33-11-130(f) of the 1981 South Carolina Business Corporation Act was retained.
  The provision in subsection (e) dealing with the death or incapacity of a shareholder does not supersede or modify the rights of an agent appointed under a durable power of attorney pursuant to Section 32-13-10 of the 1976 Code.
  Not found in Section 7.22 of the Model Act is a requirement of full and fair disclosure paralleling rule 14a-9 under the Securities Exchange Act of 1934, 17 C.F.R. Section 240.14a-9 (1985). Consequently, new subsection (i), which carries forward the language in Section 33-11-140(e) of the 1981 South Carolina Business Corporation Act embracing the full disclosure concept of rule 14a-9 under the Securities Exchange Act of 1934, has been added.
DERIVATION: 1984 Model Act Section 7.22.
  Section 33-7-230. Shares held by nominees.
  (a) A corporation may establish a procedure by which the beneficial owner of shares that are registered in the name of a nominee is recognized by the corporation as the shareholder. The extent of this recognition may be determined in the procedure.
  (b) The procedure may set forth:
    (1) the types of nominees to which it applies;
    (2) the rights or privileges that the corporation recognizes in a beneficial owner;
    (3) the manner in which the procedure is selected by the nominee;
    (4) the information that must be provided when the procedure is selected;
    (5) the period for which selection of the procedure is effective; and
    (6) other aspects of the rights and duties created.
CROSS REFERENCES
"Shareholder" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Traditionally, a corporation recognizes only the registered owner as the owner of shares. Indeed, section 1.40 (Section 33-1-400) defines "shareholder" basically as the registered owner of shares. But it has become a common practice for persons purchasing shares to have them registered in the "street name" of a broker-dealer or other financial institution, principally to facilitate transfer by eliminating the need for the beneficial owner's signature and delivery. In addition, in order to avoid the burdens of processing securities transfers, which caused a crisis in the securities industry in the late 1960s, a system of securities depositories (defined as "clearing corporations" in section 8-102(3) of the UNIFORM COMMERCIAL CODE) (see Section 36-8-102(3) of the 1976 South Carolina Code) has been developed. In this system, financial institutions deposit securities with the depository, which becomes the registered owner of the shares. Transfers between depositories are then accomplished by book entry of the depository. As a result, there may be two entities interposed between the corporation and the beneficial owner with the depository being the registered owner for the account of the brokerage firm that in turn holds the shares for the account of the beneficial owner.
  The purpose of section 7.23 (Section 33-7-230) is to facilitate direct communication between the corporation and the beneficial owner by authorizing the corporation to create a procedure for bypassing both the registered owner and intermediate brokerage firms. The adoption of this procedure is discretionary with
each corporation and affirmative action by the corporation is necessary to accomplish it. The procedure is also discretionary with the shareholder, who must elect to follow the applicable procedure prescribed by the corporation. The shareholder retains all of his rights except those granted to the beneficial owner.
  The corporation may limit or qualify the procedure as it deems appropriate. For example, the corporation may:
(1)limit the procedure to certain classes of shareholders, such as depositories, broker-dealers and banks, or their nominees, or make the procedure available to all shareholders;
(2)permit a shareholder to adopt the procedure with respect to some but not all of the shares registered in his name (and in that case he continues to be treated as the shareholder with respect to the balance);
(3)specify the purpose or purposes for which the certification is effective, e.g., for giving notice of, and voting at, shareholders' meetings, for the distribution of proxy statements and annual reports, or for payment of cash dividends;
(4)specify the form of the certification, e.g., a written list, computer tape, or some other form of compatible input;
(5)specify the type of information that must be provided, e.g., the name and address of the beneficial owner, his taxpayer identification number, and the number of shares registered directly in his name;
(6)establish deadlines for receipt of the certifications after the establishment of a record date so that the corporation may schedule its mailings;
(7)provide that a new certification is required following each record date or that a certification as of a certain date may continue until changed by the certifying shareholder.
  This listing is illustrative and not exhaustive. It is expected that experimentation with various devices under this section may reveal other areas which the corporation's plan should address.
  The definition of "shareholder" in section 1.40
(Section 33-1-400) includes beneficial owners to the extent they obtain the rights of shareholders
pursuant to the procedure authorized by this section.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 33-7-230 is of value mainly for public companies, providing a means of facilitating direct communication between the corporation and the beneficial owner by allowing the corporation to bypass depositories and brokerage firms. Use of the section is discretionary with each corporation and its shareholders.
DERIVATION: 1984 Model Act Section 7.23.
  Section 33-7-240. Corporation's acceptance of votes.
  (a) If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a shareholder, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder.
  (b) If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the name of its shareholder, the corporation, if acting in good faith, is entitled nevertheless to accept the vote, consent,
waiver, or proxy appointment and give it effect as the act of the shareholder if:
    (1) the shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;
    (2) the name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    (3) the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    (4) the name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment;
    (5) two or more persons are the shareholder as cotenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all the co-owners.
  (c) The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.
  (d) The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section
are not liable in damages to the shareholder for the consequences of the acceptance or rejection.
  (e) Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.
CROSS REFERENCES
Consents, see Section 33-7-104.
"Entity" defined, see Section 33-1-400.
Officers, see Section 33-8-400.
Proxies, see Section 33-7-220.
"Secretary" defined, see Section 33-1-400.
"Shareholder" defined, see Section 33-1-400.
Voting by nominees, see Section 33-7-230.
Waiver of notice, see Section 33-7-106.
OFFICIAL COMMENT
  Corporations are often asked to accept a written instrument as evidence of action by a shareholder. These instruments usually involve appointment forms for a proxy to vote the shares, but may also include waivers of notice, consents to action without a meeting, requests for a special meeting of shareholders, and similar instruments involving action by the shareholders. Usually the corporation or its officers will have no personal knowledge of the circumstances under which the instrument was executed and no way of verifying whether the signature on the instrument is in fact the signature of the shareholder. This problem is particularly acute in large corporations with thousands of shareholders.
  Section 7.24 (Section 33-7-240) establishes general rules permitting the corporation and its officers or agents to accept these instruments if they appear to be executed by the shareholder or by a person who has authority to execute the
instrument for the shareholder and they are accompanied by whatever authenticating evidence the corporation reasonably requests. The rules set forth in this section are not exclusive and may be supplemented by additional rules established by the corporation pursuant to section 2.06(b) (Section 33-2-106(b)). Section 7.24(a) (Section 33-7-240(a)) authorizes acceptance of an instrument if the name appearing on the instrument "corresponds" to the name of the shareholder, while section 7.24(b) (Section 33-7-240(b)) permits the acceptance of an instrument executed by a person other than the shareholder if there is a designation or evidence of the capacity of the person executing the instrument that indicates the act of the person is the act of the shareholder. On the other hand, section 7.24(c) (Section 33-7-240(c)) permits rejection of an instrument if the officer or agent tabulating votes has a "reasonable basis for doubt" about the validity of the signature or about the authority of the person acting on behalf of the shareholder. These principles are described in greater detail below.
  The purpose of section 7.24 (Section 33-7-240) is to protect the corporation and its officers or agents from liability for damages to the shareholder if action is taken in accordance with the section. Thus section 7.24(d) (Section 33-7-240(d)) provides that there is no liability to the shareholder if the corporation's officer or agent, acting in good faith, accepts an instrument that meets the requirements of section 7.24(a) or (b) (Section 33-7-240(a) or (b)), even if it turns out that the execution was invalid or unauthorized; similarly, no liability exists if the officer or agent, again acting in good faith, rejects an instrument because of a "reasonable basis for doubt," even though it turns out that the instrument was properly executed by the shareholder. But
section 7.24 (Section 33-7-240) does not address the question whether an action was properly or improperly taken or approved, and section 7.24(e) (Section 33-7-240(e)) makes clear that the validity or invalidity of corporate action is ultimately a matter for judicial resolution through review of the results of an election in a suit to enjoin or compel corporate action. It is contemplated that any such suit will be brought promptly, typically before the corporate action is consummated or the corporation's position otherwise changes in reliance on the vote, and that any suit that is not brought promptly under the circumstances would normally be barred because of laches.
  Similarly, section 7.24 (Section 33-7-240) does not address the liability of the proxy to the shareholder for exercising authority beyond that granted to him or for disobeying instructions. These matters are governed by the law of agency and not by section 7.24 (Section 33-7-240).
  The American Society of Corporate Secretaries has established principles for the acceptance of proxy appointments in routine elections in which there is no proxy contest. Many of the examples of the application of section 7.24 (Section 33-7-240) set forth below are based on these principles.
1.EXAMPLES OF EXECUTIONS "CORRESPONDING WITH" THE NAME OF THE SHAREHOLDER
a.Assuming that shares are registered in the name of an individual, an instrument may be accepted as corresponding to the name of the shareholder:
(1)Whether executed in ink, pencil, ballpoint, crayon, etc.
(2)Regardless of where the signature appears on the instrument (whether or not in the space provided), if there is no reason to doubt the intent to execute.
(3)Whether the name is handwritten, handprinted, or rubberstamped in facsimile-signature or printed form.
(4)Whether there are deviations between the registered name and the signature, provided that the deviations are not inconsistent with the registered name. For example, if the shares are registered in the name of "John F. Smith," the following are acceptable: "J. Foster Smith," "J. Smith," "J.F. Smith," "J.F.S.," "J.S.," "John F.," and even simply "Smith." Similarly, if "John Smith" is the name of the shareholder, "John F. Smith" and "J. Foster Smith" is the name of the shareholder, "John F. Smith" and "J. Foster Smith" are also acceptable.
(5)If marked by an "X" and witnessed by one other person.
(6)If not executed at all, a signed letter or telegram from the shareholder states that he has signed the instrument or approves of the action taken by the instrument.
(7)The signature is illegible, unless it cannot reasonably be considered to be the signature of the shareholder. For example, if shares are registered in the name of "John F. Smith," the signature is not acceptable if the first letter of the signature is clearly an "M" or the first word is "Mark."
b.If the shares are registered in the maiden name of a woman, e.g., Mary Smith, and the instrument is executed:
(1)In her married name, clearly indicated as such, e.g., "Mary Smith Jones (formerly Mary Smith): or "Mary Smith (now Mrs. Mary Smith Jones)."
(2)In her married name or in a form that implies her married status, e.g., "Mary Smith Anderson," "Mrs. Mary S. Anderson,"
"Mrs. Mary Smith Anderson," or "Mrs. Mary Anderson."
c.If the shares are registered in the name "Peter Smith, Sr." but the designation "Sr." is omitted, e.g., "Peter Smith." The execution "Peter Smith, Jr.," however, does not correspond with the shareholder.
2.EXAMPLES OF EXECUTIONS THAT "INDICATE THE CAPACITY" OF THE PERSON SIGNING
  In all the following instances, the corporation may request additional evidence of authority but is not required to do so; officers and agents are protected from liability if they routinely accept the instrument without requiring additional evidence.
a.Assuming that the shares are registered in the name of a partnership, e.g., "Smith Bros.," an instrument may be accepted if executed either in the form "Smith Bros. by John Able, Partner" or simply "Smith Bros."
b.Assuming that the shares are registered in the name of a corporation, e.g., "Smith Corporation," an instrument may be accepted if executed in the name of the corporation, by an officer or agent designated as holding a responsible position, by a person with a surname similar to the corporate name, or simply in the name of the corporation, e.g., "Smith Corporation by John Able, President," "Smith Corporation by Peter Apt, Agent," "Smith Corporation by John Smith," or "Smith Corporation."
c.Assuming that the shares are registered in the name of an individual who is deceased, incompetent, a minor, in bankruptcy, or in receivership, an instrument may be accepted if it is executed by an executor, administrator, guardian, receiver, or trustee who signs as such. Shares registered in the name of a minor may be voted by a parent of the shareholder if he
is identified as such, e.g., "Ralph Able by John Able, Father."
d.Assuming that the shares are registered in the name of an individual, an instrument may be accepted if it is executed by another individual who indicates (1) that he is signing as an agent or attorney-in-fact or the shareholder (see section 7.22 (Section 33-7-220)); (2) that he has a close family or other relationship with the shareholder from which authority can be inferred; or (3) that he is the beneficial owner of shares, a pledgee of the shares, or a donee of the shares. For example: if shares are registered in the name of "Peter Jones," "Ed Smith, Agent," "Paul Smith, Son." "Mary Smith Jones, Wife," "Emelia Able, Attorney," "Arthur Peters, Private Secretary," "Paul Jones, Trustee under Deed of Trust dated April 1, 1980," or "Mary Smith, Donee," are all acceptable absent some indication that the execution was unauthorized.
e.Assuming that the shares are registered in the names of two or more persons - as joint tenants or tenants in common, executors or administrators, guardians or conservators, a committee for an incompetent, or trustees - an instrument may be accepted if signed by or on behalf of fewer than all the persons named. This conclusion proceeds on the assumption that the signer or signers have authority to act for the others and there is nothing on the face of the instrument that rebuts this assumption.
3. EXAMPLES OF "REASONABLE BASIS FOR DOUBT"
  The phrase "reasonable basis for doubt" about the validity of a signature or about the signer's authority creates an objective standard for the exercise of the authority granted by section 7.24(c) (Section 33-7-240(c)) to reject proffered instruments. In the absence of a
proxy fight or a seriously contested issue, instruments should be rejected only if there seems to be no basis for finding the execution regular on its face. In a proxy fight or other contested issue, the possibility of illegal or unauthorized execution is greatly increased, and a more cautious attitude should therefore be adopted. The following are examples in which a "reasonable basis for doubt" could be found to exist:
a.The shares are registered in the name of "John F. Smith" and the instrument is executed by "Joseph F. Smith" or by "Frank W. Smith."
b.The shares are registered in the name of "Ellen Smith, a Minor" or "John Smith, Custodian for Ellen Smith, a Minor," and the instrument is executed by "Ellen Smith." There is no "reasonable basis for doubt," however, if the instrument is accompanied by evidence satisfactory to the corporation that the shareholder is no longer a minor.
c.A proxy appointment is received that is regular on its face, and the secretary or other corporate officer or agent receives a telephone call from a person who identifies himself as the shareholder and says either that he wishes to revoke the appointment or that he did not authorize its original execution.
d.Shares are registered in the name of two or more persons as co-owners, the instrument is executed by fewer than all of them, and the instrument shows on its face that not all the registered owners granted authority to the signers, as where the instrument states that it was not possible to obtain all the co-owners' signatures or that some refused to sign. For the normal rule of acceptability of proxies executed by fewer than all co-owners, however, see section
7.24(b)(5) (Section 33-7-240(b)(5)) and part 2.e of this Official Comment.
e.The corporation receives a copy of letters of appointment of a receiver, executor, administrator or other fiduciary, and the instrument is executed in the name of the shareholder rather than by the fiduciary.
4.OTHER PRINCIPLES APPLICABLE TO PROXY APPOINTMENTS
  As indicated in the Official Comment to section
7.22 (Section 33-7-220), a proxy is simply an agent of the shareholder, and his appointment therefore involves primarily the law of agency. The law of agency determines the rights and duties of the shareholder and the proxy, and it is important to recognize that section 7.24 (Section 33-7-240) is not intended to affect these rights and duties. Rather, it recognizes that the great bulk of instruments executed in the name of a shareholder or on his behalf are in fact authorized and the corporation and its officers should be encouraged to accept them rather than to adopt unduly narrow requirements.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 33-7-240 parallels to some extent Section 33-11-120 of the 1981 South Carolina Business Corporation Act which described how voting is handled for shareholders who are entities, fiduciaries, minors, trustees in bankruptcy, pledgees, etc. The basic rule, stated in subsection (a), is that record ownership controls voting power. Under subsection (b), the corporation is given discretion to accept votes cast by representatives along the lines of Section 33-11-120 of the 1981 South Carolina Business Corporation Act. The corporation and its agents have immunity from liability if they incorrectly allow or disallow votes, consents, waivers, or
proxies, provided they act in good faith and have a reasonable basis for their action.
  Any corporation that wishes to add refinement to the ground rules spelled out in Section 33-7-240 may do so through a bylaw provision under Section 33-2-106(b).
DERIVATION: 1984 Model Act Section 7.24.
Section 33-7-250. Quorum and voting requirements for voting groups.
  (a) Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the articles of incorporation or this act provides otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.
  (b) Once a share is represented for any purpose at a meeting, it is considered present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
  (c) If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation or this act requires a greater number of affirmative votes.
  (d) An amendment of the articles of incorporation adding, changing, or deleting a quorum or voting requirement for a voting group greater than specified in subsection (a) or (c) is governed by Section 33-7-270.
  (e) The election of directors is governed by Section 33-7-280.
CROSS REFERENCES
Adjourned meeting record date, see
  Section 33-7-107.
Amendment of articles of incorporation,
  see Section 33-10-103.
Amendment of bylaws, see Chapter 10, Article 2.
Dissolution, see Section 33-14-102.
Election of directors, see Section 33-7-280.
Merger and share exchange, see Section
  33-11-103.
Multiple voting groups, see Section 33-7-260.
Proxy voting, see Section 33-7-220.
Record date, see Section 33-7-107.
Sale of assets, see Section 33-12-102.
Supermajority requirements, see Sections
  33-7-270 and 33-10-210.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 7.25 (Section 33-7-250) establishes general quorum and voting requirements for voting groups for purposes of the Act. As defined in section 1.40 (Section 33-1-400), a "voting group" consists of all shares of one or more classes or series that under the articles of incorporation or the revised Model Business Corporation Act are entitled to vote and be counted together collectively on a matter. Shares entitled to vote "generally" on a matter (that is, all shares entitled to vote on the matter by the articles of incorporation or this Act that do not expressly have the right to be counted or tabulated separately) are a single voting group. The determination of which shares form part of a single voting group must be made from the provisions of the articles of incorporation and of this Act. On most matters coming before shareholders' meetings, only a single voting group, consisting of a class of voting shares, will be involved, and action on
such a matter is effective when approved by that voting group pursuant to section 7.25 (Section 33-7-250). See section 7.26(a) (Section 33-7-260(a)).
  The voting group concept permits a single section of the revised Model Act to deal with quorum and voting rules applicable to a variety of single and multiple voting group situations. Section 7.25 (Section 33-7-250) covers, for example, quorum and voting requirements for all actions by the shareholders of a corporation with a single class of voting shares; it also covers quorum and voting requirements for a matter on which both common and preferred shares are entitled to vote, either together as a single voting group under the articles of incorporation or separately as two voting groups under either the articles of incorporation or this Act.
1.DETERMINATION OF VOTING GROUPS UNDER THE MODEL ACT
  Under the revised Model Act, classes or series of shares are generally not entitled to vote separately by voting group except to the extent specifically authorized by the articles of incorporation. But sections 10.04 and 11.03 (Sections 33-10-104 and 33-11-103) of the Act grant classes or series of shares the right to vote separately when fundamental changes are proposed that may adversely affect that class. Section 10.04 (Section 33-10-104) provides, further, that when two or more series are affected in essentially the same way, the series are lumped together and must vote as a single voting group rather than as multiple voting groups on the matter. Under the revised Model Act even a class or series of shares that is expressly described as nonvoting under the articles of incorporation may be entitled to vote separately on a matter affecting the class
or series in a designated way. See section 10.04(e) (Section 33-10-104(e)).
  In addition to the provisions of this Act, separate voting by voting group may be authorized by the articles of incorporation in such instances and on such terms as may be desired (except that the statutory privilege of voting by separate voting groups cannot be diluted or reduced). Finally, on some matters the board of directors may condition their submission of matters to shareholders on their approval by specific voting groups designated by the board of directors. Sections 7.25 and 7.26 (Sections 33-7-250 and 33-7-260) establish the mechanics by which all voting by single or multiple voting groups is carried out.
  In some situations, shares of a single class may be entitled to vote in two different voting groups. See the Official Comment to section 7.26 (Section 33-7-260).
2. QUORUM AND VOTING REQUIREMENTS IN GENERAL
  Implicit in section 7.25 (Section 33-7-250) is the concept that the determination of the voting groups entitled to vote, and the quorum and voting requirements applicable thereto, must be determined separately for each "matter" coming before a meeting. As a result, different quorum and voting requirements may be applicable to different portions of a meeting, depending on the matter being considered. In this respect, sections 7.25 and 7.26 (Sections 33-7-250 and 33-7-260) differ in structure from earlier versions of the Model Act and state statutes which contemplated that a single set of quorum and voting requirements would be applicable to a "meeting." There is no difference in substance, however, since it was generally recognized that different quorum and voting requirements should be applicable in class voting situations. And, under the revised Model Act, in the normal case where only a single voting group is entitled to
vote on all matters coming before a meeting of shareholders, a single quorum and voting requirement will usually be applicable to the entire meeting.
3.QUORUM REQUIREMENTS FOR ACTION BY VOTING GROUP
  Sections 7.25(a) and (b) (Section 33-7-250(a) and (b)) provide standard rules for the determination of a quorum for each voting group required to act at a shareholders' meeting on a matter. In the absence of a provision in the articles of incorporation, section 7.25(a) (Section 33-7-250(a)) provides that a quorum consists of a majority of the votes entitled to be cast on the matter at the meeting.
  Section 7.25(b) (Section 33-7-250(b)) retains the common law view that once a share is present at a meeting, it is deemed present for quorum purposes throughout the meeting. Thus, a voting group may continue to act despite the withdrawal of persons having the power to vote one or more shares in an effort "to break the quorum." In this respect, a meeting of shareholders is governed by a different rule than a meeting of directors, where a sufficient number of directors be present to constitute a quorum at the time action is taken. See section 8.24 (Section 33-8-240) and its Official Comment.
  Once a share is present at a meeting it is also deemed to be present at any adjourned meeting unless a new record date is or must be set for that adjourned meeting. See section 7.07 (Section 33-7-107). If a new record date is set, new notice must be given to holders of shares of a voting group and a quorum must be established from within the holders of shares of that voting group on the new record date.
  The shares owned by a shareholder who comes to the meeting to object on grounds of lack of notice may be counted toward the presence of a quorum. Similarly, the holdings of a
shareholder who attends a meeting solely for purposes of raising the objection that a quorum is not present is counted toward the presence of a quorum. Attendance at a meeting, however, does not constitute a waiver of other objections to the meeting such as the lack of notice. Such waivers are governed by section 7.06(b) (Section 33-7-106(b)).
  As used in sections 7.25 and 7.26 (Sections 33-7-250 and 33-7-260), "represented at the meeting" means the physical presence of the shareholder (whether in person or by his written authorization) in the meeting room after the meeting has been called to order or the presiding officer has commenced consideration of the business of the meeting, and before the final adjournment of the meeting. If a person owns shares of different classes or series that are entitled to vote in separate voting groups, the presence of the person at the meeting constitutes representation at the meeting of all the shares owned by that person.
4. VOTING REQUIREMENTS FOR APPROVAL BY VOTING GROUP
  Section 7.25(c) (Section 33-7-250(c)) provides that an action (other than the election of directors, which is governed by section 7.28 (Section 33-7-280)) is approved by a voting group at a meeting at which a quorum is present if the votes cast in favor of the action exceed the votes cast opposing the action. This section changes the traditional rule appearing in earlier versions of the Model Act and many state statutes that an action is approved at a meeting at which a quorum is present if it receives the affirmative vote "of a majority of the shares represented at that meeting." The traditional rule in effect treated abstentions as negative votes; the revised Model Act treats them truly as abstentions. The rule set forth in section 7.25(c) (Section 33-7-250(c)) is
considered desirable in part because it permits action to be taken by the shareholders when considered appropriate by a majority of those with views on the matter in question. Potential concern about the effect of abstentions in publicly held corporations has also been increased by changes in the SEC proxy regulations that permit shareholders of publicly held companies to abstain on issues.
  The treatment of abstaining votes under the traditional rule gave rise to anomalous results in some situations. For example, if a corporation has 1,000 shares of a single class outstanding, all entitled to cast one vote each, a quorum consists of 501 shares; if 600 shares are represented and the vote on a proposed action is 280 in favor, 225 opposed, and 95 abstaining, the action is not approved since fewer than a majority of the 600 shares attending voted in favor of the action. This is anomalous since if the shares abstaining had not been present at the meeting at all, a quorum would have been present and the action would have been approved. Under section 7.25(c) (Section 33-7-250(c)) the action would not be defeated by the 95 abstaining votes.
  In the absence of specific provision in the articles of incorporation, shares of classes or series that are entitled by statute to vote as a separate voting group are entitled to one vote per share. See section 7.21 (Section 33-7-210).
5. MODIFICATION OF STANDARD REQUIREMENTS
  The articles of incorporation may modify the quorum and voting requirements of section 7.25 (Section 33-7-250) for a single voting group or for all voting groups entitled to vote on any matter. The articles of incorporation may increase the quorum and voting requirements to any extent desired up to and including unanimity upon compliance with section 7.27 (Section
33-7-270); they may also require that shares of different classes or series are entitled to vote separately or together on specific issues or provide that actions are approved only if they receive the favorable vote of a majority of the shares of a voting group present at a meeting at which a quorum is present. The articles may also decrease the quorum requirement as desired. Earlier versions of the Model Act limited the power to reduce the quorum to a minimum of one-third; this restriction was eliminated from the revised Model Act because it was thought to be unreasonably confining in certain situations, such as where a class of shares with preferential rights is given a limited right to vote that may be exercisable only rarely.
  Section 7.25(d) (Section 33-7-250(d)) provides that section 7.27 (Section 33-7-270) governs the adoption or amendment of provisions in the articles of incorporation that impose greater quorum or voting requirements than provided for in this section.
6. SPECIAL APPROVAL REQUIREMENTS
  The phrase "or this Act" in section 7.25(a) and (c) (Section 33-7-250(a) and (c)) makes clear that wherever the provisions of the Model Act provide more stringent voting or quorum requirements, they control over section 7.25 (Section 33-7-250). More stringent requirements are provided for the approval of certain fundamental corporate changes - for example, certain amendments to the articles of incorporation, mergers, and the sale of all or substantially all the corporate property not in the ordinary course of business. See sections 10.03 (Section 33-10-103), 11.03 (Section 33-11-103), and 12.02 (Section 33-12-102). See also section 8.31 (Section 33-8-310), which imposes a special voting and quorum requirement
for approval of conflict of interest transactions
by members of the board of directors.
SOUTH CAROLINA REPORTERS' COMMENTS
  The revision eliminates the minimum one-third quorum requirement found in Section 33-11-80 of the 1981 South Carolina Business Corporation Act. It also changes prior law on abstentions. Under Section 33-11-100(b) of the 1981 South Carolina Business Corporation Act, subject to the act, the articles, and the bylaws, affirmative action not involving election of directors required a majority of the votes cast. Subsection (c) of this act requires only that the votes cast in favor outnumber those votes cast against. Thus, if there were one thousand votes cast and four hundred ten were in favor, three hundred ninety were opposed, and two hundred abstained, under prior law the matter would be defeated (subject to a special provision in the bylaws, articles, or the act), whereas the matter would carry under the revision (which is not subject to bylaw provision, but which is subject to modification by the act and the articles).
DERIVATION: 1984 Model Act Section 7.25.
  Section 33-7-260. Action by single and multiple voting groups.
  (a) If the articles of incorporation or this act provides for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group as provided in Section 33-7-250.
  (b) If the articles of incorporation or this act provides for voting by two or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately as provided in Section 33-7-250. Action may be taken by one
voting group on a matter even though no action is taken by another voting group entitled to vote on the matter.
CROSS REFERENCES
Amendment of articles of incorporation, see
  Section 33-10-104.
Change of voting group requirements, see
  Section 33-7-270.
Merger and share exchange, see Section
  33-11-103.
Number of votes a share, see Section
  33-7-210.
Quorum and voting requirements, see
  Section 33-7-250.
Sale of assets, see Section 33-12-102.
Supermajority requirements, see Section
  33-7-270.
Voting by voting groups on amendments of
  articles of incorporation, see Section
  33-10-104.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 7.26(a) (Section 33-7-260(a)) provides that when a matter is to be voted upon by a single voting group, action is taken when the voting group votes upon the action as provided in section 7.25 (Section 33-7-250). In most instances the single voting group will consist of all the shares of the class or classes entitled to vote by the articles of incorporation; voting by two or more voting groups as contemplated by section 7.26(b) (Section 33-7-260(b)) is the exceptional case.
  Section 7.26(b) (Section 33-7-260(b)) basically requires that if more than one voting group is entitled to vote on a matter, favorable action on a matter is taken only when it is voted upon favorably by each voting group,
counted separately. Implicit in this section are the concepts that (1) different quorum and voting requirements may be applicable to different matters considered at a single meeting and (2) different quorum and voting requirements may be applicable to different voting groups voting on the same matter. See the Official Comment to section 7.25 (Section 33-7-250). Thus, each group entitled to vote must independently meet the quorum and voting requirements established by section 7.25 (Section 33-7-250). But if a quorum is present for one or more voting groups but not for all voting groups, section 7.26(b) (Section 33-7-260(b)) provides that the voting groups for which a quorum is present may vote upon the matter.
  A single meeting, furthermore, may consider matters on which action by several voting groups is required and also matters on which only a single voting group may act. Action may be taken on the matters on which the single voting group may act even though no quorum is present to take action on other matters. For example, in a corporation with one class of nonvoting shares with preferential rights ("preferred shares") and one class of general voting shares without preferential rights ("common shares"), a matter to be considered at the annual meeting may be a proposed amendment to the articles of incorporation that reduces the cumulative dividend right of the preferred shares (a matter on which the preferred shares have a statutory right to vote as a separate voting group). Other matters to be considered may include the election of directors and the appointment of an auditor, both matters on which the preferred shares have no vote. If a quorum of the voting group consisting of the common shares but no quorum of the voting group consisting of the preferred shares is present, the common shares may proceed to elect directors and appoint the
auditor. The common shares voting group may also vote to approve the proposed amendment to the articles of incorporation, but that amendment will not be approved until the preferred shares voting group also votes to approve the amendment.
1.VOTING REQUIREMENTS ON MULTIPLE VOTING GROUP MATTERS
  In many multiple voting group situations under the Model Act, proposals are adopted only if a majority of all the votes entitled to be cast by each voting group approve the proposal. This percentage of votes is higher than that required by section 7.25 (Section 33-7-250), and is required, for example, under sections 10.03(e)(1) and 10.04(b) (Sections 33-10-103(e)(1) and 33-10-104(b)) for all amendments to articles of incorporation that create dissenters' rights with respect to part or all of the shares of the voting group.
2.PARTICIPATION OF SHARES IN MULTIPLE VOTING GROUPS
  As described in section 7.26(b) (Section 33-7-260(b)), if voting by multiple voting groups is required, the votes of members of each voting group must be separately tabulated. Normally, each class or series of shares will participate in only a single voting group. But since holders of shares entitled by the articles of incorporation to vote generally on a matter are always entitled to vote in the voting group consisting of the general voting shares, in some instances classes or series of shares may be entitled to be counted simultaneously in two voting groups. This will occur whenever a class or series of shares entitled to vote generally on a matter under the articles of incorporation is affected by the matter in a way that gives rise to the right to have its vote counted separately as an independent voting group under
the Act. For example, assume that corporation Y has outstanding one class of general voting shares without preferential rights ("common shares"), 500 shares issued, and one class of shares with preferential rights ("preferred shares"), 100 shares issued, that also have full voting rights under the articles of incorporation, i.e., the preferred may vote for election of directors and on all other matters on which common may vote. The preferred and the common therefore are part of the general voting group. The directors propose to amend the articles to create a new class of nonvoting shares that will have preferential rights senior to the existing preferred's preferential rights. All shares are present at the meeting and they divide as follows on the proposal to adopt the amendment:
    Yes   - common   230
          - preferred 100
    No   - common     270
          - preferred   0
  Both the preferred and the common are entitled to vote on the amendment to the articles of incorporation since they are part of a general voting group pursuant to the articles. But the vote of the preferred is also entitled to be counted separately on the proposal by section 10.04(a)(7) of the 1984 Model Act. The result is that the proposal passes by a vote of 330 to 270 in the voting group consisting of the shares entitled to vote generally and 100 to 0 in the voting group consisting solely of the preferred shares:
    (a) First voting group
        Yes: Common   230
            Preferred 100
                      330
        No: Common   270
            Preferred   0
                      270
    (b) Second voting group (preferred)
        Yes: Common   100
            Preferred   0
  In this situation, in the absence of a special quorum requirement, a meeting could approve the proposal to amend the articles of incorporation if - and only if - a quorum of each voting group is present, i.e., at least 51 shares of preferred and 301 shares of common and preferred were represented at the meeting.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 33-7-260 simply states basic rules of voting for "voting groups," which is the generic definition applicable to all the shares of one or more classes or series that under the articles are entitled to vote and be counted together on a matter at a shareholders' meeting. Subsection (b) clarifies the validity of corporate action taken at a meeting by one voting group when another voting group is unable to muster a quorum. The action taken is valid.
DERIVATION: 1984 Model Act Section 7.26.
  Section 33-7-270. Greater quorum or voting requirements.
  (a) The articles of incorporation may provide for a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is provided for by this act.
  (b) An amendment to the articles of incorporation that adds, changes, or deletes a greater quorum or voting requirement must meet the same quorum requirement and be adopted by the same vote and voting groups required to take
action under the quorum and voting requirements then in effect or proposed to be adopted, whichever is greater.
  (c) A corporation in existence on the effective date of this act that has authorized a greater quorum or voting right for shareholders (or voting groups of shareholders) than is provided in this act solely in its bylaws shall amend its articles of incorporation to meet the requirements of subsection (a) by January 1, 1991, in order for these shareholder voting rights to remain effective beyond that date.
CROSS REFERENCES
Amendment of articles of incorporation, see
  Chapter 10, Article 1.
Bylaw provisions changing quorum and voting
  requirements, see Sections 33-10-210 and
  33-10-220.
Quorum and voting requirements in general, see
  Section 33-7-250.
Voting by voting group, see Section 33-7-260.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 7.27(a) (Section 33-7-270(a)) permits the articles of incorporation to increase the quorum or voting requirements for approval of an action by shareholders up to any desired amount including unanimity. These provisions may relate to ordinary or routine actions by the general voting group (which otherwise may be acted upon under section 7.25 (Section 33-7-250) if the number of affirmative votes exceeds the number of negative votes at a meeting at which a quorum of that voting group is present) or to one or more other voting groups or to actions for which the Model Act provides a greater voting requirement - for example, changes of a fundamental nature in the corporation like
certain amendments to articles of incorporation (section 10.03 (Section 33-10-103)), mergers (section 11.03 (Section 33-11-103)), sales of all or substantially all the property of a corporation not in the ordinary course of business (section 12.02 (Section 33-12-102)), and dissolution (section 14.02 (Section 33-14-102)). Generally, the Model Act requires these fundamental changes to receive the affirmative vote of a majority of the votes entitled to be cast on the proposal by each voting group entitled to vote thereon rather than by a majority of the shares voting affirmatively or negatively at a meeting at which a quorum is present.
  A provision that increases the requirement for approval of an ordinary matter or a fundamental change is usually referred to as a "supermajority" provision.
  Section 7.27(b) (Section 33-7-270(b)) requires any amendment of the articles of incorporation that adds, modifies, or repeals any supermajority provision to be approved by the greater of the proposed quorum and vote requirement or by the quorum and vote required by the articles before their amendment. Thus, a supermajority provision that requires 80 percent affirmative vote of all eligible votes of a voting group present at the meeting may not be removed from the articles of incorporation or reduced in any way except by an 80 percent affirmative vote. If the 80 percent requirement is coupled with a quorum requirement for a voting group that shares representing two-thirds of the total votes must be present in person or by proxy, both the 80 percent voting requirement and the two-thirds quorum requirement are immune from reduction except at a meeting of the voting group at which the two-thirds quorum requirement is met and the reduction is approved by an 80 percent affirmative vote. If the proposal is to increase the 80 percent voting requirement to 90
percent, that proposal must be approved by a 90 percent affirmative vote at a meeting of the voting group at which the two-thirds quorum requirement is met; if the proposal is to increase the two-thirds quorum requirement to three-fourths without changing the 80 percent voting requirement, that proposal must be approved by an 80 percent affirmative vote at a meeting of the voting group at which a three-fourths quorum requirement is met.
SOUTH CAROLINA REPORTERS' COMMENTS
  The revision is consistent with Section 33-11-100 of the 1981 South Carolina Business Corporation Act in allowing greater quorum or voting requirements. However, under prior law, supermajority voting could be imposed by bylaw provision; the revision requires that power be drawn from the articles. A provision giving existing corporations having supermajority voting rights in their bylaws two years to amend their articles of incorporation to be in compliance with this section is included in subsection (c). In this connection, see Section 33-10-210, which authorizes the articles of incorporation to contain a provision allowing the bylaws to contain shareholder supermajority voting rights.
  Subsection (b) in part protects against careless drafting of a greater voting or quorum requirement that could be eliminated by an amendment of the articles passed by a lesser percentage. Subsection (b) is even-handed. It makes it impossible to amend away a greater quorum or vote requirement by a lesser percentage, but it also requires that a change to a greater quorum or voting requirement be approved by the greater number.
DERIVATION: 1984 Model Act Section 7.27.
  Section 33-7-280. Voting for directors; cumulative voting.
  (a) Unless otherwise provided in the articles of incorporation, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.
  (b) Shareholders have a right to cumulate their votes for directors unless the articles of incorporation otherwise provide. The right to cumulate votes means that the shareholders are entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two or more candidates.
  (c) Shares otherwise entitled to vote cumulatively may not be voted cumulatively at a particular meeting unless:
    (1) the meeting notice or proxy statement accompanying the notice states conspicuously that cumulative voting is authorized; or
    (2) a shareholder who has the right to cumulate his votes shall either (1) give written notice of his intention to the president or other officer of the corporation not less than forty-eight hours before the time fixed for the meeting, which notice must be announced in the meeting before the voting, or (2) announce his intention in the meeting before the voting for directors commences; and all shareholders entitled to vote at the meeting shall without further notice be entitled to cumulate their votes. If cumulative voting is to be used, persons presiding may, or if requested by any shareholder shall, recess the meeting for a reasonable time to allow deliberation by shareholders, not to exceed two hours.
CROSS REFERENCES
Articles of incorporation:
  amendment, see Chapter 10, Article 1.
  content, see Section 33-2-102.
"Conspicuously" defined, see Section 33-1-400.
"Deliver" includes mail, see Section 33-1-400.
Notice of meeting, see Section 33-7-105.
"Notice" to the corporation, see Section
  33-1-410.
Proxies, see Section 33-7-220.
Quorum of shareholders, see Section 33-7-250.
Voting for directors by voting group, see
  Section 33-8-104.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
[Note: this Act retains the "opt-out" format in Section 33-11-200 of the 1981 South Carolina Business Corporation Act rather than the "opt-in" format of the 1984 Model Act -- See the South Carolina Reporters' Comments]
  Section 7.28(a) (Section 33-7-280(a)) provides that directors are elected by a plurality of the votes cast in an election of directors at a meeting at which a quorum is present of the voting group entitled to participate in the election. A "plurality" means that the individuals with the largest number of votes are elected as directors up to the maximum number of directors to be chosen at the election. In elections in which several factions are competing within a voting group, the individuals elected may have fewer than a majority of all the votes cast in the election. The articles of incorporation or bylaws of the corporation may, however, provide a different manner of election of directors.
  The entire board of directors may be elected by a single voting group or the articles of
incorporation may provide that different voting groups are entitled to elect a designated number or fraction of the board of directors. See section 8.04 (Section 33-8-104). Elections are contested only within specific voting groups.
  Under section 7.28(b) (Section 33-7-280(b)) each corporation may determine whether or not to elect its directors by cumulative voting. If directors are elected by different voting groups, the articles of incorporation may provide that specified voting groups are entitled to vote cumulatively while others are not. Cumulative voting affects the manner in which votes may be cast by shares participating in the election but does not affect the plurality principle set forth in section 7.28(a) (Section 33-7-280(a)).
1. THE MANNER OF ELECTING CUMULATIVE VOTING
[not applicable --see the South Carolina Reporters' Comments]
  Section 7.28(b) provides basically for an "opt in" election. A corporation has cumulative voting with respect to a voting group only if an affirmative provision to that effect appears in its articles of incorporation. Under section 7.28(c) this election may be made simply by inserting a statement that "all directors are elected by cumulative voting" or "holders of class A shares are entitled to cumulate their votes," or words of similar import. The effect of such a statement is to make applicable automatically the detailed provisions of subsections (c) and (d) describing the cumulative right to vote at elections of directors by the voting group or groups specified.
2. THE MECHANICS OF CUMULATIVE VOTING
  Section 7.28(c) (Section 33-7-280(b)) describes the mechanics of cumulative voting: each shareholder may multiply the number of
votes he is entitled to cast (based on the number of shares held by him) by the number of directors to be elected by the voting group at the meeting and may cast the product for a single candidate or distribute the product among two or more candidates. By casting all his votes for a single candidate or a limited number of candidates, a minority shareholder increases his voting power and may be able to elect one or more directors.
  Section 7.28(d) (Section 33-7-280(c)) applies only if cumulative voting is potentially available under section 7.28(b) (Section 33-7-280(b)). It is designed to ensure that all shareholders participating in the election understand the rules and to avoid the distortions that may be created when some shareholders vote cumulatively while others do not. Cumulative voting will be employed if the notice of meeting or accompanying proxy statement conspicuously announces that a shareholder is entitled to cumulate his votes or a shareholder who is entitled to vote gives notice to the corporation of his intent to do so at least 48 hours before the meeting. This notice puts the corporation and all shareholders who are entitled to vote in the election with that shareholder on notice that voting will be on a cumulative basis. If this notice is given by any shareholder, all other shareholders who are part of the same voting group are entitled to vote cumulatively without giving further notice.
  The proxy regulations of the Securities and Exchange Commission require proxy statements to include a statement that persons have the right to vote cumulatively, if that is the case, and briefly to describe that right.
SOUTH CAROLINA REPORTERS' COMMENTS
  Cumulative voting used to inhere in stock ownership in South Carolina as a matter of right under Article IX, Section 11, of the Constitution of South Carolina, 1895, repealed by Act 64 of 1971. Repeal of the constitutional right still left shareholders with an absolute statutory right to engage in cumulative voting.
  The statutory right was watered down subsequently by the 1981 South Carolina Business Corporation Act which allowed an "opt-out" procedure by making the right to vote cumulatively subject to a contrary provision in the articles.
  The Model Act proposed to further the erosion of shareholders' rights by requiring an "opt-in" procedure, whereby cumulative voting does not apply absent authorization in the articles. This provision would have had a dramatic effect on South Carolina minority shareholders used to voting cumulatively as a matter of right and lacking the power to put over an amendment to the articles that would allow them to continue to do so.
  The drafters of the Model Act advanced no reason for switching from the opt-out procedure, which in itself was a watering down of shareholders' rights over prior practice. The Model Act's opt-in approach was rejected in favor of the status quo.
  Model Act Section 7.28(d)(2) would have changed prior practice by requiring forty-eight hours notice of an intention to vote cumulatively. Section 33-11-200(b) of the 1981 South Carolina Business Corporation Act was more permissive. It called for either forty-eight hours' written notice or simply an announcement at the meeting before voting for directors starts. Shareholders "caught by surprise" at the meeting by the cumulative voting request could seek a recess of up to two hours in order
to plan strategy. This provision has been incorporated into this act. See paragraph (2) of subsection (c).
DERIVATION: 1984 Model Act Section 7.28.
Article 3
Voting Trusts and Agreements
Sec.
33-7-300. Voting trusts.
33-7-310. Voting agreements.
  Section 33-7-300. Voting trusts.
  (a) One or more shareholders may create a voting trust, conferring on a trustee the right to vote or otherwise act for them, by signing an agreement setting out the provisions of the trust (which may include anything consistent with its purpose) and transferring their shares to the trustee. When a voting trust agreement is signed, the trustee shall prepare a list of names and addresses of all owners of beneficial interests in the trust, together with the number and class of shares each transferred to the trust, and deliver copies of the list and agreement to the corporation's principal office. A complete and current list of the names and addresses of all owners of beneficial interests in the trust and the number and class of shares represented by the certificates held by them and the dates on which they became owners must be kept on file at the office of the trustee and at the corporation's principal office.
  (b) A voting trust becomes effective on the date the first shares subject to the trust are registered in the trustee's name. A voting trust is valid for not more than ten years after its effective date unless extended under subsection (c).
  (c) All or some of the parties to a voting trust may extend the voting trust for additional terms of not more than ten years each by signing an extension agreement and obtaining the voting trustee's written consent to the extension. An extension is valid for ten years from the date the first shareholder signs the extension agreement. The voting trustee must deliver copies of the extension agreement and list of beneficial owners to the corporation's principal office. An extension agreement binds only those parties signing it.
  (d) To the extent provided by the voting trust agreement, the trustees are entitled to vote without the consent of the voting trust certificate holders upon all amendments of the articles and upon any merger, consolidation, dissolution, sale of assets, reduction of stated capital of the corporation, or other matter on which a record owner of shares is entitled to vote. Except to the extent provided otherwise by the voting trust agreement, the voting trust certificate holder has all voting rights, dissenter's rights, inspection rights, and other rights available to shareholders under this section.
CROSS REFERENCES
"Deliver" includes mail, see Section 33-1-400.
Delivery to corporation, see Section 33-1-410.
Inspection of shareholder lists, see Section
  33-7-200, Chapter 16, Article 1.
"Principal Office":
  defined, see Section 33-1-400.
  designated in annual report, see
    Section 33-16-220.
"Shareholder" defined, see Section 33-1-400.
Shares held by nominees, see Section 33-7-230.
Voting agreements, see Section 33-7-310.
OFFICIAL COMMENT
  A voting trust is a device by which one or more shareholders divorce the voting rights of their shares from the ownership, retaining the latter, but transferring the former to one or more trustees in whom the voting rights of all the shareholders who are parties to the trust are pooled. Following the long established pattern of earlier versions of the Model Act and the statutes of many states, a voting trust under section 7.30(b) (Section 33-7-300(b)) is valid for a maximum of 10 years after its effective date.
  At common law voting trusts were often viewed with hostility and were narrowly construed. They are, however, a reasonable voting device to accomplish legitimate objectives. As a result, much of the original judicial hostility to these arrangements has disappeared. See, e.g., Oceanic Exploration Co. v. Grynberg, 428 A.2d 1 (Del. 1981).
1. CREATION OF A VOTING TRUST
  Section 7.30(a) (Section 33-7-300(a)) provides a simple and direct procedure for the creation of an enforceable voting trust. The shareholders agreeing to participate in the trust and the trustees must sign the trust agreement and the shares must be registered in the name of the trustee. Typically, the trust agreement provides that all attributes of beneficial ownership other than the power to vote are retained by the beneficial owners. In addition, the voting trustees may issue to the beneficial owners voting trust certificates which may be transferable in much the same way as shares.
  Upon the creation of the voting trust, the trustees must prepare a list of the beneficial owners and deliver it, together with a copy of the agreement, to the corporation's principal
office, where both documents are available for inspection by shareholders under section 7.20 (Section 33-7-200). This simple disclosure requirement eliminates the possibility that the voting trust may be used to create "secret, uncontrolled combinations of stockholders to acquire control of the corporation to the possible detriment of non-participating shareholders" Lehrman v. Cohen, 222 A.2d 800, 807 (Del. 1966).
  The purpose of section 7.30 (Section 33-7-300) is not to impose narrow or technical requirements on voting trusts. For example, a voting trust that by its terms extends beyond the 10-year maximum should be treated as being valid for the maximum permissible term of 10 years.
2. EXTENSION OF RENEWAL OF VOTING TRUST
  Section 7.30(c) (Section 33-7-300(c)) permits a voting trust to be extended for successive terms of 10 years commencing with the date the first shareholder signs the extension agreement. Shareholders who do not agree to an extension are entitled to the return of their shares upon the expiration of the original term.
SOUTH CAROLINA REPORTERS' COMMENTS
  The revision addresses two points not treated in the Official Text of the Model Act: (1) under subsection (a), the trustees and the corporation are required to keep a current list of holders of voting trust certificates as was the case under Section 33-11-160(c) of the 1981 South Carolina Business Corporation Act; (2) a new subsection (d) is added to clarify the relative powers of voting trust trustees and certificate holders.
DERIVATION: 1984 Model Act Section 7.30.
  Section 33-7-310. Voting agreements.
  (a) Two or more shareholders may provide for the manner in which they will vote their shares by signing an agreement for that purpose. A voting agreement created under this section is not subject to the provisions of Section 33-7-300.
  (b) A voting agreement created under this section is specifically enforceable.
CROSS REFERENCES
Irrevocable proxies, see Section 33-7-220.
Voting trust, see Section 33-7-300.
OFFICIAL COMMENT
  Section 7.31(a) (Section 33-7-310(a)) explicitly recognizes agreements among two or more shareholders as to the voting of shares and makes clear that these agreements are not subject to the rules relating to a voting trust. These agreements are often referred to as "pooling agreements." The only formal requirements are that they be in writing and signed by all the participating shareholders; in other respects their validity is to be judged as any other contract. They are not subject to the 10-year limitation applicable to voting trusts.
  Section 7.31(b) (Section 33-7-310(b)) provides that voting agreements may be specifically enforceable. A voting agreement may provide its own enforcement mechanism, as by the appointment of a proxy to vote all shares subject to the agreement; the appointment may be made irrevocable under section 7.22 (Section 33-7-220). If no enforcement mechanism is provided, a court may order specific enforcement of the agreement and order the votes cast as the agreement contemplates. This section recognizes
that damages are not likely to be an appropriate remedy for breach of a voting agreement, and also avoid the result reached in Ringling Bros. Barnum & Bailey Combined Shows v. Ringling, 53 A.2d 441 (Del. 1947), where the court held that the appropriate remedy to enforce a pooling agreement was to refuse to permit any voting of the breaching party's shares.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 33-7-310, unlike Section 33-11-150 of the 1981 South Carolina Business Corporation Act, puts no termination date on the voting agreement. Otherwise it is basically a concise statement of prior law.
DERIVATION: 1984 Model Act Section 7.31.
Article 4
Derivative Proceedings
Sec.
33-7-400. Procedure in derivative proceedings.
  Section 33-7-400. Procedure in derivative proceedings.
  Derivative suits may be maintained on behalf of South Carolina corporations in federal and state court in accordance with the applicable rules of civil procedure.
CROSS REFERENCES
None.
OFFICIAL COMMENT
  [Note: Section 33-7-400 provision differs substantially from 1984 Model Act Official Text
Section 7.40. See the South Carolina Reporters' Comments. Therefore, this Official Comment has only limited applicability to derivative suits filed in South Carolina.]
  Section 7.40 (Section 33-7-400) deals with the procedural requirements applicable to derivative suits. A great deal of controversy has surrounded the derivative suit, and widely different perceptions as to the value and efficacy of this litigation continue to exist. On the one hand, the derivative action has historically been the principal method of challenging allegedly improper, illegal, or unreasonable action by management. On the other hand, it has long been recognized that the derivative suit may be instituted more with a view to obtaining a settlement favorable to the plaintiff and his attorney than to righting a wrong to the corporation (the so-called "strike suit").
  Earlier versions of section 7.40 (Section 33-7-400), and similar statutes in many states, imposed a series of procedural requirements designed in part to deter or prevent strike suits. The FEDERAL RULES OF CIVIL PROCEDURE, rule 23.1, also imposes procedural requirements on derivative litigation brought in federal court. There has thus been a great deal of experience with procedural devices to control abuses of the derivative suit. Section 7.40 reflects a reappraisal of these devices in light of major developments in corporate governance, the public demand for corporate accountability, and the corporate response in the form of greater independence and sense of responsibility in boards of directors.
1. PROCEDURAL REQUIREMENTS
  The procedural requirements imposed by section 7.40 are as follows:
  a.The plaintiff may be either a registered or beneficial owner of shares held by a nominee in his behalf/.
  Many statutes, including earlier versions of the Model Act, required the plaintiff to be a shareholder "of record." This limiting requirement was dropped in revising section 7.40 (Section 33-7-400), in light of the widespread use of street name or nominee ownership of shares. At the same time, it was determined that the beneficial owner of shares held in a voting trust should also be permitted to serve as a plaintiff in a derivative suit. These changes were accomplished by the addition of a special definition of "shareholder" in subsection (e) to broaden the definition of that term in section 1.40 (Section 33-1-400).
  b. The plaintiff must have been an owner of shares at the time of the transaction in question.
  The Model Act and the statutes of many states have long imposed a "contemporaneous ownership" rule, i.e., the plaintiff must have been an owner of shares at the time of the transaction in question. This rule has been criticized as being unduly narrow and technical and unnecessary to prevent the transfer of purchase of lawsuits. A few states, particularly California, Cal. G.C.L. Section 800(B), have relaxed this rule to the extent of allowing some subsequent purchasers of shares to be plaintiffs in limited circumstances.
  The decision to retain the contemporaneous ownership rule in section 7.40 was based primarily on the view that it was simple, clear, and easy to apply while the California approach might encourage litigation on peripheral issues like the extent of the plaintiff's knowledge of the transaction in question when he acquired his shares. Further, there has been no persuasive showing that the contemporaneous ownership rule
has prevented the litigation of substantial suits since there appear to be many persons who might qualify as plaintiffs to bring suit even if subsequent purchasers are disqualified.
  c. The complaint must be verified.
  Section 7.40(b) requires the complaint in a derivative suit to be verified, i.e., sworn to. Compare FEDERAL RULES OF CIVIL PROCEDURE, rule 23.1; Surowitz v. Hilton Hotels Corp., 383 U.S. 363 (1966). This requirement provides some protection against groundless litigation without deterring suits brought in good faith.
  d.Option holders and convertible debenture holders are not permitted to sue.
  Arguments may be made that long-term creditors and investors with the privilege of becoming shareholders by the exercise of options or conversion rights should be permitted to bring derivative suits. These arguments, however, appear to involve the substantive rights of these various classes of investors more than the procedures required for the assertion of derivative rights on behalf of the corporation. See, e.g., Harff v. Kerkorian, 324 A.2d 215 (Del. Ch. 1974), rev'd in part, 347 A.2d 133 (Del. 1975). Therefore, section 7.40(a) does not permit option holders or convertible debenture holders to serve as derivative plaintiffs.
  e.There must be prior notice and demand on directors in most circumstances.
  The purpose of a demand on the board of directors is to stimulate the board of directors to enforce the rights of the corporation on its own. Modern trends in corporate governance - particularly the increasing number of outside directors and greater director sensitivity to their roles in the corporation and to the possibility of personal liability - improve the
likelihood that the board of directors will weigh carefully the shareholder's demand. Therefore, section 7.40(b) requires an allegation with particularity of the demand made, if any, on the board of directors. On the other hand, there may be circumstances showing that a demand on the board of directors would be useless, and in those circumstances it should be sufficient to allege the reasons why the plaintiff did not make the demand.
  Of itself, the rejection by the board of directors of the shareholder's demand neither permits nor precludes the shareholder's suit. See paragraph 2a. below.
  f.There need be no prior notice to or demand on shareholders.
  Rule 23.1 of the FEDERAL RULES OF CIVIL PROCEDURE requires that, in addition to a demand on the board of directors, a demand be made on shareholders "if necessary." The statutes of a number of states, including California and New York, require demands only on boards of directors.
  Although a demand on shareholders seems generally consistent with the broad doctrine of requiring exhaustion of all internal avenues of relief before commencement of suit, the board of directors, not the shareholders, is charged with governance of the corporation, including the commencement and management of litigation. Further, to require a demand on shareholders would virtually require the plaintiff to engage in a preliminary proxy contest and, in the case of publicly held corporations, would greatly increase the costs of filing all derivative suits, discouraging even legitimate cases.
  For these reasons, it was concluded that the requirement of a demand on shareholders would add uncertainty, expense, and delay without commensurately improving the prospects of resolving the substantive issues.
  g.A court may stay a derivative suit while the board of directors investigates.
  The last sentence of section 7.40(b) provides that if the corporation undertakes an investigation, the court may stay the proceeding until the investigation of the charges made in the demand or complaint is completed. The purpose of this stay is to preserve the right of the board of directors to consider whether or not to seek to enforce on its own the corporation's claim.
  h.Plaintiffs are not required to post bond as security for expenses.
  Earlier versions of the Model Act and the statutes of many states required a plaintiff to give security for reasonable expenses, including attorneys' fees, if his holdings of shares did not reach a specified size or value - five percent of the outstanding shares or a value of $25,000 in the earlier version of the Model Act. This requirement has been deleted. The security for expenses requirement, to the extent it was based on the size or value of the plaintiff's holdings rather than on the apparent good faith of his claim, was subject to criticism that it unreasonably discriminated against small shareholders.
  The basic policy question with respect to the requirement of a bond for small shareholders is how far to go in protecting the corporation and its officers and directors from suits. The choice is between making the right to sue widely available, without obstacles except in obviously baseless cases, or imposing obstacles in the way of the small shareholder without imposing a similar obstacle in the way of the large shareholder. Moreover, no bond requirement exists for class actions, antitrust cases, or individual actions for personal injury, all of which involve the corporation in substantial expense of defending against suit.
  Several states have concluded on the basis of these considerations that the bond requirement for small plaintiffs should be repealed or not adopted.
  i.Recovery of reasonable expenses of suit, including attorneys' fees, if suit is brought without good cause.
  In lieu of the bond requirement, section 7.40(d) provides that on termination of a proceeding the court may require the complainant to pay the defendants' reasonable expenses, including attorneys' fees, if it finds that the proceeding "was commenced without reasonable cause." This test is similar to but not identical with the test utilized in section 13.31, relating to dissenters' rights, where the standard for award of expenses and attorneys' fees is that dissenters "acted arbitrarily, vexatiously or not in good faith" in demanding a judicial appraisal of their shares. The derivative action situation is sufficiently different from the dissenters' rights situation to justify a different and less onerous test for imposing costs on the plaintiff. The test of section 7.40 that the action was brought without reasonable cause is appropriate to deter strike suits, on the one hand, and on the other hand to protect plaintiffs whose suits have a reasonable foundation.
  Section 7.40(d) does not refer to the award of expenses, including attorneys' fees, to successful plaintiffs. The right of successful plaintiffs in derivative suits to this recovery is so universally recognized, both by statute and
on the theory of a recovery of a fund or benefit for the corporation, that specific reference was thought to be unnecessary. The intention is to preserve fully these nonstatutory rights of reimbursement. Therefore, no negative inference should be drawn from section 7.40(d) as to the rights of plaintiffs to reimbursement.
  Abuses in the conduct of derivative litigation may occur on the part of defendants and their counsel as well as by plaintiffs and their counsel. Abuses may occur with respect to motions, pleadings, requests for discovery and resistance to discovery when conducted either in bad faith or without good cause. Sanctions to deal with such conduct are not included in this Act because courts possess adequate power to impose appropriate sanctions under rules of civil procedure or the general equity power of courts. See Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980).
  j.Settlement or discontinuance of derivative litigation requires judicial approval.
  Section 7.40(c) follows the FEDERAL RULES OF CIVIL PROCEDURE, and the statutes of a number of states, including New York and Michigan, and requires that all proposed settlements and discontinuances must receive judicial approval. This requirement seems a natural consequence of the proposition that a derivative suit is brought on behalf of the class of all shareholders and avoids many of the evils of the strike suit by preventing the individual shareholder-plaintiff from settling privately with the defendants.
  Section 7.40(c) also requires notice to all affected shareholders if the court determines that the proposed settlement may substantially affect the interest of one or more classes of shareholders. Unlike the statutes of some states, however, section 7.40(c) does not address the issue of which party should bear the cost of giving this notice. That is a matter left to the discretion of the court reviewing the proposed settlement.
2. ISSUES UNRESOLVED BY SECTION 7.40
  Several issues relating to section 7.40 were reserved for future consideration because it was
felt that further experience or experimentation was desirable before their resolution was encapsulated in model statutory language. The issues so reserved include the following:
  a.Should a decision by the board of directors that maintenance of a derivative suit is against the corporation's interest bar the suit?
  The case law concerning the power of the board of directors or of an independent committee of the board to bar a derivative suit without judicial review is in a state of flux. See, e.g., Burks v. Lasker, 441 U.S. 471 (1979); Auerbach v. Bennett, 47 N.Y.2d 619, 419 N.Y.S.2d 920, 393 N.E.2d 994 (1979); Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981); Aronson v. Lewis, 473 A.2d 800 (Del. 1984). For the present it should be permitted to continue to develop. Moreover, this issue may be the subject of an amendment to the Model Act at a later date.
  b.Should the method of calculating attorneys' fees be specified?
  Courts are today scrutinizing plaintiffs' fees more closely than they have in the past. This trend should be encouraged, and it was therefore concluded that the subject was not appropriate for statutory language at the present time. It is believed that the problem is more acute with respect to plaintiffs' fees recoverable under general principles of derivative litigation than it is under section 7.40(d).
  c.Should there be a maximum limit on an individual's liability?
  The sums involved in claims of alleged wrongdoing by a corporation and its officers and directors are often extremely large when viewed in the light of the personal resources of even an affluent person. Claims for millions of
dollars may create a high leverage to settle, and the potential exposure to these claims is an undesirable deterrent to service on the board of directors, particularly by outside directors. The proposed Federal Securities Code imposes a limit on individual liability resulting from certain violations of the Code and similar suggestions have also been made by others. On the other hand, where a director's or officer's conduct has proved to be wrongful and detrimental to the corporation, he should clearly be required to disgorge the entire benefit, and it also may be appropriate to require him rather than the victimized corporation and shareholders to bear any other loss suffered.
  Since no state has yet adopted a limitation of liability provision, and there is no experience with these provisions, it was thought inappropriate at the present time to discard the principle of unlimited liability.
SOUTH CAROLINA REPORTERS' COMMENTS
  Rule 23(b)(1) of the South Carolina Rules of Civil Procedure adopts the federal derivative suit provision, Fed. R. Civ. P. 23.1. Bringing an additional set of litigation rules into the South Carolina Business Corporation Act on top of Rule 23(b)(1) was deemed inadvisable, particularly since courts called on to interpret the new South Carolina rule have a large body of federal precedent from which to draw.
  A reference in the corporate statute to the availability of derivative suits under the civil rules is appropriate, however, in order to negate any implication that derivative suits may not be maintained under the new statute.
DERIVATION: 1984 Model Act Section 7.40 with substantial modifications. See the South Carolina Reporters' Comments.
CHAPTER EIGHT
Directors and Officers
Article 1. Board of Directors.
Article 2.Meetings and Action of Board of Directors.
Article 3. Standards of Conduct.
Article 4. Officers.
Article 5. Indemnification.
Article 1
Board of Directors
Sec.
33-8-101.Requirement for and duties of board of directors.
33-8-102. Qualifications of directors.
33-8-103. Number and election of directors.
33-8-104.Election of directors by certain classes of shareholders.
33-8-105. Terms of directors generally.
33-8-106. Staggered terms for directors.
33-8-107. Resignation of directors.
33-8-108. Removal of directors by shareholders.
33-8-109.Removal of directors by judicial proceeding.
33-8-110. Vacancy on board.
33-8-111. Compensation of directors.
  Section 33-8-101. Requirement for and duties of board of directors.
  Unless otherwise provided in:
  (a) this act;
  (b) the articles of incorporation; or
  (c) an agreement unanimously approved by the shareholders and disclosed in the articles of incorporation and on the corporation's share certificates, all corporate powers must be exercised by or under the authority of, and the business and affairs of a corporation must be
managed under the direction of, a board of directors. If the authority of the board is dispensed with or limited by a provision in the articles of incorporation under (b) or by a shareholder agreement under (c), the articles or the agreement shall describe who is to perform some or all of the duties of a board of directors.
CROSS REFERENCES
Amendment of articles of incorporation, see
  Chapter 10, Article 1.
Articles of incorporation, see Section 33-2-102.
Close corporations, see Statutory Close
  Corporation Supplement, Section 33-18-230.
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
Indemnification, see Sections 33-8-500 through
  33-8-580.
Number of shareholders, see Section 33-1-420.
Officers, see Sections 33-8-400 and 33-8-410.
Professional Corporations, see Professional
  Corporation Supplement, Chapter 19.
OFFICIAL COMMENT
[Note: Section 33-8-101 differs substantially from 1984 Model Act Official Text section 8.01. See the South Carolina Reporters' Comments.]
  Section 8.01 requires that every corporation have a board of directors except that a corporation with 50 or fewer shareholders may dispense with or limit the authority of the board of directors by describing in the articles "who will perform some or all of the duties of a board of directors." Section 8.01(c). This election is independent of the various close corporation elections permitted by the Model Statutory Close Corporation Supplement, though
the basic standard of 50 shareholders is the same in both section 8.01 and that Supplement.
  Obviously, some form of governance is necessary for every corporation. The board of directors is the traditional form of corporate governance but it need not be the exclusive form. Patterns of management may be tailored to specific needs in connection with family controlled enterprises, wholly or partially owned subsidiaries, or corporate joint ventures without the requirement of electing close corporation status under the Model Statutory Close Corporation Supplement. The persons who perform some or all of the duties of the board of directors may be designated "trustees," "agents," or "managers," and they may be selected in ways other than the traditional election by the shareholders. It is necessary, however, that some person or group perform these duties, and the designated persons, while performing them, are subject to the same duties as directors.
  An example of the restructuring of the traditional board of directors permitted by section 8.01 is presented by the facts of Lehrman v. Cohen, 43 Del. Ch. 222, 222 A.2d 800 (Del. 1966), where two shareholders (or allied family interests) had equal voting power and wished to permit the corporation's attorney to cast a tie-breaking vote on the board of directors without giving him a participating equity interest in the corporation. While the desired result was successfully achieved in that case by creating a class of voting shares without a significant economic interest in the corporation, the same result may be reached under section 8.01 directly by provision in the articles of incorporation without creating a special class of shares.
  Any arrangement under section 8.01(c) may also be established by a close corporation election
under the Model Statutory Close Corporation Supplement (See Chapter 18 of this Act).
  When a corporation has more than 50 shareholders, it must adopt the traditional board of directors as its sole form of governance. Because questions may at least theoretically arise how joint share ownership and other arrangements should be counted in applying a numerical limitation, section 1.42 prescribes rules for calculating the number of shareholders for the purpose of this and other numerical limitations in the Model Act.
  Section 8.01(b) states that if a corporation has a board of directors "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," the board of directors. The quoted language is chosen to reflect the role and functions of boards of directors in all varieties of corporations. In a small corporation and in some larger corporations where the board of directors is composed entirely of persons actively involved in the management of the corporate business, it may be reasonable to describe management as being "by" the board of directors. But a different model is appropriate for the boards of directors of publicly held corporations, which usually include individuals not actively involved in management. In these corporations it is not feasible to impose a requirement that the business and affairs of the corporation be managed "by" the board of directors. In these corporations the appropriate model is that the business and affairs be managed "under the direction of" the board of directors, since the role of the board of directors consists principally of the formulation of major management policy with little or no direct involvement in day-to-day management.
  As a correlative, in large and complex publicly held corporations it is generally
recognized that the board of directors may delegate to appropriate officers those powers not required by law to be exercised by the board of directors itself. Although delegation does not relieve the board of directors from its responsibilities of oversight, directors should not be held personally responsible for actions or omissions of officers, employees, or agents of the corporation so long as the directors have relied reasonably upon these officers, employees, or agents. See section 8.30 and its Official Comment. The board of directors has the power to probe to any depth it chooses in day-to-day management, but it has the responsibility to do so only to the extent that section 8.30 requires.
  Section 8.01(b) also recognizes that the powers of the board of directors may be limited by express provisions in the articles of incorporation.
SOUTH CAROLINA REPORTERS' COMMENTS
  The Official Text of this section in the Model Act would have introduced major changes in South Carolina law. It would have created massive problems for corporations having management agreements under Section 33-11-220 and for corporations that use bylaw provisions to effect control. The fifty shareholder cut-off in Model Act Section 8.01(c) for use of an alternative to board control was seen as inviting problems. One problem involved counting noses. A second problem was the likelihood that many corporations and their counsel would not be alert to the passage of the fifty shareholder threshold.
  Section 33-13-10 of the 1981 South Carolina Business Corporation Act was deemed generally satisfactory. Under it, board control may be made subject to special provision in the articles, bylaws, or in shareholder agreements
entered into under Section 33-11-220. The revision was deemed to cut board discretion, to introduce an arbitrary barrier, and to invite litigation by persons contesting the validity of corporate action.
  This section retains the essence of prior law, with a description in the statute of permissible shareholder agreements rather than by reference to some other section. The power in former Section 33-13-10 to limit board authority by a bylaw provision was abandoned because public notice is lacking.
  Under subsection (c) the existence of the agreement is all that need be disclosed in the articles and on the stock certificates. The full text of the agreement need not be reproduced verbatim.
DERIVATION: 1984 Model Act Section 8.01, with substantial amendments -- see the South Carolina Reporters' Comments.
  Section 33-8-102. Qualifications of directors.
  The articles of incorporation or bylaws may prescribe qualifications for directors. A director need not be a resident of this State or a shareholder of the corporation unless the articles of incorporation or bylaws so prescribe.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Bylaws, see Section 33-2-106, Chapter 10,
  Article 2.
Close corporations, see Statutory Close
  Corporation Supplement, Section 33-18-230.
Professional Corporations, see Professional
  Corporation Supplement, Chapter 19.
OFFICIAL COMMENT
  The elimination of mandatory special qualifications for directors is now nearly universal. The articles of incorporation or bylaws, however, may prescribe special qualifications, an option that is most likely to be utilized in closely held corporations where qualifications for directors may be used as a device for ensuring representation and voting power on the board of directors.
SOUTH CAROLINA REPORTERS' COMMENTS
  This section contains no change in the prior law.
DERIVATION: 1984 Model Act Section 8.02.
  Section 33-8-103. Number and election of directors.
  (a) A board of directors consists of one or more individuals with the number specified in or fixed in accordance with the articles of incorporation or bylaws.
  (b) If a board of directors has power under the articles of incorporation or under a bylaw provision to fix or change the number of directors, the board may increase or decrease by thirty percent or less the number of directors last approved by the shareholders, but only the shareholders may increase or decrease by more than thirty percent the number of directors last approved by the shareholders.
  (c) The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed within the minimum and maximum by the shareholders or the board of directors. After shares are issued, only the
shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa.
  (d) Directors are elected at the first annual shareholders' meeting and at each annual meeting thereafter unless their terms are staggered under Section 33-8-106.
CROSS REFERENCES
Annual shareholders' meeting, see Section
  33-7-101.
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
Classification of board of directors, see
  Section 33-8-106.
Cumulative voting, see Section 33-7-280.
Deadlocked board of directors as ground for
  dissolution, see Section 33-14-300.
Staggered terms, see Section 33-8-106.
Terms generally, see Section 33-8-104.
OFFICIAL COMMENT
  Section 8.03 (Section 33-8-103) prescribes rules for the determination of the size of the board of directors of corporations that have not dispensed with a board of directors under section 8.01(c) (Section 33-8-101(c)), and for changes in the size of the board of directors once it is established.
1.Minimum Number of Directors
  Section 8.03(a) (Section 33-8-103(a)) provides that the size of the initial board of directors may be "specified in or fixed in accordance with" the articles of incorporation or bylaws. The size of the board of directors may thus be fixed initially in the fundamental corporate documents, or the decision as to the size of the
initial board of directors may be made thereafter by those authorized in those documents. After shares have been issued, however, the power to increase or decrease the size of the board of directors by more than 30 percent, whether by amendment of the bylaws or otherwise, is reserved to the shareholders.
  Before 1969 the Model Act required a board of directors to consist of at least three directors. Since then, however, the Model Act, and the corporation statutes of an increasing number of states, have provided that the board of directors may consist of one or more members. A board of directors consisting of one or more individuals may be appropriate for corporations with one or two shareholders, or for corporations with more than two shareholders where in fact the full power of management is vested in only one or two persons. The requirement that every corporation have a board of directors of at least three directors may require the introduction into these closely held corporations of persons with no financial interest in the corporation.
2.Changes in the Size of the Board of Directors.
  Sections 8.03(b) and (c) (Section 33-8-103(b) and (c)) prescribe rules for corporations in which the board of directors has authority to establish or change the size of the board of directors. It has no application to corporations in which the size of the board of directors is fixed by the bylaws and the shareholders reserve to themselves the power to amend bylaws. See section 10.20 (Section 33-10-200). The basic premise is that the determination of the size of the board of directors should rest with the shareholders. These subsections also prevent the board of directors from manipulating its own size without the approval of the shareholders. But experience
has shown, particularly in larger corporations, that it is desirable to grant the board of directors some authority to change its size without incurring the expense of obtaining shareholder approval.
  Subsection (b) therefore permits the board of directors to increase or decrease its own size by up to 30 percent without shareholder approval. The 30 percent is calculated from the size last approved by the shareholders,thereby preventing directors from tacking a series of 30 percent increases or decreases to alter the basic composition of a board of directors without shareholder approval. For example, in a board of directors fixed or approved by the shareholders at 15 members, the board may, without shareholder approval, change the size of the board to as few as 11 or as many as 19; a board of 5 may be changed by the board to as few as 4 or as many as 6. The 30-percent limit was established to give the board of directors reasonable leeway in adjusting its own size. Thus, when a director resigns, the board of directors should normally be able to reduce its own size and elect not to fill the vacancy without shareholder action; similarly, if an exceptionally qualified person becomes available (or is invited to serve on the board of directors because of a felt need), he may normally be added to the board of directors without shareholder approval.
  Alternatively, subsection (c) authorizes the articles of incorporation or bylaws to establish a variable-range size for the board of directors. If a variable range size is established, either the shareholders or the board of directors may prescribe or change the size of the board of directors within that range. However, only the shareholders may amend the bylaws to change the limits established for the size of the board of directors, or to change from a variable-range size board to a fixed
board or vice versa. A variable-range size board is intended to provide essentially the same benefits as the authority granted a board of directors by subsection (b) to change its own size by 30 percent. Many publicly held corporations have established variable-range size boards of directors pursuant to general authority in state statutes. Specific recognition and regulation of this wide-spread practice seems desirable.
  Section 8.03(c) (Section 33-8-103(c)) also applies to a variable-range size board of directors whose initial size is established by the articles of incorporation if the articles authorize changing the limits of the size of the board without having to amend the articles.
  The limitations on the authority of the board of directors set forth in this section are substantive restrictions that may not be changed by provisions in articles of incorporation or bylaws. For example, a general provision in bylaws granting the board of directors authority to amend bylaws does not authorize a board of directors, after shares are issued, to change the limits of a variable-range board established by the bylaws.
  Sections 8.03(b) and (c) (Sections 33-8-103(b) and (c)) are primarily designed for publicly held corporations. In closely held corporations, typically, a change in the size of the board of directors may be accomplished readily by the shareholders if that is desired. In many closely held corporations, on the other hand, a board of directors of a fixed size may be an essential part of a control arrangement. In these situations, an increase or decrease in the size of the board of directors by even a single member may significantly affect control. In order to effectuate control arrangements dependent on a board of directors of a fixed size, the power of the board of directors to change its own size must be negated. This may
be accomplished by fixing the size of the board of directors in the articles of incorporation or by expressly negating all powers of the board of directors to change the size of the board, whether by amendment of the bylaws or otherwise. See section 10.22 (Section 33-10-220).
3.Annual Elections of Directors.
  Section 8.03(d) (Section 33-8-103(d)) makes it clear that all directors are elected annually unless the board is staggered. See section 8.05 (Section 33-8-105) and its Official Comment.
SOUTH CAROLINA REPORTERS' COMMENTS
  The revision gives shareholders more protection than the 1981 South Carolina Business Corporation Act by not automatically empowering directors to increase the size of the board. The Official Text of the Model Act does not identify the source of such power. For this reason, language has been added to subsection (b) to make the exercise of such power dependent upon a provision found in the articles or in the bylaws.
  The revision also contemplates the power of directors to decrease the number of board seats, again assuming that the bylaws or articles allow such action. A thirty percent increase or decrease limitation is built into the directors' power to add or subtract board seats.
  The variable range enabling provision of (c) simply recognizes what is a widespread practice in publicly-held corporations.
DERIVATION: 1984 Model Act Section 8.03.
  Section 33-8-104. Election of directors by certain classes of shareholders.
  If the articles of incorporation authorize dividing the shares into classes, the articles
also may authorize the election of all or a specified number of directors by the holders of one or more authorized classes of shares. A class of shares entitled to elect one or more directors is a separate voting group for purposes of the election of directors.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Classes of shares, see Section 33-6-101.
Close corporations, see Model Statutory Close
  Corporation Supplement, Section 33-18-230.
Cumulative voting, see Section 33-7-280.
Election of directors generally, see Section
  33-7-280.
Removal of directors, see Sections 33-8-108 and
  33-8-109.
Voting by voting groups:
  Quorum and voting requirements for election of
    directors, see Section 33-7-280.
  Quorum and voting requirements generally, see
    Sections 33-7-250 and 33-7-260.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 8.04 (Section 33-8-104) makes explicit that the articles of incorporation may provide that a specified number (or all) of the directors may be elected by the holders of one or more classes of shares. This approach is widely used in closely held corporations to effect an agreed upon allocation of control, for example, to ensure minority representation on the board of directors by issuing to that minority a class of shares entitled to elect one or more directors. A class (or classes) of shares entitled to elect separately one or more directors constitutes a separate voting group for purposes of the election of directors;
within each voting group directors are elected by a plurality of votes and quorum and voting requirements must be separately met by each voting group. See sections 7.25, 7.26, and 7.28 (Sections 33-7-250, 33-7-260, and 33-7-280).
SOUTH CAROLINA REPORTERS' COMMENTS
  This section basically repeats prior law.
DERIVATION: 1984 Model Act Section 8.04.
  Section 33-8-105. Terms of directors generally.
  (a) The terms of the initial directors of a corporation expire at the first shareholders' meeting at which directors are elected.
  (b) The terms of all other directors expire at the next annual shareholders' meeting following their election unless their terms are staggered under Section 33-8-106.
  (c) A decrease in the number of directors does not shorten an incumbent director's term.
  (d) The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected.
  (e) Despite the expiration of a director's term, he continues to serve until his successor is elected and qualifies or until there is a decrease in the number of directors.
CROSS REFERENCES
Annual shareholders' meeting, see Section
  33-7-101.
Court-ordered shareholders' meeting, see Section
  33-7-103.
Removal, see Sections 33-8-108 and 33-8-109.
Resignation, see Section 33-8-107.
Size of board, see Section 33-8-103.
Staggered terms, see Section 33-8-106.
Vacancies, see Section 33-8-100.
OFFICIAL COMMENT
  Section 8.05 (Section 33-8-105) provides for the annual election of directors at the annual shareholders' meeting with the single exception that terms may be staggered as permitted in section 8.06 (Section 33-8-106).
  Section 8.05(c) (Section 33-8-105(c)) provides that a decrease in the number of directors does not shorten the term of an incumbent director or divest any director of his office. Rather, the incumbent director's term expires at the annual meeting at which his successor would otherwise be elected.
  Section 8.05(d) (Section 33-8-105(d)) provides that the terms of all directors elected to fill vacancies expire at the next meeting of shareholders at which directors are elected. Thus, if terms are staggered under section 8.06 (Section 33-8-106), the term of a director elected to fill a vacant term with more than a year to run is shorter than the term of his predecessor. The board of directors may take appropriate steps, by designation of short terms or otherwise, to return the rotation of election of directors to the original terms established or fixed by the articles or bylaws.
  Section 8.05(e) (Section 33-8-105(e)) provides for "holdover" directors so that directorships do not automatically become vacant at the expiration of their terms but the same persons continue in office until successors qualify for office. Thus the power of the board of directors to act continues uninterrupted even though an annual shareholders' meeting is not held or the shareholders are deadlocked and unable to elect directors at the meeting.
SOUTH CAROLINA REPORTERS' COMMENTS
  No significant change in prior law is made by this section.
DERIVATION: 1984 Model Act Section 8.05.
  Section 33-8-106. Staggered terms for directors.
  If there are nine or more directors, the articles of incorporation may provide for staggering their terms by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total, as near as may be. The terms of directors in the first group expire at the first annual shareholders' meeting after their election; the terms of the third group, if any, expire at the third annual shareholders' meeting after their election. At each annual shareholders' meeting held thereafter, directors are chosen for a term of two years or three years, as the case may be, to succeed those directors whose terms expire.
CROSS REFERENCES
Annual shareholders' meeting, see Section
  33-7-101.
Cumulative voting, see Section 33-7-280.
Election of directors generally, see Section
  33-7-280.
Number of directors, see Section 33-8-103.
Removal, see Sections 33-8-108 and 33-8-109.
Resignation, see Section 33-8-107.
Terms of directors generally, see Section
  33-8-105.
Vacancies, see Section 33-8-100.
OFFICIAL COMMENT
  Section 8.06 (Section 33-8-106) recognizes the practice of "classifying" the board or "staggering" the terms of directors so that only one-half or one-third of them are elected at each annual shareholders' meeting and directors
are elected for two or three-year terms rather than one-year terms.
  Under section 8.06 (Section 33-8-106) at least three directors must be elected at each annual meeting. These directors may be elected by one or more voting groups, as provided in the articles of incorporation.
  The principal justification for staggering the board today is that it protects against sudden change in the management of the corporation despite a change in shareholdings. It also reduces the impact of cumulative voting since a greater number of votes is required to elect a director if the board is staggered than is required if the entire board were elected at each annual meeting.
  The staggered board of directors is sometimes used by incumbent management to make unwanted takeover attempts more difficult to effectuate. It is unlikely to be effective alone, however, since the shareholders may in any event remove directors under section 8.08 whether or not their terms are staggered. As a result, a staggered board is likely to be used for this purpose only in conjunction with a provision that directors may be removed only for cause.
SOUTH CAROLINA REPORTERS' COMMENTS
  This section basically repeats prior law.
DERIVATION: 1984 Model Act Section 8.06.
  Section 33-8-107. Resignation of directors.
  (a) A director may resign by delivering written notice to the board of directors, its chairman, or the corporation.
  (b) A resignation is effective when the notice is delivered unless the notice specifies a later effective date.
CROSS REFERENCES
"Deliver" includes mail, see Section 33-1-400.
Delivery to corporation, see Section 33-1-400.
"Notice" defined, see Section 33-1-410.
"Secretary" defined, see Section 33-1-410.
Vacancies, see Section 33-8-100.
OFFICIAL COMMENT
  The resignation of a director is effective when the written notice is delivered unless the notice specifies a later effective date, in which case the director continues to serve until that later date. Since the person giving the notice is still a member of the board, he may participate in all decisions until the specified date, including the choice of his successor under section 8.10 (Section 33-8-100). The participation of the retiring director in the decision on his successor may be of importance in closely held corporations where control of the board may be affected by the resignation.
  Vacancies created by a resignation effective at a later date may be filled before that date under section 8.10 (Section 33-8-100).
SOUTH CAROLINA REPORTERS' COMMENTS
  No significant change in the prior law is made by this section.
DERIVATION: 1984 Model Act Section 8.07.
  Section 33-8-108. Removal of directors by shareholders.
  (a) The shareholders may remove one or more directors with or without cause unless the articles of incorporation provide that directors may be removed only for cause.
  (b) If a director is elected by a voting group of shareholders, only the shareholders of that
voting group may participate in the vote to remove him.
  (c) If cumulative voting is authorized, a director may not be removed if the number of votes sufficient to elect him under cumulative voting is voted against his removal. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him.
  (d) A director may be removed by the shareholders only at a meeting called for the purpose of removing him and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the director.
  (e) "Cause" for removal of a director under this section means fraudulent or dishonest acts, or gross abuse of authority in the discharge of duties to the corporation, and must be established after written notice of specific charges and opportunity to meet and refute such charges.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Court-ordered removal, see Section 33-8-109.
Cumulative voting, see Section 33-7-280.
Director standards of conduct, see
  Sections 33-8-300 through 33-8-320.
Election by voting group of shareholders, see
  Section 33-8-104.
Election of directors generally, see Section
  33-7-280.
Meeting notice, see Section 33-7-105.
Quorum for voting group, see Section 33-7-250.
Shareholders' meetings, see Sections
  33-7-101 through 33-7-103.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 8.08(a) (Section 33-8-108(a)) accepts the view that since the shareholders are the owners of the corporation, they should normally have the power to change the directors at will. This section reverses the common law position that directors have a statutory entitlement to their office and can be removed only for cause -- fraud, criminal conduct, gross abuse of office amounting to a breach of trust, or similar conduct. The power to remove directors is subject to several restrictions set forth in section 8.08 (Section 33-8-108):
(1)The power to remove a director without cause may be eliminated by a provision in the articles of incorporation. Such a provision in effect guarantees the directors the same entitlement to office that directors enjoyed at common law. It is likely to be used in closely held corporations as an element of an agreed-upon allocation of power and control which ensures directors immunity from removal except for cause. It may also be used in publicly held corporations that fear changes in ownership of the majority of the shares and desire to provide security to the directors.
(2)If the articles of incorporation provide that one or more classes of shares constitute a separate voting group entitled to elect a director (see section 8.04 (Section 33-8-104)), only the shareholders of that voting group may participate in the vote whether or not to remove that director. But that director may be removed by court proceeding under section 8.09 (Section 33-8-109) despite this section.
(3)If cumulative voting is not authorized, a director is removed (with or without cause) only if the votes cast to remove him exceed the votes cast to retain him at a meeting of
the voting group electing him at which a quorum of shares entitled to vote on his election is present.
(4)If cumulative voting is authorized, a different standard for removal is involved. Under cumulative voting, a director may be removed (with or without cause) only if the votes cast in favor of retaining him would not have been sufficient to elect him pursuant to cumulative voting at that meeting. This provision guarantees that a minority faction with sufficient votes to guarantee the election of a director under cumulative voting will be able to protect that director from removal by the remaining shareholders. The director, however, may be removed by court proceeding under section 8.09 (Section 33-8-109) despite this section. In computing whether or not a director elected by cumulative voting is protected from removal from office by section 8.08(c) (Section 33-8-108(c)), the votes should be counted as though (1) the vote to remove the director occurred in an election to elect the number of directors normally elected by the voting group along with the director whose removal of the director had been cast for his election, and (3) all votes for removal of the director had been cast cumulatively in an efficient pattern for the election of a sufficient number of candidates so as to deprive the director whose removal is being sought of his office.
  Removal of directors under section 8.08(d) (Section 33-8-108(d)) requires the meeting notice to state that removal of specific directors will be proposed.
SOUTH CAROLINA REPORTERS' COMMENTS
  This section, like the Model Act, adds the potential for a "shark repellant" tactic by allowing the articles to specify that directors may be removed only for cause. This is new. The definition of "cause" previously found in Section 33-13-70(f) of the 1981 South Carolina Business Corporation Act is incorporated as subsection (e). The text of the Model Act had no definition. Another difference between the Model Act and the new provision is that the Model Act failed to spell out the "due process" rights of directors accused of misconduct. This deficiency is also addressed in subsection (e).
DERIVATION: 1984 Model Act Section 8.08, with amendments -- see South Carolina Reporters' Comments.
  Section 33-8-109. Removal of directors by judicial proceeding.
  (a) The circuit court of the county where a corporation's principal office (or, if none in this State, its registered office) is located may remove a director of the corporation from office in a proceeding commenced either by the corporation or by its shareholders holding at least five percent of the outstanding shares of any class if the court finds that (1) the director engaged in fraudulent or dishonest acts, or gross abuse of authority in discharge of duties to the corporation, and (2) removal is in the best interest of the corporation.
  (b) The court that removes a director may bar the director from reelection for a period prescribed by the court.
  (c) If shareholders commence a proceeding under subsection (a), they shall make the corporation a party defendant.
CROSS REFERENCES
Derivative proceedings, see Section 33-7-400.
Director standards of conduct, see
  Sections 33-8-300 through 33-8-320.
"Principal office":
  defined, see Section 33-1-400.
  designated in annual report, see Section
    33-16-220.
"Proceeding" defined, see Section 33-1-400.
Registered office:
  designated in annual report, see Section
    33-16-220.
  required, see Sections 33-2-102 and 33-5-101.
Removal by shareholders, see Section 33-8-108.
"Shareholder" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 8.09 (Section 33-8-109) authorizes the removal of a director who is found in a judicial proceeding to have engaged in fraudulent or dishonest conduct or gross abuse of office. For example, a judicial proceeding (as contrasted with removal under section 8.08 (Section 33-8-108)) may be necessary or appropriate in the following situations:
(1)In a closely held corporation, the director charged with misconduct is elected by voting group or cumulative voting, and the shareholders with power to prevent his removal exercise that power despite the existence of fraudulent or dishonest conduct. The classic example is where the director charged with misconduct himself possesses sufficient votes to prevent his own removal and exercises his voting power to that end.
(2)In a publicly held corporation, the director charged with misconduct declines to resign, though urged to do so, and because of the large number of widely scattered
shareholders, a special shareholders' meeting can be held only after a period of delay and at considerable expense.
  A shareholder who owns less than 10 percent of the outstanding shares of the corporation may bring suit derivatively in the name of the corporation under this section upon compliance with the requirements of section 7.40 (Section 33-7-400). A shareholder who owns at least 10 percent of the outstanding shares of the corporation may maintain suit in his own name and in his own right without compliance with section 7.40 (Section 33-7-400). The corporation, however, must be made a party to the proceeding. See section 8.09(c) (Section 33-8-109(c)).
  The purpose of section 8.09 (Section 33-8-109) is to permit the prompt and efficient elimination of dishonest directors. It is not intended to permit judicial resolution of internal corporate struggles for control except in those cases in which a court finds that the director has been guilty of wrongful conduct of the type described.
SOUTH CAROLINA REPORTERS' COMMENTS
  The Official Text of the Model Act proposed to change the law by allowing shareholders to institute the litigation contemplated by the section only if they hold ten percent, rather than five percent, of the stock as under Section 33-13-70(e) of the 1981 South Carolina Business Corporation Act. The five percent limit was retained.
  Under either prior law or the revision, proof of negligence will not support a claim for removal. Further, under the revision, proof of fraudulent misconduct does not necessarily guarantee that a court will order removal, for it could conclude that removal was not in the best interest of the corporation.
DERIVATION: 1984 Model Act Section 8.09.
  Section 33-8-110. Vacancy on board.
  (a) Unless the articles of incorporation provide otherwise, if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of directors:
    (1) the shareholders may fill the vacancy;
    (2) the board of directors may fill the vacancy; or
    (3) if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
  (b) If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group may fill the vacancy.
  (c) A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under Section 33-8-108(b) or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.
  (d) If, by reason of death, resignation, or other cause, a corporation has no directors in office, then any officer or any shareholder or an executor, administrator, trustee, or guardian of a shareholder or other fiduciary entrusted with like responsibility for the person or estate of a shareholder may call for a special meeting of shareholders to elect directors or may apply to the court for an order requiring election of directors.
CROSS REFERENCES
Election by voting group of shareholders, see
  Section 33-8-104.
Number of directors, see Section 33-8-103.
Quorum and voting of directors, see Section
  33-8-240.
Removal of directors, see Sections 33-8-103 and
  33-8-109.
Resignation of directors, see Section 33-8-107.
Shareholders' meetings, see Sections
  33-7-101 through 33-7-103.
Terms of directors generally, see Section
  33-8-105.
Voting by voting group, see Sections 33-7-250
  and 33-7-260.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Vacancies on the board of directors may be filled either by the shareholders or by the board of directors. In large corporations the cost of calling a special meeting of shareholders may be prohibitive so that in those corporations filling vacancies by the board of directors is the norm. On the other hand, in a closely held corporation the shareholders may fill vacancies as readily as the board.
  Section 8.10(a)(3) (Section 33-8-100(a)(3)) allows the directors remaining in office to fill vacancies even though they are fewer than a quorum. The test for the exercise of this power is whether the directors remaining in office are fewer than a quorum, not whether the directors seeking to act are fewer than a quorum. For example, on a board of six directors where a quorum is four, if there are two vacancies, they may not be filled under section 8.10(a)(3) (Section 33-8-100(a)(3)) at a "meeting" attended by only three directors. Even though the three directors are fewer than a quorum, section
8.10(a)(3) (Section 33-8-100(a)(3)) is not applicable because the number of directors remaining in office -- four -- is not fewer than a quorum.
  Section 8.10(b) (Section 33-8-100(b)) provides that if a voting group of shares is entitled to elect a director, only that voting group is entitled to fill a vacant office which was held by a director elected by that voting group. This section is part of the consistent treatment of directors elected by a voting group of shareholders. See sections 1.40, 7.25, 7.26, 7.28, 8.04 and 8.08(b) (Sections 33-1-400, 33-7-250, 33-7-260, 33-7-280, 33-8-104, and 33-8-108(b)).
  Section 8.10(c) (Section 33-8-100(c)) permits vacancies that will arise on a specific later date to be filled in advance of that date so long as the designee does not actually take office until the vacancy occurs. The director in the office that will become vacant may participate in the selection of his successor. A vacancy arising at a later date is most likely to arise because of a resignation effective at a later date; it may also arise in connection with retirements or with prospective amendments to bylaws. In a closely held corporation with a balance of power on the board of directors that was reached by agreement, a prospective resignation followed by the appointment of a successor under this section permits the board to act on the replacement before the change in balance caused by the resignation.
SOUTH CAROLINA REPORTERS' COMMENTS
  The power of directors to fill vacancies under the revision is assumed unless the articles provide to the contrary; under the 1981 South Carolina Business Corporation Act, the articles or bylaws could be used to reserve the power of filling vacancies to the shareholders. This is
not a major change. For clarity, a change of language was made in subsection (b). Section 33-13-60(d) of the 1981 South Carolina Business Corporation Act contemplated the problem of no directors left, a rare occurrence not dealt with in the revision. The coverage of prior law was preserved by creation of a new subsection (d).
DERIVATION: 1984 Model Act Section 8.10.
  Section 33-8-111. Compensation of directors.
  Unless the articles of incorporation or bylaws provide otherwise, the board of directors may fix the compensation of directors for their services as directors, or in any other capacity.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Committees of board of directors, see Section
  33-8-250.
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
OFFICIAL COMMENT
  This section puts at rest the question whether the board of directors can fix the compensation of its members for serving as directors. The practice of compensating directors is now of long standing, and the establishment of a policy with respect to director compensation is an appropriate function of the board of directors.
  In publicly held corporations, compensation is customarily provided to non-management directors. As stated in The Corporate Director's Guidebook," . . . it is expected that a non-management director will devote substantial attention to the affairs of the corporation and will be compensated accordingly." 33 BUS. LAW. 1591, 1622 (1978).
SOUTH CAROLINA REPORTERS' COMMENTS
  It was decided to add to the end of the Model Act Official Text the phrase "for their services as directors, or in any other capacity," in order to make clear that the revision sanctions the approval by directors of compensation packages for inside directors.
DERIVATION: 1984 Model Act Section 8.11.
Article 2
Meetings and Action of the Board
Sec.
33-8-200. Meetings.
33-8-210. Action without meeting.
33-8-220. Notice of meeting.
33-8-230. Waiver of notice.
33-8-240. Quorum and voting.
33-8-250. Committees.
  Section 33-8-200. Meetings.
  Unless the articles or bylaws otherwise provide:
  (a) The board of directors may hold regular or special meetings in or out of this State.
  (b) The board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is considered to be present in person at the meeting.
CROSS REFERENCES
Action without meeting, see Section 33-8-210.
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
Notice of meeting, see Section 33-8-220.
Quorum and voting, see Section 33-8-240.
Waiver of meeting notice, see Section 33-8-230.
OFFICIAL COMMENT
  This section authorizes meetings of directors anywhere. No distinction is made between meetings in-state and out-of-state. It also authorizes the board of directors to permit any or all directors to participate in a meeting by the use of any means of communication by which all directors participating may simultaneously hear each other. This decision is discretionary with the board of directors, and a person participating in this fashion is deemed to be present in person at the meeting for purposes of quorum and voting requirements.
  With the development of modern electronic technology, it is possible that the advantages of the traditional meeting, at which all members are present at a single place, may be obtained even though the members are physically dispersed and no two directors are present at the same place. The advantage of the traditional meeting is the opportunity for interchange that is permitted by a meeting in a single room at which members are physically present. If this opportunity for interchange is thought to be available by the board of directors, a meeting may be conducted by electronic means although no two directors are physically present at the same place and no specific place for the meeting is designated.
SOUTH CAROLINA REPORTERS' COMMENTS
  No significant change in prior law is made by this section.
DERIVATION: 1984 Model Act Section 8.20.
  Section 33-8-210. Action without meeting.
  (a) Unless the articles of incorporation or bylaws provide otherwise, action required or permitted by this act to be taken at a board of directors' meeting may be taken without a meeting if the action is assented to by all members of the board.
  (b) The action may be evidenced by one or more written consents describing the action taken, signed by each director, and included in the minutes or filed with the corporate records reflecting the action taken. Action evidenced by written consents under this subsection is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed under this subsection has the effect of a meeting vote and may be described as such in any document.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
"Notice" defined, see Section 33-1-410.
Notice of meeting, see Section 33-8-220.
Waiver of meeting notice, see Section 33-8-230.
OFFICIAL COMMENT
  The power of the board of directors to act unanimously without a meeting is based on the pragmatic consideration that in many situations
a formal meeting is a waste of time. For example, in a closely held corporation there will often be informal discussion by the manager-owners of the venture before a decision is made. And, of course, if there is only a single director (as is permitted by section 8.03 (Section 33-8-103)), a written consent is the natural method of signifying director action. Consent may be signified on one or more documents if desirable.
  In publicly held corporations, formal meetings of the board of directors may be appropriate for many actions. But there will always be situations where prompt action is necessary and the decision noncontroversial, so that approval without a formal meeting may be appropriate.
  Under section 8.21 (Section 33-8-210) the requirement of unanimous consent precludes the possibility of stifling or ignoring opposing argument. A director opposed to an action that is proposed to be taken by unanimous consent, or uncertain about the desirability of that action, may compel the holding of a directors' meeting to discuss the matter simply by withholding his consent.
SOUTH CAROLINA REPORTERS' COMMENTS
  The official text of the Model Act envisions only one way to have valid board action without a meeting: Unanimous written consent. The language in Section 33-13-120(a), (b), and (e) of the 1981 South Carolina Business Corporation Act, although internally inconsistent, contradictory, and confusing, attempted to recognize numerous ways, apart from unanimous written consent, that corporate action may be deemed ratified and held binding for the benefit of the corporation and third persons. The thrust of most of these additional methods was that if all the directors knew of the "informal"
action and none objected, the "informal" action was deemed valid corporate action.
  It was feared that adoption of the Model Act without amendment created a significant risk that a court might not apply the common law ratification principles now expressly provided in the law. This could lead to frustrated expectations and unjust results. It is expressly intended that common law ratification principles continue to apply to informal corporate action as spelled out in this clarified language.
  Therefore, this section in addition to approving of actions taken in writing by all the directors, specifically recognizes that actions taken informally by a majority of the board, pursuant to a custom of the company, or in other ways will be the action of the company so long as all the directors assent. The term "assent" is specifically left undefined. It clearly does not require a written consent, rather it continues the broad common law provisions of ratification.
  Since neither majority action nor existing custom is required (as was true under the prior statute), and since the term "assent" is not restricted, this Section 33-8-210 is broader than the prior statute.
  However, in order to avoid any controversy as to whether any action has been properly taken, boards of directors should reduce all their informal actions to writing. Each director should approve in writing the action to be, or previously taken.
DERIVATION: 1984 Model Act Section 8.21.
  Section 33-8-220. Notice of meeting.
  (a) Unless the articles of incorporation or bylaws provide otherwise, regular meetings of the board of directors may be held without
notice of the date, time, place, or purpose of the meeting.
  (b) Unless the articles of incorporation or bylaws provide for a longer or shorter period, 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. The notice need not describe the purpose of the special meeting unless required by the articles of incorporation or bylaws.
CROSS REFERENCES
Action without meeting, see Section 33-8-210.
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
Effective date of notice, see Section 33-1-410.
Meetings of board of directors, see Sections
  33-8-200 and 33-8-210.
"Notice" defined, see Section 33-1-410.
Waiver of notice, see Section 33-8-230.
OFFICIAL COMMENT
  Regular meetings of the board of directors may be held without notice and special meetings require only two days' notice unless other requirements are imposed by the articles of incorporation or bylaws. The notice may be written or oral. Also, no statement of the purpose of either a regular or special meeting is necessary unless required by the articles of incorporation or bylaws. These requirements differ from the requirements applicable to meetings of shareholders because of fundamental differences in their roles: directors are expected to be more closely involved in corporate affairs than shareholders, and meetings of directors are held more
systematically and regularly than meetings of shareholders.
SOUTH CAROLINA REPORTERS' COMMENTS
  The only change of substance as to notice is that the period for notice of a special meeting has been cut from four to two days, a minor change.
DERIVATION: 1984 Model Act Section 8.22.
  Section 33-8-230. Waiver of notice.
  (a) A director may waive any notice required by this act, the articles of incorporation, or bylaws before or after the date and time stated in the notice. Except as provided by subsection (b), the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records.
  (b) A director's attendance at or participation
in a meeting waives any required notice to him of the meeting unless the director at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.
CROSS REFERENCES
Action without meeting, see Section 33-8-210.
Meetings of board of directors, see Section
  33-8-200.
"Notice" defined, see Section 33-1-410.
Notice of meeting, see Section 33-8-220.
"Secretary" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 8.23(a) (Section 33-8-230(a)) reverses the common law rule that invalidates waivers of
notice by directors after the date and time of the meeting. In modern practice, notice is often a technical requirement and waivers should be freely permitted.
  Section 8.23(b) (Section 33-8-230(b)) recognizes that the function of notice is to inform directors of a meeting. If a director actually appears at the meeting he has probably had notice of it and generally should not be able to raise a technical objection that he was not given notice.
  In cases where actual prejudice occurs because of the lack of notice, as may be indicated by the absence of one or more other directors, the director must call attention to the defect at the outset of the meeting or promptly upon his arrival. That director, or a director who did not receive notice and was not present at the meeting, may then attack the validity of the action taken for want of notice. If a director properly objects to the meeting being held, he is not presumed to have assented to actions taken thereafter, but he waives his objection if he thereafter votes for or assents to action taken at the meeting. See section 8.24(d) (Section 33-8-240(d)).
SOUTH CAROLINA REPORTERS' COMMENTS
  No significant change in the prior law is made by this section.
DERIVATION: 1984 Model Act Section 8.23.
  Section 33-8-240. Quorum and voting.
  (a) Unless the articles of incorporation or bylaws require a greater number, a quorum of a board of directors consists of:
    (1) a majority of directors then in office if the corporation has a fixed board size; or
    (2) a majority of the number of directors prescribed, or if no number is prescribed the
number in office immediately before the meeting begins, if the corporation has a variable-range size board.
  (b) The articles of incorporation or bylaws may authorize a quorum of a board of directors to consist of no fewer than one-third of the fixed or prescribed number of directors determined under subsection (a).
  (c) 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 unless the articles of incorporation or bylaws require the vote of a greater number of directors.
  (d) A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken is considered to have assented to the action taken unless: (1) he objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting; (2) his dissent or abstention from the action taken is entered in the minutes of the meeting; or (3) he delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.
CROSS REFERENCES
Action without meeting, see Section 33-8-210.
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
Committees of board of directors, see Section
  33-8-250.
Director standards of conduct, see
  Sections 33-8-300 through 33-8-320.
Meetings of board of directors, see Section
  33-8-200.
"Notice" defined, see Section 33-1-410.
Number of directors, see Section 33-8-103.
"Secretary" defined, see Section 33-1-400.
OFFICIAL COMMENT
  In the absence of a provision in the articles of incorporation or bylaws, a quorum is determined as follows:
(1)If a board of directors consists of a fixed number -- whether fixed by the board or shareholders under section 8.03(b) (Section 33-8-103(b)) -- a quorum is a majority of
that number. Thus, if a board of directors has a fixed membership of 15, a quorum is 8. If the board of directors has exercised its power under section 8.03(b) (Section 33-8-103(b)) to increase its size to 19, a quorum is 10; if it reduced its size to 12, a quorum is 7.
(2)If the board of directors is a variable size board, a quorum consists of a majority of the number of directors prescribed at that time by the board of directors or shareholders. If no number is prescribed, then a quorum consists of a majority of the directors in office immediately before the meeting begins.
  Section 8.24(b) (Section 33-8-240(b)) provides that the articles of incorporation or bylaws may decrease the size of the quorum to one-third of the number of directors determined under section 8.24(a) (Section 33-8-240(a)).
  Section 8.24(a) (Section 33-8-240(a)) allows the articles of incorporation or bylaws to increase the quorum up to and including unanimity while section 8.24(c) (Section 33-8-240(c)) allows these documents similarly to increase the vote necessary to take action. The
articles of incorporation or bylaws may also establish quorum or voting requirements with respect to directors elected by voting groups of shareholders pursuant to section 8.04 (Section 33-8-104). The option to increase either or both the vote and quorum requirements most commonly is exercised in closely held corporations where a greater degree of participation is thought appropriate or where a minority participant in the venture seeks to obtain a veto power over corporate action.
  The phrase "when the vote is taken" in section 8.24(c) (Section 33-8-240(c)) is designed to make clear that the board of directors may act only when a quorum is present. If directors leave during the course of a meeting, the board of directors may not act after the number of directors present is reduced to less than a quorum.
  Under section 8.24(d) (Section 33-8-240(d)) directors, if they object or abstain with respect to action taken by the board of directors or a committee of the board of directors, must make their position clear in one of the ways described in this subsection. If objection is made in the form of a written dissent, it may be transmitted by wire, telecopier, or other medium of data transmission. This written objection serves the important purpose of forcefully bringing the position of the dissenting member to the attention of the balance of the board of directors. The requirement of a written objection also prevents a director from later seeking to avoid responsibility because of secret doubts about the wisdom of the action taken. The right of dissent or abstention is not available to a director who voted in favor of the action taken.
  Section 8.24(d) (Section 33-8-240(d)) applies only to directors who are present at the meeting. Directors who are not present are not
deemed to have assented to any action taken at the meeting in their absence.
SOUTH CAROLINA REPORTERS' COMMENTS
  No significant change in the prior law is made by this section.
DERIVATION: 1984 Model Act Section 8.24.
  Section 33-8-250. Committees.
  (a) Unless the articles of incorporation or bylaws provide otherwise, a board of directors may create one or more committees and appoint members of the board of directors to serve on them. Each committee must have two or more members who serve at the pleasure of the board of directors.
  (b) The creation of a committee and appointment of members to it must be approved by the greater of (1) a majority of all the directors in office when the action is taken or (2) the number of directors required by the articles of incorporation or bylaws to take action under Section 33-8-240.
  (c) Sections 33-8-200 through 33-8-240, which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the board of directors, apply to committees and their members as well.
  (d) To the extent specified by the board of directors or in the articles of incorporation or bylaws, each committee may exercise the authority of the board of directors under Section 33-8-101.
  (e) A committee, however, may not:
    (1) authorize distributions;
    (2) approve or propose to shareholders action that this act requires be approved by shareholders;
    (3) fill vacancies on the board of directors or on any of its committees;
    (4) amend articles of incorporation pursuant to Section 33-10-102;
    (5) adopt, amend, or repeal bylaws;
    (6) approve a plan of merger not requiring shareholder approval;
    (7) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or
    (8) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the board of directors may authorize a committee (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the board of directors.
  (f) The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in Section 33-8-300.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
Dissolution, see Chapter 14.
Distributions, see Section 33-6-400.
Duties of board of directors, see Section
  33-8-101.
Indemnification determination, see Section
  33-8-550.
Issuance of shares, see Sections 33-6-101 and
  33-6-102.
Mergers, see Chapter 11.
Quorum and voting, see Section 33-8-240.
Reacquisition of shares, see Sections 33-6-103
  and 33-6-310.
Vacancies on board, see Section 33-8-100.
OFFICIAL COMMENT
  Section 8.25 (Section 33-8-250) makes explicit the common law power of a board of directors to act through committees of directors and specifies the powers of the board of directors that are nondelegable, that is, powers that only the full board of directors may exercise. Section 8.25 (Section 33-8-250) deals only with committees of the board of directors exercising the functions of the board of directors; the board of directors or management, independently of section 8.25 (Section 33-8-250), may establish nonboard committees composed of directors, employees, or others to deal with corporate powers not required to be exercised by the board of directors.
  Section 8.25(b) (Section 33-8-250(b)) provides that a committee of the board of directors may be created only by the affirmative vote of a majority of the board of directors then in office, or, if greater, by the number of directors required to take action by the articles of incorporation or the bylaws. This supermajority requirement reflects the importance of the decision to invest board committees with power to act under section 8.25 (Section 33-8-250).
  Committees of the board of directors are assuming increasingly important roles in the governance of publicly held corporations. See "The Corporate Director's Guidebook," 33 BUS. LAW. 1591 (1978). "The Overview Committees of the Board of Directors," 35 BUS. LAW. 1335 (1980). Executive committees have long provided guidance to management between meetings of the full board of directors. Audit committees also have a long history of performing essential
review and control functions on behalf of the board of directors. In recent years nominating and compensation committees, composed primarily or entirely of non-management directors, have also become more widely used by publicly held corporations.
  Section 8.25 (Section 33-8-250) establishes the desirable and appropriate role of director committees in light of competing considerations: on the one hand, it seems clear that appropriate board committee action is not only desirable but also is likely to improve the functioning of larger and more diffuse boards of directors; on the other hand, wholesale delegation of authority to a board committee, to the point of abdication of director responsibility as a board of directors, is manifestly inappropriate and undesirable. Overboard delegation also increases the potential, where the board of directors is divided, for usurpation of basic board functions by means of delegation to a committee dominated by one faction.
  The statement of nondelegable functions set out in section 8.25(e) (Section 33-8-250(e)) is based on the principle that prohibitions against delegation should be limited generally to actions substantially affecting the rights of shareholders among themselves as shareholders and specifically to (1) those matters that have immediate and irrevocable effect (such as the declaration of a dividend), (2) those matters that may well become irrevocable without swift action, and (3) those matters that will cause changes of position by others that cannot be rectified. As a result, delegation of authority to committees under section 8.25(e) (Section 33-8-250(e)) may be broader than mere authority to act with respect to matters arising within the ordinary course of business. The ordinary course of business standard for delegation was rejected as being too narrow and inappropriate
for many modern corporations. For example, although section 8.25(e)(8) (Section 33-8-250(e)(8)) makes nondelegable the decision whether to issue and sell shares or create a class or series of shares with designated rights and preferences, it permits the board of directors to delegate to a committee (within limits specifically prescribed by the board of directors) the important but more limited functions of fixing the specific terms -- including without limitation, the price, the dividend rate, provisions for redemption, sinking fund, conversion, voting or preferential rights, and provisions for other features of a class or series of shares. The committee may also be empowered to adopt any final resolution setting forth the terms and to authorize the appropriate filing with the Secretary of State required by this Act. Thus, terms of the sale of shares may be set quickly and upon the most accurate information without necessarily involving a meeting of the board of directors. The phrase "(or senior executive officer of the corporation)" also permits these functions to be delegated to the chief financial officer or other appropriate officer of the corporation. The subsection also permits delegation to a committee of authority to determine the terms of a contract or option for the sale of shares if the board prescribes specific limits in a stock option plan or otherwise. This delegation avoids requiring involvement of the full board in the details of the administration of stock option or other compensation plans.
  Section 8.25(e) (Section 33-8-250(e)) prohibits delegation of authority with respect to most mergers, sales of substantially all the assets, amendments to articles of incorporation and voluntary dissolution under section 8.25(e)(2) (Section 33-8-250(e)(2)) since these require shareholder action. In addition, section 8.25(e) (Section 33-8-250(e)) prohibits
delegation to a board committee of authority to declare dividends or distributions, designate director candidates for purposes of proxy solicitation, fill board vacancies, approve a so-called "short-form merger" (where the interests of the minority shareholders warrant special attention), authorize the disposition or reacquisition of shares, or amend the bylaws or the articles of incorporation (without shareholder approval under section 10.02 (Section 33-10-102)). On the other hand, under section 8.25(e) (Section 33-8-250(e)) many actions of a material nature, such as the authorization of long-term debt and capital investment or the pricing of shares, may properly be made the subject of committee delegation.
  The statutes of several states make nondelegable certain powers not listed in section 8.25(e) (Section 33-8-250(e)) -- for example, the power to change the principal corporate office, to appoint or remove officers, to fix director compensation, or to remove agents. These are not prohibited by section 8.25(e) (Section 33-8-250(e)) since the whole board of directors may reverse or rescind the committee action taken, if it should wish to do so, without undue risk that implementation of the committee action might be irrevocable or irreversible.
  Section 8.25(f) (Section 33-8-250(f)) makes clear that although the board of directors may delegate to a committee the authority to take action, the designation of the committee, the delegation of authority to it, and action by the committee will not alone constitute compliance by a non-committee board member with his responsibility under section 8.30 (Section 33-8-300). On the other hand, a non-committee director also will not automatically incur liability should the action of the particular committee fail to meet the standard of care set
out in section 8.30 (Section 33-8-300). The non-committee member's liability in these cases will depend upon whether he failed to comply with section 8.30(b)(3) (Section 33-8-300(b)(3)). Factors to be considered in this regard will include the care used in the delegation to and supervision over the committee, and the amount of knowledge regarding the particular matter which the non-committee director has available to him. Care in delegation and supervision include appraisal of the capabilities and diligence of the committee directors in light of the subject and its relative importance and may be facilitated, in the usual case, by review of minutes and receipt of other reports concerning committee activities. The enumeration of these factors is intended to emphasize that directors may not abdicate their responsibilities and secure exoneration from liability simply by delegating authority to board committees. Rather, a director against whom liability is asserted based upon acts of a committee of which he is not a member avoids liability if the standards contained in section 8.30 (Section 33-8-300) are met.
  Section 8.25(f) (Section 33-8-250(f)) has no application to a member of the committee itself. The standard applicable to a committee member is set forth in section 8.30(a) (Section 33-8-300(a)).
SOUTH CAROLINA REPORTERS' COMMENTS
  This section makes two changes in the 1981 South Carolina Business Corporation Act worth noting. First, under the revision there is power to name committees unless the articles or bylaws provide to the contrary. This is a switch in presumptions; under prior law, you needed an enabling provision in the articles or bylaws to appoint a board committee. The second
change is that under prior law you could have a one-director committee; under the revision, you need a minimum of two members. The rest of this section carries through the substance of prior law.
DERIVATION: 1984 Model Act Section 8.25.
Article 3
Standards of Conduct
Sec.
33-8-300. General standards for directors.
33-8-310.Director or officer conflict of interest.
33-8-320. Loans to directors.
33-8-330. Liability for unlawful distributions.
  Section 33-8-300. General standards for directors.
  (a) A director shall discharge his duties as a director, including his duties as a member of a committee:
    (1) in good faith;
    (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
    (3) in a manner he reasonably believes to be in the best interests of the corporation and its shareholders.
  (b) In discharging his duties a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    (1) one or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;
    (2) legal counsel, public accountants, or other persons as to matters the director reasonably believes are within the person's professional or expert competence; or
    (3) a committee of the board of directors of which he is not a member if the director reasonably believes the committee merits confidence.
  (c) A director is not acting in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) unwarranted.
  (d) A director is not liable for any action taken as a director, or any failure to take any action, if he performed the duties of his office in compliance with this section.
  (e) An action against a director for failure to perform the duties imposed by this section must be commenced within three years after the cause of action has accrued, or within two years after the time when the cause of action is discovered, or should reasonably have been discovered, whichever sooner occurs. This limitations period does not apply to breaches of duty which have been concealed fraudulently.
CROSS REFERENCES
Committees of board of directors, see Section
  33-8-250.
Conflict of interest, see 33-8-310.
Derivative proceedings, see Section 33-7-400.
Duty of board of directors, see Section 33-8-101.
Indemnification, see Sections 33-8-500 through
  33-8-580.
Loans to directors, see Section 33-8-320.
Meetings of board of directors, see Sections
  33-8-200 and 33-8-210.
Officer standards of conduct, see Section
  33-8-420.
Officers, see Sections 33-8-400 and 33-8-410.
Quorum of directors, see Section 33-8-240.
Removal of directors, see Sections 33-8-108 and
  33-8-109.
Unlawful distributions, see Section 33-8-330.
OFFICIAL COMMENT
  Section 8.30 (Section 33-8-300) defines the general standard of conduct for directors. It sets forth the standard by focusing on the manner in which the director performs his duties, not the correctness of his decisions. Section 8.30(a) (Section 33-8-300(a)) thus requires a director to perform his duties in good faith, with the care of an ordinarily prudent person in a like position and in a manner he believes to be in the best interests of the corporation. This standard is based on former section 35 of the 1969 Model Act, a number of state statutes and on judicial formulations of the duty of care applicable to directors. Section 8.30 also parallels, to the extent possible, the indemnification provisions of sections 8.50 through 8.58 (Section 33-8-500 through 33-8-580).
  In determining whether to impose liability, the courts recognize that boards of directors and corporate managers continuously make decisions that involve the balancing of risks and benefits for the enterprise. Although some decisions turn out to be unwise or the result of a mistake of judgment, it is unreasonable to reexamine these decisions with the benefit of hindsight. Therefore, a director is not liable for injury or damage caused by his decision, no matter how unwise or mistaken it may turn out to be, if in performing his duties he met the requirements of section 8.30 (Section 33-8-300).
  Even before statutory formulations of directors' duty of care, courts sometimes invoked the business judgment rule in determining whether to impose liability in a particular case. In doing so, courts have
sometimes used language similar to the standards set forth in section 8.30(a) (Section 33-8-300(a)). The elements of the business judgment rule and the circumstances for its application are continuing to be developed by the courts. In view of that continuing judicial development, section 8.30 (Section 33-8-300) does not try to codify the business judgment rule or to delineate the differences, if any, between that rule and the standards of director conduct set forth in this section. That is a task left to the courts and possibly to later revisions of this Model Act.
  Section 8.30 (Section 33-8-300) should be read in light of the basic duty of directors set forth in section 8.01(b) (Section 33-8-101(b)) that the "business and affairs of a corporation [shall be] managed under the direction of" the board. Since the board may delegate or assign to appropriate officers of the corporation the authority or duty to exercise powers that section 8.01 does not require the board to retain, directors are not personally responsible under section 8.30 (Section 33-8-300) for actions or omissions of officers, employees, or agents of the corporation so long as the directors, complying with the standard of care set forth in section 8.30 (Section 33-8-300), have acted reasonably in delegating responsibility.
1. Section 8.30(a) (Section 33-8-300(a))
  Section 8.30(a) (Section 33-8-300(a)) establishes a general standard of care for all directors. It requires a director to exercise "the care an ordinarily prudent person in a like position would exercise." Some state statutes use the words "diligence," "care," and "skill" to define this duty, e.g., N.C. GEN. STAT. ANN. Section 55-35 (1975). There is very little authority as to what "skill" and "diligence," as distinguished from "care," can be required or
properly expected of corporate directors in the performance of their duties. "Skill," in the sense of technical competence in a particular field, should not be a qualification for the office of director. The concept of "diligence" is sufficiently subsumed within the concept of "care." Accordingly, the words "diligence" and "skill" were omitted from the standard adopted.
  Likewise, section 8.30 (Section 33-8-300) does not use the term "fiduciary" in the standard for directors' conduct, because that term could be confused with the unique attributes and obligations of a fiduciary imposed by the law of trusts, some of which are not appropriate for directors of a corporation.
  Several of the phrases chosen to define the general standard of care in section 8.30(a) (Section 33-8-300(a)) deserve specific mention:
(1)The reference to "ordinarily prudent person" embodies long traditions of the common law, in contrast to suggested standards that might call for some undefined degree of expertise, like "ordinarily prudent businessman." The phrase recognizes the need for innovation, essential to profit orientation, and focuses on the basic director attributes of common sense, practical wisdom, and informed judgment.
(2)The phrase "in a like position" recognizes that the "care" under consideration is that which would be used by the "ordinarily prudent person" if he were a director of the particular corporation.
(3)The combined phrase "in a like position
. . .under similar circumstances" is intended to recognize that (a) the nature and extent of responsibilities will vary, depending upon such factors as the size, complexity, urgency, and location of activities carried on by the particular corporation, (b) decisions must be made on the basis of the information known to the
directors without the benefit of the hindsight, and (c) the special background, qualifications, and management responsibilities of a particular director may be relevant in evaluating his compliance with the standard of care. Even though the quoted phrase takes into account the special background, qualifications and management responsibilities of a particular director, it does not excuse a director lacking business experience or particular expertise from exercising the common sense, practical wisdom, and informed judgment of an "ordinarily prudent person."
  The process by which a director informs himself will vary but the duty of care requires every director to take steps to become informed about the background facts and circumstances before taking action on the matter at hand. In relying upon the performance by management of delegated or assigned duties pursuant to section 8.01 (Section 33-8-101) (including, for example, matters of law and legal compliance), the director may depend upon the presumption of regularity, absent knowledge or notice to the contrary. A director may also rely on information, opinions, reports, and statements prepared or presented by others as set forth in section 8.30(b) (Section 33-8-300(b)). Furthermore, a director should not be expected to anticipate the problems which the corporation may face except in those circumstances where something has occurred to make it obvious to the director that the corporation should be addressing a particular problem.
2. Section 8.30(b) (Section 33-8-300(b))
  A director complying with the standards expressed in section 8.30(a) (Section 33-8-30(a)) is entitled to rely upon information, opinions, reports or statements, including financial statements and other
financial data, prepared or presented by the persons or committees described in section 8.30(b) (Section 33-8-300(b)). The right to rely under this section applies to the entire range of matters for which the board of directors is responsible. Under section 8.30(c) (Section 33-8-300(c)), however, a director so relying must be without knowledge concerning the matter in question that would cause his reliance to be unwarranted. Also inherent in the concept of good faith is the requirement that, in order to be entitled to rely on a report, statement, opinion, or other matter, the director must have read the report or statement in question, or have been present at a meeting at which it was orally presented, or have taken other steps to become generally familiar with its contents. In short, the director must comply with the general standard of care of section 8.30(a) (Section 33-8-300(a)) in making a judgment as to the reliability and competence of the source of information upon which he proposes to rely.
  Section 8.30(b) (Section 33-8-300(b)) permits reliance upon outside advisers, including not only those in the professional disciplines customarily supervised by state authorities, such as lawyers, accountants, and engineers, but also those in other fields involving special experience and skills, such as investment bankers, geologists, management consultants, actuaries, and real estate appraisers. The concept of "expert competence" in section 8.30(b)(2) (Section 33-8-300(b)(2)) embraces a wide variety of qualifications and is not limited to the more precise and narrower recognition of experts under the Securities Act of 1933. In this respect, section 8.30(b) goes beyond any existing state business corporation act, although several state statutes permit reliance on reports of appraisers selected with reasonable care by the board of directors and
deal with the scope and nature of corporate reports and records generally.
  Section 8.30(b) (Section 33-8-300(b)) permits reliance upon a committee of the board of directors when performing a supervisory or other functions in instances where neither the full board of directors nor the committee takes dispositive action. For example, there may be reliance upon an investigation undertaken by a board committee and reported to the full board of directors, which forms the basis for action by the board of directors itself. Another example is reliance upon a committee of the board of directors, such as a corporate audit committee, with respect to the ongoing role of oversight of the accounting and auditing functions of the corporation. In addition, where reliance upon information or materials prepared or presented by a board committee is not involved, a director may properly rely on dispositive action by a board committee (of which he is not a member) empowered to act pursuant to authority delegated under section 8.25 (Section 33-8-250) or acting with the acquiescence of the board of directors. In this connection, see the Official Comment to section 8.25 (Section 33-8-250). A director may similarly rely on committees not created under section 8.25 (Section 33-8-250) which have non-director members.
  In conditioning reliance upon reasonable belief that the board committee merits the director's "confidence," section 8.30(b)(3) (Section 33-8-300(b)(3)) recognizes a difference between a board committee and an expert. In sections 8.30(b)(1) and (2) (Sections 33-8-300(b)(1) and (2)), the reference is to "competence of an expert," which recognizes the expectation of experience and in most instances technical skills on the part of those upon whom the director may rely. In section 8.30(b)(3) (Section 33-8-300(b)(3)), the concept of
"confidence" is substituted for "competence" in order to avoid any inference that technical skills are a prerequisite.
  By identifying those upon whom a director may rely in discharging his duties, section 8.30(b) (Section 33-8-300(b)) does not limit the ability of directors to delegate their powers under section 8.01(a) to committees of the board of directors or officers of the corporation, except where this delegation is expressly prohibited by the Act. Delegation should be carried out in accordance with the standards set forth in section 8.30(a) (Section 33-8-300(a)). See also section 8.25 and its Official Comment with respect to delegation to committees.
3. Section 8.30(c) (Section 33-8-300(c))
  Section 8.30(c) (Section 33-8-300(c)) expressly prevents a director from "hiding his head in the sand" and relying on information, opinions, reports, or statements when he has actual knowledge which makes reliance unwarranted.
4. Section 8.30(d) (Section 33-8-300(d))
  Section 8.30(d) (Section 33-8-300(d)) follows former section 35 of the Model Act, which provided that: "An individual who performs the duties of his office in accordance with this section is not liable for serving or having served as a director." Thus, both former section 35 and current section 8.30(d) (Section 33-8-300(d)) are self-executing, and the individual director's exoneration from liability is automatic. If compliance with the standard of conduct set forth in former section 35 or section 8.30 (Section 33-8-300) is established, there is no need to consider possible application of the business judgment rule. The possible application of the business judgment rule need only be considered if compliance with the standard of conduct set forth in former
section 35 or section 8.30 (Section 33-8-300) is not established.
  Section 8.30(d) (Section 33-8-300(d)) makes clear that the section will apply whether or not affirmative action was in fact taken. If the board of directors or a committee considers an issue (such as a recommendation of independent auditors concerning the corporation's internal accounting controls) and determines not to take action, the determination not to act is protected by section 8.30 (Section 33-8-300). Similarly, if the board of directors or committee delegates responsibility for handling a matter to subordinates, the delegation constitutes "action" under section 8.30 (Section 33-8-300). Section 8.30(d) (Section 33-8-300(d)) applies (assuming its requirements are satisfied) to any conscious consideration of matters involving the affairs of the corporation. It also applies to the determination by the board of directors of which matters to address and which not to address. Section 8.30(d) (Section 33-8-300(d)) does not apply only when the director has failed to consider taking action which under the circumstances he is obliged to consider taking.
5. Application to Officers
  Section 8.30 (Section 33-8-300) generally deals only with directors. Section 8.42 (Section 33-8-420) and its Official Comment explain the extent to which the provisions of section 8.30 (Section 33-8-300) apply to officers.
SOUTH CAROLINA REPORTERS' COMMENTS
  There are three main differences between the Official Text of the Model Act and Section 33-13-150 of the 1981 South Carolina Business Corporation Act. The first change concerns format. The Model Act separates the standards for directors and officers into two sections,
Sections 33-8-300 and 33-8-420. Under prior law, directors' and officers' duties were treated in one section. The Model Act format is adopted by this act.
  The second difference is that under the Model Act, the duties owed run only to the benefit of the corporation, whereas under the 1981 South Carolina Business Corporation Act as well as the 1962 Business Corporation Act the duty has run to the corporation and its shareholders. Shareholders have been express statutory beneficiaries of duties owed by corporate insiders. According to South Carolina Business Corporation Act 131 (Annot. ed. 1964):
  "Section 73 of the Amendments Act of 1963 made an extremely important addition to [Section 12-18-15, which became Section 33-13-150], by adding after the phrase 'with a view to the interests of the corporation' the words 'and of the shareholders.' The purpose here is to make clear that the fiduciary duty of directors runs to the shareholders, and prevents them from making use of their favored position to take advantage of shareholder interests. The phrase codifies existing South Carolina law. . . . The phrase was added to avoid any implication that the wording of Section 12-18-15 might exclude, or overrule, the duty owing under the common law to shareholders."
More legislative history regarding the addition to Section 12-18-15 is found in Folk, "The South Carolina Corporation Law: Reconsiderations and Prospects", 15 S.C.L. Rev. 467, 479 (1963):
  "Section 8.15 declares a standard of duty of directors and officers, but as presently worded makes that duty run only to the corporation. There may be a negative inference that directors owe no duties to shareholders as such. But this is contrary to established law on the fiduciary
duty of directors. . . . Even assuming that the courts of this State would not infer any purpose to reduce the customary scope of director duties, it would be necessary to examine the case law to find the principle established. The object of section 8.15 is to codify director duties so that one knows of their existence from the face of the statute. Accordingly, to clarify and relieve uncertainty in an important area, the Technical Amendments Bill proposes that director duties extend to 'the corporation' and to 'the shareholders'."
  As the foregoing authorities suggest, the underlying principle of shareholders being express beneficiaries of fiduciary duties predates the technical amendment made in 1963. South Carolina case law since Black v. Simpson, 94 S.C. 312, 77 S.E. 1023 (1913), has firmly embraced the notion that officers and directors owe duties to shareholders as well as the entity. The principle has been applied in insider trading cases (see Jacobson v. Yaschik, 249 S.C. 577, 584, 155 S.E.2d 601, 605 (1967)) and squeeze-out cases (see Dibble v. Sumter Ice & Fuel Co., 283 S.C. 278, 322 S.E.2d 674 (1984)).
  In 1981, the Model Act's articulation of duties owed was adopted verbatim with the exception that the established principle that shareholders of South Carolina corporations are express statutory beneficiaries of duties owed was retained. The Reporter's Comments generated in connection with the 1981 revision show that the drafters expressly intended to retain the language brought in by the 1963 amendment mentioned above. See South Carolina Business Corporation Act of 1962 -- Suggestions for Revision 241 (Nov. 1979).
  The substance of the current Model Act provision has not changed since it was last reviewed at the time of the 1981 amendments.
  Basically, the drafters of the current revision faced three alternatives: follow the Model Act entirely; continue the pattern of following the Model Act but with added express recognition of the legal principle that duties run to shareholders; or opt for a very pro-insider statute along the lines recently adopted by Delaware. The Delaware formulation, in certain cases, allows elimination or limitation on a director's liability for money damages for negligent or reckless misconduct. See Del. Senate Bill 533, amending sec. 102, title 8, Delaware Code to add new subsection (7), effective July 1, 1986.
  The decision of whether to adhere strictly to the Model Act, to maintain the status quo in this State, or to opt for the Delaware approach (or one even more liberal) raised philosophical points. Basically, there was some sentiment in favor of laxity and some in favor of rigor, some sentiment in favor of express articulation that duties are owed to shareholders and some in favor of silence. A major concern on the part of those wishing to eliminate the mention of a duty owed was their perception that it is difficult to find good people to serve as directors, and eliminating mention of the duty will help encourage good people to serve on boards. One concern of proponents of the status quo is that dropping from the statute a duty that previously existed can hardly be taken as anything different than a repudiation of prior law. It would be strange intentionally to change the text of the statute and then claim in the Reporters' Comments that the text change was without any purpose.
  After detailed discussion and analysis, the decision was made to retain mention in this provision of a direct duty owed to shareholders. In addition, as the result of an amendment initiated in the South Carolina House of Representatives and revised by the Senate,
certain large corporations (those with gross assets of twenty-five million dollars or more, or that have five hundred or more shareholders, or that are Section 12(g) reporting companies under the Securities Exchange Act of 1934) can include in their articles of incorporation a provision exempting directors from liability for simple negligence in some kinds of damage suits against the directors brought by one or more shareholders of the corporation. (This statute, which is a modification of the Delaware statute referred to above, is discussed in more detail in the South Carolina Reporters' Comments to Section 33-2-102 of this act.)
  The third difference between prior law and the Model Act section is that the South Carolina statute, since the enactment of the 1981 South Carolina Business Corporation Act, has had a special statute of limitations found in Section 33-13-150(d). As enacted it cut off suits based on violations of the statute unless brought:
"within three (3) years after the cause of action has accrued, or within two years after the time when the cause of action is discovered, or should reasonably have been discovered, whichever sooner occurs."
Note that under the statute, the plaintiff's right to bring a cause of action which had been concealed, and could never have been reasonably discovered, lapsed after three years. There was no provision for tolling based on fraudulent concealment. Arguably, the statute would reward fraudulent concealment of a wrong. The statute was flawed. If the statute rewarded fraudulent concealment by corporate fiduciaries, it was bad policy; if it was intended not to apply in cases of fraudulent concealment, it was poorly drafted.
  The leading proponents of adding the statute of limitations to the Model Act section were also the leading proponents for elimination of
the duty to shareholders on the theory that it was better to have the Model Act unsullied by local law.
  There was a general willingness to import a specific limitations period into the statute defining duties owed. This was accomplished by adding to the Model Act provision a new subsection (e) which reads the same as Section 33-13-150(d) of the prior law, but with this limitation added at the end: "This limitations period does not apply to breaches of duty which have been concealed fraudulently." The advantage of the short limitations period set forth in subsection (e) is not available to fiduciaries who fraudulently conceal their wrongdoing.
DERIVATION: 1984 Model Act Section 8.30.
  Section 33-8-310. Director conflict of interest.
  (a) A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict of interest transaction is not voidable by the corporation solely because of the director's interest in the transaction if any one of the following is true:
    (1) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors or a committee authorized, approved, or ratified the transaction;
    (2) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and they authorized, approved, or ratified the transaction; or
    (3) the transaction was fair to the corporation.
  If (1) or (2) has been accomplished, the burden of proving unfairness of any transaction
covered by this section is on the party claiming unfairness. If neither (1) nor (2) has been accomplished, the party seeking to uphold the transaction has the burden of proving fairness.
  (b) For purposes of this section, a director of the corporation has an indirect interest in a transaction if (1) another entity in which he has a material financial interest or in which he is a general partner is a party to the transaction or (2) another entity of which he is a director, officer, or trustee is a party to the transaction and the transaction is or should be considered by the board of directors of the corporation.
  (c) For purposes of subsection (a)(1), a conflict of interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the directors on the board of directors (or on the committee) who have no direct or indirect interest in the transaction, but a transaction may not be authorized, approved, or ratified under this section by a single director. If a majority of the directors who have no direct or indirect interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action under this section. The presence of, or a vote cast by, a director with a direct or indirect interest in the transaction does not affect the validity of any action taken under subsection (a)(1) if the transaction is otherwise authorized, approved, or ratified as provided in that subsection.
  (d) For purposes of subsection (a)(2), a conflict of interest transaction is authorized, approved, or ratified if it receives the vote of a majority of the shares entitled to be counted under this subsection. Shares owned by or voted under the control of a director who has a direct or indirect interest in the transaction, and shares owned by or voted under the control of an
entity described in subsection (b)(1), may not be counted in a vote of shareholders to determine whether to authorize, approve, or ratify a conflict of interest transaction under subsection (a)(2). The vote of those shares, however, is counted in determining whether the transaction is approved under other sections of this act. A majority of the shares, whether or not present, that are entitled to be counted in a vote on the transaction under this subsection constitutes a quorum for the purpose of taking action under this section.
CROSS REFERENCES
Committees of board of directors, see Section
  33-8-250.
"Entity" defined, see Section 33-1-400.
Indemnification, see Sections 33-8-500 through
  33-8-580.
Loans to directors, see Section 33-8-320.
"Proceeding" defined, see Section 33-1-400.
Quorum and voting:
  by directors, see Section 33-8-240.
  by shareholders, see Sections 33-7-250
    through 33-7-270.
Standards of conduct:
  directors, see Section 33-8-300.
  officers, see Section 33-8-420.
Vote needed to approve transactions by
  shareholders:
  amendment to articles of incorporation, see
    Section 33-10-103.
  generally, see Sections 33-7-250 and 33-7-260.
  mergers and share exchanges, see Section
    33-11-103.
  sale of assets, see Section 33-12-102.
OFFICIAL COMMENT
  Historically, the scope of a director's duty of loyalty to a corporation has been defined by
judicial decision rather than by statute. The courts have developed and refined this duty based on increasing sophistication and experience with the corporate form, and the need to encourage honest decisions by directors and to discourage direct or indirect devices by which directors may benefit personally at the expense of creditors or shareholders. Over the years, courts have been vigilant to subject novel transactions and devices to scrutiny.
  Sections 8.31 and 8.32 (Sections 33-8-310 and 33-8-320) deal with various facets of the duty of loyalty. The Model Act, however, does not attempt to define the full range of this duty. Indeed, any such attempt would probably be self-defeating since the language chosen might be used to limit prematurely the standards under which directors should act.
1.Conflict of Interest Transactions in General
  Section 8.31 (Section 33-8-310) deals only with "conflict of interest" transactions by a director with the corporation, that is, transactions in which the director has an interest either (1) directly or (2) indirectly through an entity in which the director has a financial or managerial interest covered by section 8.31(b) (Section 33-8-310(b)). A conflict of interest transaction
does not include transactions in which the director participates in the transaction only as a shareholder and receives only a proportionate share of the advantage or benefit of the transaction. Section 8.31 (Section 33-8-310) deals only with conflict of interest transactions involving directors, it does not address analogous transactions entered into by officers, employees, or substantial or dominating shareholders unless they are also directors.
  Section 8.31 (Section 33-8-310) rejects the common law view that all conflict of interest
transactions entered into by directors are automatically voidable at the option of the corporation without regard to the fairness of the transaction or the manner in which the transaction was approved by the corporation. Section 8.31(a) (Section 33-8-310(a)) makes any automatic rule of voidability inapplicable to transactions that are fair or that have been approved by directors or shareholders in the manner provided by the balance of section 8.31 (Section 33-8-310). The approval mechanisms set forth in sections 8.31(c) and (d) (Section 33-8-310(c) and (d)) relate only to the elimination of this automatic rule of voidability and do not address the manner in which the transactions must be approved under other sections of this Act. This is made clear by the express limitations in sections 8.31(c) and (d) (Section 33-8-310(c) and (d)) that they are applicable only "for the purposes of this section" as well as the language of the second and third sentences of section 8.31(d) (Section 33-8-310(d)).
  The elimination of the automatic rule of voidability does not mean that all transactions that meet one or more of the tests set forth in section 8.31(a) (Section 33-8-310(a)) are automatically valid. These transactions may be subject to attack on a variety of grounds independent of section 8.31 (Section 33-8-310) -- for example, that the transaction constituted waste, that it was not authorized by the appropriate corporate body, that it violated other sections of the Model Business Corporation Act, or that it was unenforceable under other common law principles. The sole purpose of section 8.31 is to sharply limit the common law principle of automatic voidability and in this respect, section 8.31 (Section 33-8-310) follows earlier versions of the Model Act and the statutes of many states dealing with conflict of interest transactions.
2.Requirements for Approval of Conflict of Interest Transactions
  Sections 8.31(c) and (d) (Sections 33-8-310(c) and (d)) provide special rules for determining whether the board of directors (or a committee thereof) or the shareholders have authorized, approved, or ratified a conflict of interest transaction so as to bring subsections (a)(1) or (a)(2) into play. Basically, these subsections require the transaction in question to be approved by an absolute majority of the directors (on the board of directors, or on the committee, as the case may be) or shares whose votes may be counted in determining whether the transaction should be authorized, approved, or ratified. If these votes are not obtained, the transaction is tested under the fairness test of subsection (a)(3). The vote required for authorization, approval, or ratification of a conflict of interest transaction is more onerous than the standard applicable to normal voting requirements for approval of corporate actions -- i.e., that a quorum be present and only the votes of directors or shares present or represented at that meeting be considered -- because of the importance of assuring that conflict of interest transactions receive as broad consideration within the corporation as possible if independent review on the basis of fairness is to be avoided.
  a. Consideration by the directors
  Section 8.31(c) (Section 33-8-310(c)) provides that if a conflict of interest transaction is to be considered by the board of directors or a committee of the board, only the votes of directors "who have no direct or indirect interest in the transaction" may be counted in determining whether to authorize, approve, or ratify the transaction. A vote mistakenly cast by an interested director, however, does not affect the validity of the authorization,
approval, or ratification by a committee or by the board of directors under section 8.31 (Section 33-8-310) if it otherwise meets the requirement of this subsection. The presence of the interested director at the meeting similarly does not affect the validity of the action by the disinterested directors. Because of the voting disqualification of interested directors, section 8.31(c) (Section 33-8-310(c)) provides that a majority of the disinterested directors on the committee or on the board of directors, as the case may be, constitute a quorum for purposes of authorizing, approving, or ratifying the conflict of interest transaction under section 8.31 (Section 33-8-310), subject always, however, to the requirement that more than one director must approve the transaction. This two director minimum is applicable to a committee of the board of directors as well as the board of directors itself.
  b. Consideration by the shareholders
  When a director's conflict of interest transaction is considered by the shareholders, section 8.31(d) (Section 33-8-310(d)) applies a similar but somewhat more complex prohibition: votes by shares "owned by or voted under the control of a director who has a direct or indirect interest in the transaction" and votes by shares "owned or voted under the control of an entity described in subsection (b)(1)" -- that is, an entity in which the director has a material financial interest or is a general partner -- may not be counted. This prohibition is based on the belief that the same considerations that prevent votes cast by interested directors from being counted in favor of a conflict of interest transaction also compel the conclusion that votes cast by shares owned or controlled by them, or by entities involved in the transaction in which they have a material financial interest, should also not be
counted when the issue is the authorization, approval, or ratification of a conflict of interest transaction under section 8.31 (Section 33-8-310). A similar prohibition does not appear in section 41 of the 1969 Model Act.
  In some situations, the prohibition of section 8.31(d) (Section 33-8-310(d)) will result in the conflict of interest issue being resolved by a majority of a minority of the shares. This will occur, for example, whenever a director who is the majority shareholder of the corporation is interested in a transaction. The vote on the conflict of interest issue under section 8.31 (Section 33-8-310), however, must be distinguished from the vote on the approval of the transaction itself under other sections of the Model Act, in which there is no prohibition against the voting of shares owned or controlled by an interested director. For example, if a parent corporation wishes to merge its 60-percent-owned subsidiary into itself, and the majority shareholder of the parent is a director of the subsidiary, the votes of the shares owned by the parent corporation may not be counted under section 8.31(d) (Section 33-8-310(d)) (since the shares are owned by an entity which is a party to the transaction and which the director controls). The shares nevertheless may be voted on the merger proposal itself under chapter 11 of the Model Act and the merger will, of course, normally be approved solely by the vote of the shares owned by the parent corporation. On the other hand, the test of section 8.31(a)(2) (Section 33-8-310(a)(2)) is not met unless the transaction is approved by at least a majority of the votes cast by the holders of the 40 percent of the shares not owned by the parent corporation. If this requirement is not met, the transaction may be evaluated under the fairness test of section 8.31(a)(3) (Section 33-8-310(a)(3)).
3. Indirect Conflicts of Interest
  Section 8.31 (Section 33-8-310) is applicable to "indirect" as well as direct conflicts; "indirect" is defined in section 8.31(b) (Section 33-8-310(b)) to cover transactions between the corporation and an entity in which the director has a material financial interest or is a general partner. Further, section 8.31(b) (Section 33-8-310(b)) covers indirect conflicts where the director is an officer or director of another entity (but does not have a material financial interest in the transaction) if the transaction is of sufficient importance that it is or should be considered by the board of directors of the corporation. The purpose of this last clause is to permit normal business transactions between large business entities that may have a common director to go forward without concern about the technical rules relating to conflict of interest unless the transaction is of such importance that it is or should be considered by the board of directors or the director may be deemed to have a material financial interest in the transaction. Thus, section 8.31 (Section 33-8-310) covers transactions between corporations with interlocking or common directors as well as the direct "interested director" transaction.
4. "Fairness" of a Transaction
  The fairness of a transaction for purposes of section 8.31 (Section 33-8-310) should be evaluated on the basis of the facts and circumstances as they were known or should have been known at the time the transaction was entered into. For example, the terms of a transaction subject to section 8.31 (Section 33-8-310) should normally be deemed "fair" if they are within the range that might have been entered into at arms-length by disinterested persons.
5. An "Interested" Director
  The Model Act does not attempt to define precisely when a director should be viewed as "interested" for purposes of participating in the decision to adopt, approve, or ratify a conflict of interest transaction. Section 8.31(b) (Section 33-8-310(b)) does, however, define one aspect of this concept -- the "indirect" interest. For purposes of section 8.31 (Section 33-8-310) a director should normally be viewed as interested in a transaction if he or the immediate members of his family have a financial interest in the transaction or a relationship with the other parties to the transaction such that the relationship might reasonably be expected to affect his judgment in the particular matter in a manner adverse to the corporation.
SOUTH CAROLINA REPORTERS' COMMENTS
  The Official Text of the Model Act statute omits any specificity on the issues of who has to show what, and when. Language added to Section 33-8-310(a)(3) (the last two sentences) is designed to accomplish this objective. Unlike prior law, the Model Act does not treat interested director contracts differently from interlocking directorate contracts. The Model Act language, which is incorporated into this section, is preferable in this regard.
DERIVATION: 1984 Model Act Section 8.31.
  Section 33-8-320. Loans to directors.
  (a) Except as provided by subsection (c), a corporation may not directly or indirectly lend money to or guarantee the obligation of a director of the corporation unless:
    (1) the particular loan or guarantee is approved by a majority of the votes represented by the outstanding voting shares of all classes,
voting as a single voting group, except the votes of shares owned by or voted under the control of the benefited director; or
    (2) the corporation's board of directors determines that the loan or guarantee benefits the corporation and either approves the specific loan or guarantee or a general plan authorizing loans and guarantees.
  (b) The fact that a loan or guarantee is made in violation of this section does not affect the borrower's liability on the loan.
  (c) This section does not apply to loans and guarantees authorized by statute regulating any special class of corporations.
CROSS REFERENCES
Conflict of interest, see Section 33-8-310.
Director action, see Sections 33-8-200 and
  33-8-210.
Shareholder action, see Sections 33-7-101 through
  33-7-104.
Standards of conduct generally, see Section
  33-8-300.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 8.32 (Section 33-8-320) treats specially a second type of conflict of interest transaction: loans by the corporation to directors (including loans obtained by directors from third persons on the basis of the corporation's credit). Early statutes in many states made all these loans unlawful because they were believed to be inherently subject to abuse; the modern view epitomized by section 8.32 (Section 33-8-320) recognizes that these loans may be proper and desirable in some situations.
  The basic test for validity under section 8.32(a) (Section 33-8-320(a)) is that either (1)
the particular loan is approved by a majority of the shares or by the board of directors after a specific finding that the loan benefits the corporation, or (2) the loan is pursuant to a general plan approved by the board of directors as being of benefit to the corporation. This type of plan will normally cover at least directors, officers, and high-level employees, and possibly lower level employees as well. Examples of these plans are employee benefit plans, plans authorizing loans of petty cash, and advances for expenses reasonably anticipated to be incurred in the performance of the duties of the director, officer, or employee.
  Section 8.32(b) (Section 33-8-320(b)) makes clear that an irregular or improper loan is nevertheless legally enforceable by the corporation against the borrower.
  Section 8.32(c) (Section 33-8-320(c)) provides for an exception for loans by banks, savings and loans, and other lending institutions that are authorized by law to make loans to directors in the ordinary course of business. The protections provided by the statutes applicable to these entities render unnecessary the protections provided by section 8.32 (Section 33-8-320).
SOUTH CAROLINA REPORTERS' COMMENTS
  This section, which incorporates Model Act Section 8.32 waters down prior law in four respects. First, there is no absolute requirement of "adequate security" and a "prevailing" rate of interest as in Section 33-13-170 of the 1981 South Carolina Business Corporation Act. Second, prior law called for both board and shareholder approval of the transaction. The Model Act calls for approval by either. Third, prior law called for coverage of transactions with directors of parents and subsidiaries; the Model Act does not. Fourth,
prior law required that the transaction be made "for the benefit of the corporation"; the Model Act does not.
  To prevent the possibility that directors could avoid the reach of the section by acting through affiliates, the words "directly or indirectly" were added to subsection (a).
DERIVATION: 1984 Model Act Section 8.32.
  Section 33-8-330. Liability for unlawful distributions.
  (a) A director who votes for or assents to a distribution made in violation of Section 33-6-400 or the articles of incorporation is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating Section 33-6-400 or the articles of incorporation if it is established that he did not perform his duties in compliance with Section 33-8-300. In any proceeding commenced under this section, a director has all of the defenses ordinarily available to a director.
  (b) A director held liable under subsection (a) for an unlawful distribution is entitled to contribution:
    (1) from every other director who could be held liable under subsection (a) for the unlawful distribution; and
    (2) from each shareholder for the amount the shareholder accepted knowing the distribution was made in violation of Section 33-6-400 or the articles of incorporation.
CROSS REFERENCES
Director standards of conduct, see Section
  33-8-300.
"Distribution" defined, see Section 33-1-400.
Distributions generally, see Section 33-6-400.
Indemnification, see Sections 33-8-500 through
  33-8-580.
OFFICIAL COMMENT
  Although the revisions to the financial provisions of the Model Act have simplified and rationalized the rules for determining the validity of distributions (see section 6.40 (Section 33-6-400)), the possibility remains that a distribution may be made in violation of these rules. Section 8.33 (Section 33-8-330) provides that directors who fail to meet the standards of conduct of section 8.30 (Section 33-8-300) and vote for or assent to an unlawful distribution are personally liable for the portion of the distribution that exceeds the maximum amount that could have been lawfully distributed. A director who is compelled to restore that amount to the corporation is entitled to contribution from every other director who voted for or assented to the distribution. In addition, the director may also recover any amounts paid to shareholders who accepted the payments knowing that they were in violation of the statute. A shareholder who receives a payment not knowing of its invalidity is entitled to retain it. Although no attempt has been made to work out in detail in the Model Act the relationship between this right of recoupment from shareholders and the right of contribution from assenting directors, it is expected that a court will equitably apportion the obligations and benefits arising from the application of the principles set forth in this section.
SOUTH CAROLINA REPORTERS' COMMENTS
  Under Section 33-6-400, distributions are lawful if they are based on accountings or appraisals that are "reasonable in the
circumstances." Section 33-8-330 is designed to allow a director who approves distributions based upon unreasonable accountings or appraisals to escape liability if he meets the standard of Section 33-8-300. Presumably, this will occur only where the faulty advice of a professional (such as an accountant or appraiser) is relied on by the board and where such reliance is reasonable under the circumstances. Section 33-8-330 really is unnecessary except that it serves as a signpost pointing to the standards of Section 33-8-300. It is a vestigial remain of a bygone era when directors faced virtually strict liability if they approved illegal distributions.
DERIVATION: 1984 Model Act Section 8.33.
Article 4
Officers
Sec.
33-8-400. Required officers.
33-8-410. Duties of officers.
33-8-420. Standards of conduct for officers.
33-8-430. Resignation and removal of officers.
33-8-440. Contract rights of officers.
  Section 33-8-400. Required officers.
  (a) A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.
  (b) A duly appointed officer may appoint one or more officers or assistant officers if authorized by the bylaws or the board of directors.
  (c) The bylaws or the board of directors shall delegate to one of the officers responsibility for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation.
  (d) The same individual may hold more than one office in a corporation simultaneously.
CROSS REFERENCES
Agents of corporation, see Section 33-3-102.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
Contract rights of officers, see Section
  33-8-440.
Duties of officers, see Section 33-8-410.
Officer as employee of corporation, see Section
  33-1-400.
Officer standards of conduct, see Section
  33-8-420.
Removal of officers, see Section 33-8-430.
"Secretary" defined, see Section 33-1-400.
Tenure of officers, see Section 33-8-440.
OFFICIAL COMMENT
  Section 8.40 (Section 33-8-400) permits every corporation to designate the officers it wants. The designation may be made in the bylaws or by the board of directors consistent with the bylaws. This is a departure from earlier versions of the Model Act and most state corporation acts, which require certain officers, usually the president, the secretary, and the treasurer, and generally authorize the corporation to designate additional or assistant officers. Experience has shown, however, that little purpose is served by a statutory requirement that there be certain officers, and statutory requirements may sometimes create problems of implied or apparent authority or confusion with nonstatutory offices the corporation desires to create.
  The board of directors may appoint assistant officers pursuant to its general powers under section 8.40(a) (Section 33-8-400(a)); duly appointed officers may also appoint assistant
officers if authorized by the board under section 8.40(b) (Section 33-8-400(b)).
  Throughout the Model Act, the act of a board designating an officer is referred to as an "appointment" rather than an "election." The Act also consistently uses the word "elect" when referring to the selection of directors, thus emphasizing the difference in the section process.
  The board of directors, as well as duly appointed corporate officers or other agents, may also appoint agents from the corporation.
  The bylaws or the board of directors must also delegate to an officer the responsibility to prepare minutes and authenticate records of the corporation; the person performing this function is referred to as the "secretary" of the corporation throughout the Model Act. See section 1.40 (Section 33-1-400). Under this act a corporation may have this and all other corporate functions performed by a single individual.
  This person who is designated by the bylaws or the board as responsible for maintaining minutes of meetings and authenticating records of the corporation thereby has authority to bind the corporation by his authentication under this section. This delegation of authority, traditionally vested in the corporate "secretary," allows third persons to rely on authenticated records without inquiring into their truth or accuracy.
SOUTH CAROLINA REPORTERS' COMMENTS
  This section makes an obvious change, explained in the Official Comment, from the tradition of requiring a president, vice-president, secretary, and treasurer.
DERIVATION: 1984 Model Act Section 8.40.
  Section 33-8-410. Duties of officers.
  Each officer has the authority and shall perform the duties set forth in the bylaws or, to the extent consistent with the bylaws, the duties prescribed by the board of directors or by direction of an officer authorized by the board of directors to prescribe the duties of other officers.
CROSS REFERENCES
Assistant officers, see Section 33-8-400.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
Officer as employee, see Section 33-1-400.
Secretary, see Section 33-1-400.
Standards of conduct:
    directors, see Section 33-8-300.
    officers, see Section 33-8-420.
OFFICIAL COMMENT
  Section 8.41 (Section 33-8-410) recognizes that persons designated as officers have the formal authority set forth for that position (1) by its description in the bylaws, (2) by specific resolution of the board of directors, or (3) by direction of another officer authorized by the board of directors to prescribe the duties of other officers.
  These methods of investing officers with formal authority do not exhaust the sources of an officer's actual or apparent authority. Many cases state that specific corporate officers, particularly the chief executive officer, may have implied authority merely by virtue of their positions. This authority, which may overlap the express authority granted by the bylaws, generally has been viewed as extending only ordinary business transactions, though some
cases have recognized unusually broad implied authority of the chief executive officer or have created a presumption that corporate officers have broad authority, thereby placing on the corporation the burden of showing lack of authority. Corporate officers may also be vested with apparent (or ostensible) authority by reason of corporate conduct on which third persons reasonably rely.
  In addition to express, implied, or apparent authority, a corporation is normally bound by unauthorized acts of officers if they are ratified by the board of directors. Generally, ratification extends only to acts that could have been authorized as an original matter. Ratification may itself be express or implied and may in cases serve as the basis of apparent (or ostensible) authority.
SOUTH CAROLINA REPORTERS' COMMENTS
  No change in the prior law is made by this section.
DERIVATION: 1984 Model Act Section 8.41.
  Section 33-8-420. Standards of conduct for officers.
  (a) An officer with discretionary authority shall discharge his duties under that authority:
    (1) in good faith;
    (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
    (3) in a manner he reasonably believes to be in the best interests of the corporation and its shareholders.
  (b) In discharging his duties an officer is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    (1) one or more officers or employees of the corporation whom the officer reasonably believes to be reliable and competent in the matters presented; or
    (2) legal counsel, public accountants, or other persons as to matters the officer reasonably believes are within the person's professional or expert competence.
  (c) An officer is not acting in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) unwarranted.
  (d) An officer is not liable for any action taken as an officer, or any failure to take any action, if he performed the duties of his office in compliance with this section.
  (e) An action against an officer for failure to perform the duties imposed by this section must be commenced within three years after the cause of action has accrued, or within two years after the time when the cause of action is discovered, or should reasonably have been discovered, whichever sooner occurs. This limitations period does not apply to breaches of duty which have been concealed fraudulently.
CROSS REFERENCES
Appointment of officers, see Section 33-8-400.
Director conflict of interest, see Section
  33-8-310.
Director standards of conduct, see Section
  33-8-300.
Duties of officers, see Section 33-8-410.
Indemnification, see Sections 33-8-500 through
  33-8-580.
Removal of officers, see Section 33-8-430.
OFFICIAL COMMENT
  This section provides that a non-director officer with discretionary authority must meet
the same standards of conduct required of directors under section 8.30 (Section 33-8-300). But his ability to rely on information, reports, or statements, may, depending upon the circumstances of the particular case, be more limited than in the case of a director in view of the greater obligation he may have to be familiar with the affairs of the corporation. See section 8.42(b) (Section 33-8-420(b)). Non-director officers with more limited discretionary authority may be judged by a narrower standard, though every corporate officer or agent owes duties of fidelity, honesty, good faith, and fair dealing to the corporation. The Official Comment to section 8.30 (Section 33-8-300) is generally applicable to non-director officers as well as to directors.
SOUTH CAROLINA REPORTERS' COMMENTS
  This section basically applies the standard of Section 33-8-300 to officers. The South Carolina Reporters' Comments to Section 33-8-300 apply.
DERIVATION: 1984 Model Act Section 8.42.
  Section 33-8-430. Resignation and removal of officers.
  (a) An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, its board of directors may fill the pending vacancy before the effective date if the board of directors provides that the successor does not take office until the effective date.
  (b) A board of directors may remove any officer, except an officer elected by the shareholders pursuant to the articles of incorporation, the bylaws, or a shareholder agreement, at any time with or without cause. An officer elected by the shareholders pursuant to the articles of incorporation, the bylaws, or a shareholder agreement may be removed only by the shareholders entitled to elect that officer.
CROSS REFERENCES
Contract rights of officers, see Section
  33-8-440.
"Deliver" includes mail, see Section 33-1-400.
Effective date of notice, see Section 33-1-410.
Notice to the corporation, see Section 33-1-410.
OFFICIAL COMMENT
  Section 8.43(a) (Section 33-8-430(a)) is declaratory of current law. It recognizes that corporate officers may resign, that, with the consent of the board of directors, they may resign effective at a later date, and that the board of directors may fill a future vacancy to become effective as of the effective date of the resignation.
  In part because of the unlimited power of removal, confirmed by section 8.43(b) (Section 33-8-430(b)), a board of directors may grant an officer an employment contract that extends beyond the term of the board of directors. This type of contract is binding on the corporation even if the articles of incorporation or bylaws provide that officers are appointed for a term shorter than the period of the employment contract. If a later board of directors refuses to reappoint that person as an officer, he has the right to sue for damages but not for specific performance of his employment contract.
  Section 8.43(b) (Section 33-8-430(b)) is also declaratory of current law. The tenure of all corporate officers is subject to the will of the board of directors. If the board of directors loses confidence in a corporate officer, that officer may be removed irrespective of contract rights or the presence or absence of "cause" in a legal sense. Section 8.44 (Section 33-8-440) provides that removal of an officer who has contract rights is without prejudice to whatever rights the former officer may assert in a suit for damages for breach of contract.
SOUTH CAROLINA REPORTERS' COMMENTS
  The Official Text of the Model Act eliminated the power of shareholders to protect an officer they appoint from removal by the board contained in Section 33-13-140(a)(1) of the 1981 South Carolina Business Corporation Act. This right was carried forward into this act by adding the second sentence to subsection (b).
DERIVATION: 1984 Model Act Section 8.43.
  Section 33-8-440. Contract rights of officers.
  (a) The appointment of an officer does not itself create contract rights.
  (b) An officer's removal does not affect the officer's contract rights, if any, with the corporation. An officer's resignation does not affect the corporation's contract rights, if any, with the officer.
CROSS REFERENCES
Appointment of officers and assistant officers,
  see Section 33-8-400.
Resignation or removal of officers, see
  Section 33-8-430.
OFFICIAL COMMENT
  Section 8.43 (Section 33-8-430) makes clear that the appointment of an officer does not itself create contract rights in the officer. The removal of an officer with contract rights is without prejudice to his later enforcement of contract rights in a suit for damages for breach of contract. See the Official Comment to section 8.43 (Section 33-8-430).
  Similarly, an officer with an employment contract who prematurely resigns may be in breach of his employment contract. The mere appointment of an officer for a term does not create a contractual obligation on his part to complete the term.
SOUTH CAROLINA REPORTERS' COMMENTS
  No change in the prior law is made by this section.
DERIVATION: 1984 Model Act Section 8.44.
Article 5
Indemnification
Sec.
33-8-500. Article definitions.
33-8-510. Authority to indemnify.
33-8-520. Mandatory indemnification.
33-8-530. Advance for expenses.
33-8-540. Court-ordered indemnification.
33-8-550.Determination and authorization of indemnification.
33-8-560.Indemnification of officers, employees, and agents.
33-8-570. Insurance.
33-8-580. Application of article.
  Section 33-8-500. Article definitions.
  In this subchapter:
  (1) 'Corporation' includes any domestic or foreign predecessor entity of a corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction.
  (2) 'Director' means an individual who is or was a director of a corporation or an individual who, while a director of a corporation, is or was serving at the corporation's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director is considered to be serving an employee benefit plan at the corporation's request if his duties to the corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. 'Director' includes, unless the context requires otherwise, the estate or personal representative of a director.
  (3) 'Expenses' include counsel fees.
  (4) 'Liability' means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding.
  (5) 'Official capacity' means: (i) when used with respect to a director, the office of director in a corporation; and (ii) when used with respect to an individual other than a director, as contemplated in Section 33-8-560, the office in a corporation held by the officer, or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation. 'Official capacity' does not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise.
  (6) 'Party' includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding.
  (7) 'Proceeding' means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal.
CROSS REFERENCES
Act definitions, see Section 33-1-400.
Witness indemnification, see Section 33-8-580.
OFFICIAL COMMENT
  The definitions set forth in section 8.50 (Section 33-8-500) apply only to subchapter E (Article 5 of Chapter 8 of Title 33) and have no application elsewhere in the Model Act.
1. CORPORATION
  A special definition of "corporation" is included in subchapter E to make it clear that predecessor entities that have been absorbed in mergers or other transactions are included within the definition. It is probable that the same result would be reached for many transactions under section 11.06 (Section 33-11-106) (effect of merger or share exchange), which provides for the assumption of liabilities by operation of law upon a merger. The express responsibility of successor entities for the liabilities of their predecessors under this subchapter is broader than under section 11.06 (Section 33-11-106) and may impose liability on a successor although section 11.06 (Section 33-11-106) does not. Section 8.50(1) (Section 33-8-500(1)) is thus an essential aspect of the protection provided by this subchapter for persons eligible for indemnification.
2. DIRECTOR
  A special definition of "director" is included in Article 5 to make it clear that a person who is or was a director is covered by this subchapter while serving at the corporation's request in another enterprise. The purpose of this definition is to give directors the benefits of the protection of this subchapter while serving at the corporation's request in a responsible position in employee benefit plans, trade associations, nonprofit or charitable entities, foreign or domestic entities, and other kinds of profit or nonprofit ventures. A director serving at the corporation's request in such a venture is viewed as acting as a director of the corporation for purposes of this subchapter even though he is also acting in some other capacity in the other venture.
  The second sentence of section 8.50(2) (Section 33-8-500(2)) addresses the question of liabilities arising under the Employee Retirement Income Security Act (ERISA). It makes clear that a director who is serving as a fiduciary of an employee benefit plan is nevertheless viewed as acting as a director for purposes of this subchapter. Special treatment is felt to be necessary because of the broad definition of "fiduciary" in section 3(21) of ERISA, 29 U.S.C. Section 1002(21) (1974), and the requirement of section 404 (Section 1104(a)) that a "fiduciary" must discharge his duties "solely in the interest" of the participants and beneficiaries of the employee benefit plan. Decisions by a director serving as a fiduciary under the plan on questions regarding eligibility for benefits, investment decisions, and interpretation of plan provisions regarding qualifying service, years of service, and retroactivity are all subject to the protections of this subchapter. See also sections 8.50(4) and 8.51(b) (Sections 33-8-500(4) and 33-8-510(b)) of this subchapter. Similar
provisions appear in the business corporation acts of New York, N.Y. BUS. CORP. LAW ANN. Section 723 (McKinney 1983), and Connecticut, CONN. GEN. STAT. ANN. Section 33-320a (West Supp. 1981).
  The estate or personal representative of a director is entitled to the rights of indemnification possessed by the director himself. See the last sentence of section 8.50(2) (Section 33-8-500(2)). The phrase, "unless the context requires otherwise," was added to make clear that the estate or personal representative did not have the right to participate in directoral decisions whether to grant indemnification authorized in this subchapter.
3. EXPENSES
  "Expenses" is defined to include counsel fees to avoid repeated references to such fees every time" expenses" appears throughout the subchapter.
4. LIABILITY
  "Liability" is defined for convenience, to avoid repeated references to recoverable items throughout the subchapter. Even though the definition of "liability" includes both expenses and amounts paid to satisfy or to settle substantive claims, indemnification against substantive claims is not allowed in several provisions in Article 5. For example, indemnification in suits brought by or in the name of the corporation is limited to expenses. See section 8.51(e) (Section 33-8-510(e)).
  The definition of "liability" permits the indemnification only of "reasonable expenses incurred." The intention is that any portion of expenses falling outside the perimeter of reasonableness should not be indemnified, and that, if necessary, an allocation of expenses should be made. By contrast, unlike earlier
versions of the Model Act and statutes of many states, section 8.50(4) (Section 33-8-500(4)) provides that amounts paid to settle or satisfy substantive claims are not subject to a reasonableness test. Since payment of these amounts is permissive -- mandatory indemnification is available under section 8.52 (Section 33-8-520) only where the defendant is "wholly successful" -- a special limitation of "reasonableness" for settlements is inappropriate. Further, it is undesirable to base the statutory test of power to indemnify on an affirmative finding that a settlement is reasonable. Indeed, the grant of authority to indemnify only those settlements that are "reasonable" would suggest an "all or nothing" approach inconsistent with the basic philosophy of indemnification of "reasonable" expenses.
  "Penalties" and "fines" are expressly included within the definition of "liability" so that in appropriate cases these items may also be indemnified. See section 8.51 (Section 33-8-510). The purpose of this definition is to cover every type of monetary obligation that may be imposed upon a director, including civil penalties (which have been authorized in a number of recent statutes), restitution, and obligations to give notice (which are proposed as part of the revision of the federal criminal code). This definition also expressly includes the levy of the excise taxes under the Internal Revenue Code pursuant to ERISA within the definition of "fines."
5. OFFICIAL CAPACITY
  The definition of "official capacity" is necessary because the term determines which of the two alternative standards of conduct set forth in section 8.51 (Section 33-8-510) applies: if action is taken in an "official capacity," the person to be indemnified must have reasonably believed he was acting in the
best interests of the corporation, while if the action in question was not taken in his "official capacity," he need only have reasonably believed that the conduct was not opposed to the best interests of the corporation.
6. PARTY
  The definition of "party" establishes the basic coverage of the subchapter. The definition includes every individual "who was, is, or is threatened to be made a named defendant or respondent in a proceeding." A person who is only called as a witness is not a "party" within this definition, and as specifically provided in section 8.58(b) (Section 33-8-580(b)), indemnification of this person is not limited by this subchapter.
7. PROCEEDING
  The broad definition of "proceeding" ensures that the benefits of this subchapter will be available to directors in new and unexpected, as well as traditional, types of proceedings whether civil, criminal, administrative, or investigative. It also includes appeals in lawsuits and petitions to review administrative actions.
SOUTH CAROLINA REPORTERS' COMMENTS
  In this litigious age, indemnification is a matter of keen importance to corporate fiduciaries. The issue, realistically, is not "whether," but "under what circumstances."
  One of the major accomplishments of the 1981 revision of the corporate code was the adoption of a "state of the art" indemnification provision based on the Model Act.
  Adoption of the 1984 Model Act's indemnification provision verbatim continues the tradition. The revised act's indemnification provision basically separates the parts of what
was previously a single section of 1822 words. The aim is to provide a statute that is readable, supported by detailed comments, and one that gives reasonable protection to corporate directors, officers, and agents. By following the Model Act, South Carolina corporations and courts called on to interpret and apply the statute will be able to draw from the Official Comments and case law in other jurisdictions that likewise adopt the revision. A hoped-for result is that there will be more certainty as to the indemnification rights of corporate fiduciaries, with less time and money spent on litigating.
DERIVATION: 1984 Model Act Section 8.50.
  Section 33-8-510. Authority to indemnify.
  (a) Except as provided in subsection (d), a corporation may indemnify an individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding if:
    (1) he conducted himself in good faith; and
    (2) he reasonably believed:
      (i) in the case of conduct in his official capacity with the corporation, that his conduct was in its best interest; and
    (ii) in all other cases, that his conduct was at least not opposed to its best interest; and
    (3) in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful.
  (b) A director's conduct with respect to an employee benefit plan for a purpose he reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subsection (a)(2)(ii).
  (c) The termination of a proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described in this section.
  (d) A corporation may not indemnify a director under this section:
    (1) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or
    (2) in connection with any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him.
  (e) Indemnification permitted under this section in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding.
CROSS REFERENCES
Advance for expenses, see Section 33-8-530.
Court-ordered indemnification, see Section
  33-8-540.
Derivative proceedings, see Section 33-7-400.
Determination of indemnification, see Section
  33-8-550.
Director standards of conduct, see
  Sections 33-8-300 through 33-8-320.
"Expenses" defined, see Section 33-8-500.
"Liability" defined, see Section 33-8-500.
Mandatory indemnification, see Section 33-8-520.
"Official capacity" defined, see Section
  33-8-500.
"Proceeding" defined, see Section 33-8-500.
Report to shareholders on indemnification, see
  Section 33-16-210.
OFFICIAL COMMENT
1. Section 8.51(a)(Section 33-8-510(A))
  The standards for indemnification of directors contained in this subsection define the outer limits for which voluntary indemnification is permitted under the Model Act. Conduct which does not meet these standards is not eligible for voluntary indemnification under the Model Act, although court-ordered indemnification may be available under section 8.54(2) (Section 33-8-540(2)). Conduct that falls within these outer limits does not automatically entitle directors to indemnification, although many corporations have adopted bylaw provisions that obligate the corporation to indemnify directors to the maximum extent permitted by statute. Absent such a bylaw provision, section 8.52 (Section 33-8-520) defines a much narrower area in which the directors are entitled as a matter of right to indemnification.
  Some state statutes provide separate, but usually similarly worded, standards for indemnification in third-party suits and indemnification in suits brought by or in the name of the corporation. The Model Act establishes a single uniform test to make clear that the outer limits of conduct for which indemnification is permitted should not be dependent on the type of proceeding in which the claim arises. To prevent circularity in recovery, however, section 8.51(e) (Section 33-8-510(e)) limits indemnification in connection with suits brought by or in the name of the corporation to expenses incurred and excludes amounts paid to settle or satisfy substantive claims.
  The standards of conduct described in sections 8.51(a)(1) and 8.51(a)(2)(i) (Section 33-8-510(a)(1) and 33-8-510(a)(2)(i)) -- that a director's conduct in his official capacity was in "good faith" and in the corporation's "best
interests" -- is closely related to the basic standards of conduct imposed by section 8.30 (Section 33-8-300), but the two standards are not identical. No attempt is made to define "good faith," a term used in both section 8.30 (Section 33-8-300) and section 8.51 (Section 33-8-510). The concept of good faith involves a subjective test, which would include "a mistake of judgment," in the words of the Official Comment to section 8.30 (Section 33-8-300), even though made unwisely by objective standards. But the affirmative requirement of section 8.30 (Section 33-8-300) -- that the "care of an ordinarily prudent person in a like position" be exercised -- is not included in the standard of conduct for indemnification. On the other hand, section 8.51 (Section 33-8-510) requires that there be a "reasonable" belief on the part of the director in most instances, and in the case of criminal proceedings that there be no "reasonable" cause to believe the conduct was unlawful. Accordingly, it is possible that a director who has not acted "with the care an ordinarily prudent person in a like position would exercise under similar circumstances," as required by section 8.30 (Section 33-8-300), could nevertheless be indemnified, if the standard of section 8.51 (Section 33-8-510) were met. As a corollary, it is clear that a director who has met the section 8.30 (Section 33-8-300) standards of conduct would be eligible in virtually every case to be indemnified under section 8.51 (Section 33-8-510).
  Section 8.51(a)(2)(ii) (Section 33-8-510(a)(2)(ii)) requires, if a director is not acting in his official capacity, that his action be "at least not opposed to" the corporation's best interests. This standard is applicable to the director when serving another entity at the request of the corporation or when sued simply because he is or was a director. The words "at least" were added to qualify "not
opposed to" in order to make it clear that this test is an outer limit for conduct other than in an official capacity.
2. Section 8.51(b)(Section 33-8-510(b)
  This section makes clear that a director who is serving as a trustee or fiduciary for an employee benefit plant under ERISA meets the standard for indemnification under section 8.51(a) (Section 33-8-510(a)) if he reasonably believes his conduct was in the best interests of the participants in and beneficiaries of the plan. This standard is a specific application of the more general test that conduct not in official corporate capacity is indemnifiable if it is "at least not opposed to" the best interests of the corporation and provides a standard for indemnification that is consistent with the statutory policies embodied in ERISA. See the Official Comment to Section 8.50 (Section 33-8-500).
3. Section 8.51(c)(Section 33-8-510(c)
  The purpose of section 8.51(c) (Section 33-8-510(c)) is to reject the argument that indemnification is automatically improper whenever a proceeding has been terminated on a basis that does not exonerate the director claiming indemnification. Even though a final judgement or conviction is not automatically determinative of the issue whether the minimum standard of conduct was met, any judicial determination of substantive liability would in most instances be entitled to considerable weight. By the same token, it is clear that the termination of a proceeding by settlement or plea of nolo contendere should not of itself create a presumption either that conduct met or did not meet the standard of section 8.51 (Section 33-8-510). On the other hand, a final determination of nonliability or acquittal automatically entitles the director to
indemnification of expenses under section 8.52 (Section 33-8-520).
  Section 8.51(c) (Section 33-8-510(c)) applies expressly to indemnification expenses in derivative actions as well as to indemnification in third party suits. The most likely application of this subsection to derivative actions will be to settlements since a judgment or order would normally result in liability to the corporation and thereby preclude all indemnification under section 8.51(d) (Section 33-8-510(d)). In the rare event that a judgment or order entered against the director did not include a determination of liability to the corporation, the entry of the judgment or order would not be determinative that the director failed to meet the requisite standard of conduct.
4. Section 8.51(d)(Section 33-8-510(d))
  This subsection makes clear that indemnification is not permissible under section 8.51 (Section 33-8-510) in the face of a finding of improper conduct either because liability is imposed in favor of the corporation in a suit brought by or in its name or because there is a finding that the director improperly received a personal benefit as a result of his conduct. Indemnification under this subsection is prohibited if a director is adjudged liable in a derivative suit because it is believed that there should be no indemnification in this situation unless a court first finds it proper. Section 8.54 (Section 33-8-540) permits a director found liable to the corporation to petition a court for judicial determination of entitlement to indemnification. Voluntary indemnification is also prohibited if there has been an adjudication that a director improperly received a personal benefit, even if, for example, he acted in a manner not opposed to the best interests of the corporation. Improper use of inside information for personal benefit
should not be an action for which the corporation may provide indemnification, even if the corporation was not thereby harmed. Although it is unlikely that a person found liable for receiving an improper personal benefit would be found to have met the statutory standard of conduct set forth in section 8.51(a)(2)(ii) (Section 33-8-510(a)(2)(ii)), this limitation is made explicit in section 8.51(d)(2) (Section 33-8-510(d)(2)). Recourse to a court under section 8.54 (Section 33-8-540) may also be appropriate in some improper benefit cases -- for example, where it would be unfair for a small personal benefit to foreclose indemnification in an expensive and complicated matter.
5. Section 8.51(e)(Section 33-8-510(e)
  This subsection limits indemnification in suits brought by or in the right of the corporation to expenses incurred in connection with the proceeding. Its purpose is to avoid circularity that would be involved if a corporation seeks to indemnify a director for payments made in settlement by the director to the corporation. This subsection applies only to settlements since all indemnification is prohibited by section 8.51(d)(1) (Section 33-8-510(d)(1)) -- subject to the right to seek judicially approved indemnification under section 8.54 (Section 33-8-540) -- in cases where a director is "adjudged" liable in the corporation.
SOUTH CAROLINA REPORTERS' COMMENTS
  See the South Carolina Reporters' Comment to Section 33-8-500.
DERIVATION: 1984 Model Act Section 8.51.
  Section 33-8-520. Mandatory Indemnification.
  Unless limited by its articles of incorporation, a corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he is or was a director of the corporation against reasonable expenses incurred by him in connection with the proceeding.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Court-ordered indemnification, see Section
  33-8-540.
"Expenses" defined, see Section 33-8-500.
"Party" defined, see Section 33-8-500.
"Proceeding" defined, see Section 33-8-500.
Report to shareholders on indemnification, see
  Section 33-16-210.
Voluntary indemnification, see Section 33-8-510.
OFFICIAL COMMENT
  Section 8.51 (Section 33-8-510) determines whether indemnification may be made voluntarily by a corporation if it elects to do so. Section 8.52 (Section 33-8-520) determines whether a corporation must indemnify a director for his expenses; in other words, section 8.52 creates a statutory right of indemnification in favor of the director who meets the requirements of that section. Enforcement of this right by judicial proceeding is specifically contemplated by section 8.54(1) (Section 33-8-540(1)), which also gives the director a statutory right to recover expenses incurred by him in enforcing his statutory right to indemnification under section 8.52 (Section 33-8-520).
  The basic standard for mandatory indemnification is that the director has been "wholly successful, on the merits or otherwise," in the defense of the proceeding. The word "wholly" is added to avoid the argument accepted in Merritt-Chapman & Scott Corp. v. Wolfson, 321 A.2d 138 (Del 1974), that a defendant may be entitled to partial mandatory indemnification if he succeeded by plea bargaining or otherwise to obtain the dismissal of some but not all counts of an indictment. A defendant is "wholly successful" only if the entire proceeding is disposed of on a basis which involves a finding of nonliability. However, the language in earlier versions of the Model Act and in many other state statutes that the basis of success may be "on the merits or otherwise" is retained. While this standard may result in an occasional defendant becoming entitled to indemnification because of procedural defenses not related to the merits -- e.g., the statute of limitations or disqualification of the plaintiff, it is unreasonable to require a defendant with a valid procedural defense to undergo a possibly prolonged and expensive trial on the merits in order to establish eligibility for mandatory indemnification.
SOUTH CAROLINA REPORTERS' COMMENTS
  See the South Carolina Reporters' Comment to Section 33-8-500.
DERIVATION: 1984 Model Act Section 8.52.
  Section 33-8-530. Advance for expenses.
  (a) A corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if:
    (1) the director furnishes the corporation a written affirmation of his good faith belief
that he has met the standard of conduct described in Section 33-8-510;
    (2) the director furnishes the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct; and
    (3) a determination is made that the facts then known to those making the determination would not preclude indemnification under this subchapter.
  (b) The undertaking required by subsection (a)(2) must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment.
  (c) Determinations and authorizations of payments under this section must be made in the manner specified in Section 33-8-550.
CROSS REFERENCES
Determination of indemnification, see Section
  33-8-550.
"Expenses" defined, see Section 33-8-500.
"Proceeding" defined, see Section 33-8-500.
Report to shareholders on indemnification, see
  Section 33-16-210.
Standard for indemnification, see Section
  33-8-510.
OFFICIAL COMMENT
  It is often critically important to a director who is made a party to a complex proceeding that the corporation he served have power to make advances for expenses at the beginning of and during the proceeding. Adequate legal representation and adequate preparation of a defense may require substantial payments of expenses before a final determination and unless the corporation may make advances of expenses, a
defendant may be unable to finance his own defense. This problem is complicated by reason or the fact that during the early stages of a proceeding (when advances are often needed) the facts underlying the claim cannot be fully evaluated and the board of directors therefore cannot accurately ascertain the ultimate propriety of indemnification.
  Section 8.53 (Section 33-8-530) establishes a workable standard: indemnification is permitted if the facts then known to those making the determination do not establish that indemnification would be precluded under section 8.51 (Section 33-8-510). The directors (or special legal counsel) making the determination under section 8.53(c) (Section 33-8-530(c)) would normally communicate with counsel and the person who persons monitoring the matter for the corporation in order to gain familiarity with the status of the proceeding and the relevant facts that have emerged, but it is not required (or expected) that any form of independent investigation be undertaken for purposes of the determination. Thus, an advance may be made under section 8.53 (Section 33-8-530) unless it becomes clear, from the facts at hand that indemnification under section 8.51 (Section 33-8-510) cannot be provided. As additional facts become known, a different determination may be required.
  This section is a compromise between the view of some that advances should be made automatically at the claimant's request and at any time before the litigation is terminated and the view of others that a special investigation should be made before each advance.
  In addition to the requirement that the facts then known to those acting on the request for an advance do not preclude indemnification, section 8.53(a) (Section 33-8-530(a)) requires a written affirmation by the director of his good faith belief that he has met the standard of conduct
necessary for indemnification by the corporation and a written undertaking by or on behalf of the director to repay the advance if it is ultimately determined that he has not met the standard of conduct. Under section 8.53(b) (Section 33-8-530(b)), the undertaking need not be secured and financial ability to repay is not a prerequisite. The theory underlying the subsection is that, in advancing expenses, wealthy directors should not be favored over directors whose financial resources are modest.
  The limitations of section 8.53 (Section 33-8-530) apply only to persons who are directors at the time the advance is made. Thus the corporation may advance the expenses of former directors without obtaining the undertaking otherwise required by section 8.53(a)(1) or (2) (Section 33-8-530(a)(1) or (2)).
SOUTH CAROLINA REPORTERS' COMMENTS
  See the South Carolina Reporters' Comment to Section 33-8-500.
DERIVATION: 1984 Model Act Section 8.53.
  Section 33-8-540. Court-ordered indemnification.
  Unless a corporation's articles of incorporation provide otherwise, a director of the corporation who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court after giving any notice the court considers necessary may order indemnification if it determines:
  (1) the director is entitled to mandatory indemnification under Section 33-8-520, in which case the court also shall order the corporation to pay the director's reasonable expenses
incurred to obtain court-ordered indemnification;
or
  (2) the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he met the standard of conduct set forth in Section 33-8-510 or was adjudged liable as described in Section 33-8-510(d), but if he was adjudged so liable his indemnification is limited to reasonable expenses incurred.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
"Expenses" defined, see Section 33-8-500.
Mandatory indemnification, see Section 33-8-520.
"Party" defined, see Section 33-8-500.
"Proceeding" defined, see Section 33-8-500.
Report to shareholders on indemnification, see
  Section 33-16-210.
Voluntary indemnification, see Section 33-8-510.
OFFICIAL COMMENT
  Section 8.54 (Section 33-8-540) permits court-ordered indemnification in two situations: (1) a director entitled to mandatory indemnification may enforce that entitlement by judicial proceeding (in which case the court may also order the corporation to pay the reasonable expenses incurred in connection with the proceeding ); and (2) indemnification at the court's discretion is permitted in all cases whether or not the director met the requisite standard of conduct in section 8.51 (Section 33-8-510) or is otherwise ineligible for indemnification. But indemnification with respect to derivative suits or improper benefit is always limited to expenses by the last clause of section 8.54(2) (Section 33-8-540(2)).
  Application for indemnification under section 8.54 (Section 33-8-540) may be made either to the court in which the proceeding was heard or to another court of appropriate jurisdiction. For example, a defendant in a criminal action who has been convicted but believes that indemnification would be proper could apply either to the court which heard the criminal action or bring an action against the corporation in another court. A decision by the board of directors not to oppose the request for indemnification is governed by the general standards of conduct found in section 8.30 (Section 33-8-300). Even if the corporation decided not to oppose the request, the court must satisfy itself that the person seeking indemnification is properly entitled to it.
  A corporation may limit the right of a director under section 8.54 (Section 33-8-540) by a provision in its articles of incorporation. In the absence of such a provision, however, the court has general power to grant indemnification under this section.
SOUTH CAROLINA REPORTERS' COMMENTS
  See the South Carolina Reporters' Comment to Section 33-8-500.
DERIVATION: 1984 Model Act Section 8.54.
  Section 33-8-550. Determination and authorization of indemnification.
  (a) A corporation may not indemnify a director under Section 33-8-510 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because he has met the standard of conduct set forth in Section 33-8-510.
  (b) The determination must be made:
    (1) by the board of directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding;
    (2) if a quorum cannot be obtained under subdivision (1), by majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding;
    (3) by special legal counsel:
      (i) selected by the board of directors or its committee in the manner prescribed in item (1) or (2); or
    (ii) if a quorum of the board of directors cannot be obtained under subdivision (1) and a committee cannot be designated under subdivision (2), selected by majority vote of the full board of directors (in which selection directors who are parties may participate); or
    (4) by the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination.
  (c) Authorization of indemnification and evaluation as to reasonableness of expenses must be made in the same manner as the determination that indemnification is permissible, except that, if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses must be made by those entitled under subsection (b)(3) to select counsel.
CROSS REFERENCES
Advance for expenses, see Section 33-8-530.
Committees of the board, see Section 33-8-250.
"Party" defined, see Section 33-8-500.
"Proceeding" defined, see Section 33-8-500.
Quorum of directors, see Section 33-8-240.
Special meeting of shareholders, see Section
  33-7-102.
Standard for indemnification, see Section
  33-8-510.
OFFICIAL COMMENT
  Section 8.55 (Section 33-8-550) provides the method for determining whether a corporation should voluntarily indemnify directors under section 8.51 (Section 33-8-510). In this section a distinction is made between a "determination" and an "authorization." A "determination" involves a decision whether under the circumstances the person seeking indemnification has met the requisite standard of conduct under section 8.51 (Section 33-8-510) and is therefore eligible for indemnification. This decision may be made by the persons or groups described in section 8.55(b) (Section 33-8-550(b)). In addition, after a favorable "determination" is made, the corporation must "authorize" indemnification; this includes a review of the reasonableness of the expenses, the financial ability of the corporation to make the payment, and the judgment whether limited financial resources should be devoted to this or some other use by the corporation. Section 8.55(c) (Section 33-8-550(c)) provides that "authorization" of indemnification may be made only by the board of directors, by a committee of the board, or by the shareholders. While special legal counsel may make the "determination" of eligibility for indemnification, he may not "authorize" the indemnification.
  Section 8.55(b) (Section 33-8-550(b)) establishes a procedure for selecting the person or persons who will make the determination of eligibility for indemnification. Even though directors who are parties to the proceeding may not participate in the decision determining
eligibility for indemnification, they may, if necessary to permit valid action by the board of directors, participate in the decision establishing a committee of independent directors or selecting special legal counsel. Directors who are parties may also participate in the decision to "authorize" indemnification on the basis of a favorable "determination" if necessary to permit action by the board of directors. This limited participation of interested directors in the decision is justified by a principle of necessity.
  Legal counsel authorized to make the required determination is referred to as "special legal counsel." In earlier versions of the Model Act, and in the statutes of many states, he is referred to as "independent" legal counsel. The word "special" is felt to be more descriptive of the role to be performed and is not intended to indicate that the counsel selected should not be independent in accordance with governing legal precepts. "Special legal counsel" should normally be counsel having no prior professional relationship with those seeking indemnification, should be retained for the specific occasion, and should not be either inside counsel or regular outside counsel. It is important that the selection process be sufficiently flexible to permit selection of counsel in light of the particular circumstances and so that unnecessary expenses may be avoided. Hence the phrase "special legal counsel" is not defined in the statute.
  Determinations by shareholders rather than by directors or special counsel are permitted by section 8.55(b)(4) (Section 33-8-550(b)(4)), but shares owned by or voted under the control of directors seeking indemnification may not be voted on the determination of eligibility for indemnification. This does not affect rules governing the determination of a quorum at the meeting.
SOUTH CAROLINA REPORTERS' COMMENTS
  See the South Carolina Reporters' Comment to Section 33-8-500.
DERIVATION: 1984 Model Act Section 8.55.
  Section 33-8-560. Indemnification of officers, employees, and agents.
  Unless a corporation's articles of incorporation provide otherwise:
  (1) an officer of the corporation who is not a director is entitled to mandatory indemnification under Section 33-8-520, and is entitled to apply for court-ordered indemnification under Section 33-8-540, in each case to the same extent as a director;
  (2) the corporation may indemnify and advance expenses under this subchapter to an officer, employee, or agent of the corporation who is not a director to the same extent as to a director; and
  (3) a corporation also may indemnify and advance expenses to an officer, employee, or agent who is not a director to the extent, consistent with public policy, that may be provided by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
"Employee" defined, see Section 33-1-400.
"Expenses" defined, see Section 33-8-500.
Officer standards of conduct, see Section
  33-8-420.
OFFICIAL COMMENT
  Section 8.56 (Section 33-8-560) correlates the general legal principles relating to the indemnification of officers, employees, and agents of the corporation with the limitations on indemnification in Article 5. This correlation may be summarized in general terms as follows:
(1)Article 5 (except for section 8.56 (Section 33-8-560)) applies only to, and limits the indemnification of, directors.
(2)An officer, agent or employee of a corporation who is not a director may be indemnified by the corporation on a discretionary basis to the same extent as though he were a director, and, in addition, may have additional indemnification rights apart from Article 5. (Sections 8.56(2) and (3) (Sections 33-8-560(2) and (3)).
(3)A director who is also an officer, employee, or agent of the corporation is limited to his indemnification rights under Article 5 and is therefore treated the same way as other directors. (Section 8.56(3) (Section 33-8-560(3)) by negative inference.) Such an officer-director is limited to his rights under Article 5 even though he is sued solely in his capacity as an officer.
(4)An officer of the corporation (but not employees or agents generally) who is not a director has the mandatory right of indemnification granted to directors under section 8.52 (Section 33-8-520) and the right to apply for court-ordered indemnification under section 8.54 (Section 33-8-540). (Section 8.56(1) (Section 33-8-560(1)).
1.Officers, Employees, or Agents Who Are Not Directors
  Section 8.56(3) (Section 33-8-560(3)) authorizes indemnification for officers, employees, and agents who are not directors, but neither requires nor prescribes standards for their indemnification and expressly states that their indemnification may be broader than the right of indemnification granted to directors by this Article. The rights of employees or agents may derive from principles of agency, the doctrine of respondeat superior, or collective bargaining or other contractual agreement, rather than from the statute. Indemnification of employees or agents may appropriately protect the person indemnified from liabilities incurred while serving at the corporation's request as a director, officer, partner, trustee, or agent of another commercial, charitable, or nonprofit enterprise. See the definition of "director" in section 8.50(2) (Section 33-8-500(2)). But indemnification under section 8.56(3) (Section 33-8-560(3)) must ultimately be "consistent with law." In effect, this leaves public policy determinations as to what are permissible limits, in a particular case, to the courts. For example, in Koster v. Warren, 297 F.2d 418, 423 (9th Cir. 1961), the court allowed indemnification of an officer and an employee, both of whom pleaded nolo contendere to an antitrust indictment at the corporation's request, the court reasoning that they had foregone their personal right to defend for the corporation's benefit. On the other hand, the court indicated in dictum that an agreement in advance by the corporation to indemnify anyone convicted of antitrust violations would be against public policy.
    The board grant of indemnification in section 8.56(3) (Section 33-8-560(3)) may be
limited by appropriate provisions in the articles of incorporation.
2.Directors Who Are Also Officers, Employees, Or Agents
  Section 8.56 (Section 33-8-560) provides that officers, employees, or agents who are also directors are subject to the same standards of indemnification as other directors. Consideration was given to whether these officer-directors, if acting in their capacity as an officer but not as a director, should have the benefit of the additional flexibility afforded by section 8.56(3) (Section 33-8-560(3)) for officers who are not directors. It was concluded, however, that all directors should be treated alike; complications may be created if directors who are not officers have potentially less protection under the statute than directors who are officers. It would also be difficult in many instances to distinguish in what capacity an officer-director is acting. Finally, this subchapter offers sufficient flexibility in indemnifying directors so that, as a practical matter, foreseeable problems for officer-directors can be handled within the statutory framework.
3.Officers Who Are Not Directors
  Section 8.56(1) (Section 33-8-560(1)) grants non-director officers the same mandatory rights to indemnification under section 8.52 (Section 33-8-520) (or to petition a court for indemnification under section 8.54 (Section 33-8-540)) as are granted directors. Thus, the net effect of section 8.56 (Section 33-8-560) is to provide officers with no less protection than is provided directors (including protection for service to third parties at the request of the corporation) and, additionally, to permit the corporation to provide broader indemnification for officers who are not directors.
SOUTH CAROLINA REPORTERS' COMMENTS
  See the South Carolina Reporters' Comment to Section 33-8-500.
DERIVATION: 1984 Model Act Section 8.56.
  Section 33-8-570. Insurance.
  A corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation, or who, while a director, officer, employee, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by him in that capacity or arising from his status as a director, officer, employee, or agent, whether or not the corporation would have power to indemnify him against the same liability under Section 33-8-510 or 33-8-520.
CROSS REFERENCES
"Director" defined, see Section 33-8-500.
"Liability" defined, see Section 33-8-500.
Mandatory indemnification, see Section 33-8-520.
"Official Capacity" defined, see Section
  33-8-500.
Standard for indemnification, see Section
  33-8-510.
OFFICIAL COMMENT
  Section 8.57 (Section 33-8-570) authorizes a corporation to purchase and maintain insurance on behalf of directors, officers, employees, or agents against liabilities imposed on them by
reason of actions in their official capacity or arising from their service to the corporation or other entity at the corporation's request. Insurance is not limited to claims against which corporations are entitled to indemnify under this Article. This insurance, usually referred to as "D&O Liability Insurance," provides a useful supplement to the rights of indemnification created by this subchapter, providing a source of reimbursement for corporations who indemnify directors and others for conduct covered by the insurance, and protecting the insureds against the corporation's failure to pay indemnification required or permitted by this subchapter. On the other hand, policies do not cover uninsurable events like self-dealing, bad faith, knowing violations of the securities acts, or other willful misconduct. See generally Johnston, "Corporate Indemnification and Liability Insurance," 33 BUS. LAW. 1993 (1978); Hinsey, "The New Lloyd's Policy Form for Directors and Officers Liability Insurance--An Analysis," 33 BUS. LAW. 1961 (1978).
SOUTH CAROLINA REPORTERS' COMMENTS
  See the South Carolina Reporters' Comment to Section 33-8-500.
DERIVATION: 1984 Model Act Section 8.57.
  Section 33-8-580. Application of article.
  (a) A provision treating a corporation's indemnification of or advance for expenses to directors that is contained in its articles of incorporation, bylaws, a resolution of its shareholders or board of directors, or in a contract or otherwise is valid only if and to the extent the provision is consistent with this article. If articles of incorporation limit indemnification or advance for expenses,
indemnification and advance for expenses are valid only to the extent consistent with the articles.
  (b) This article does not limit a corporation's power to pay or reimburse expenses incurred by a director in connection with his appearance as a witness in a proceeding at a time when he has not been made a named defendant or respondent to the proceeding.
CROSS REFERENCES
Advance for expenses, see Section 33-8-530.
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Bylaws, see Section 33-2-106 and Chapter 10,
  Article 2.
"Director" defined, see Section 33-8-500.
Indemnification generally, see Sections 33-8-510
  through 33-8-550.
"Party" defined, see Section 33-8-500.
"Proceeding" defined, see Section 33-8-500.
OFFICIAL COMMENTS
  Section 8.58(a) (Section 33-8-580(a)) provides that a provision treating the indemnification of directors by the corporation in articles of incorporation, bylaws, shareholders' or directors' resolution, or contract "is valid only if and to the extent it is consistent with" this Article. Earlier versions of the Model Act and the statutes of many states provided that the statutory provisions were not "exclusive" and made no attempt to limit the nonstatutory creation of rights of indemnification. This kind of language is subject to misconstruction, however, since nonstatutory conceptions of public policy limit the power of a corporation to indemnify or to contract to indemnify directors, officers, employees, or agents.
  The language of the first sentence of section 8.58(a) (Section 33-8-580(a)), "to the extent it is consistent with this subchapter," is believed to be a more accurate description of the limited validity of nonstatutory indemnification provisions than the "nonexclusive" provisions of earlier versions of the Model Act. It is important to recognize that "to the extent it is consistent with" is not synonymous with "exclusive." Situations may well develop from time to time in which indemnification is permissible under section 8.58 (Section 33-8-580) but would be precluded if all portions of subchapter E were viewed as exclusive. But indemnification provisions protecting against the consequences of bad faith or willful misconduct are not consistent with this subchapter and would not be valid. Furthermore, they would violate well-understood principles of public policy and doubtless would be invalidated on that ground even under statutes purporting to make "nonexclusive" the statutory provisions for indemnification. To the extent the consistency language may preclude indemnification in circumstances where it is reasonable and violates no statutory policy, an escape valve is provided in section 8.55(2) (Section 33-8-550(2)) which authorizes a court to grant indemnification if a director "is fairly and reasonably entitled to indemnification to view of all the relevant circumstances," even though he may not have fully met the standards of conduct set forth in section 8.51 (Section 33-6-510).
  Section 8.58 (Section 33-8-580) does not preclude provisions in articles of incorporation, bylaws, resolutions, or contracts designed to provide procedural machinery different from that provided by section 8.55 (Section 33-8-550) or to make mandatory the permissive provisions of Article 5. For example, a corporation may properly obligate the
board of directors to consider and act expeditiously on an application for indemnification or advances, or obligate the board of directors to cooperate in the procedural steps required to obtain a judicial determination under section 8.54 (Section 33-8-540).
  Some corporations currently commit themselves, in one form or another, to indemnify directors to the fullest extent permitted by applicable law. These commitments are consistent with Article 5, subject to appropriate interpretation in light of the facts and circumstances of the particular case. Furthermore, a commitment to maintain liability insurance for a director, pursuant to section 8.57 (Section 33-8-570), is consistent with this Article.
  The first sentence of section 8.58(a) (Section 33-8-580(a)) applies only to directors; it does not apply to officers, employees, or agents who are not directors. See section 8.56 (Section 33-8-560) and its Official Comment. The inherent problems of conflict of interest and the need to encourage persons to serve as directors are not present to the same degree in the case of non-director officers, employees, or agents. The standard for permissible indemnification of these persons in section 8.56(3) (Section 33-8-560(3) is "consistent with law" without regard to this subchapter.
  Section 8.58(b) (Section 33-8-580(b)) is designed to make clear that Article 5 deals only with directors who are actual or prospective defendants or respondents in a proceeding, and that expenses incurred in connection with appearance as a witness may be indemnified without regard to the limitations of Article 5. Indeed, most of the standards described in sections 8.51 and 8.54 (Section 33-8-510 and 88-8-540) by their own terms can have no meaningful application to a director whose only
connection with a proceeding is that he has been called as a witness.
SOUTH CAROLINA REPORTERS' COMMENTS
  See the South Carolina Reporters' Comment to Section 33-8-500.
DERIVATION: 1984 Model Act Section 8.58.
CHAPTER 9
Reserved
CHAPTER 10
Amendment of Articles of Incorporation and Bylaws
Article 1.Amendment of Articles of Incorporation.
Article 2. Amendment of Bylaws.
Article 1
Amendment of Articles of Incorporation
Sec.
33-10-101. Authority to amend.
33-10-102. Amendment by board of directors.
33-10-103.Amendment by board of directors and shareholders.
33-10-104.Voting on amendments by voting groups.
33-10-105. Amendment before issuance of shares.
33-10-106. Articles of amendment.
33-10-107. Restated articles of incorporation.
33-10-108. Amendment pursuant to reorganization.
33-10-109. Effect of amendment.
  Section 33-10-101. Authority to amend.
  (a) A corporation may amend its articles of incorporation to add or change a provision that is required or permitted in the articles of incorporation or to delete a provision not required in the articles of incorporation. Whether a provision is required or permitted in the articles of incorporation is determined as of the effective date of the amendment.
  (b) A shareholder of the corporation does not have a vested property right resulting from any provision in the articles of incorporation, including provisions relating to management, control, capital structure, dividend entitlement, or purpose or duration of the corporation.
CROSS REFERENCES
Amendment:
  before issuance of shares, see Section
    33-10-105.
  by directors, see Section 33-10-102.
  by directors and shareholders, see Section
    33-10-103.
  pursuant to court reorganization, see Section
    33-10-108.
Articles of incorporation, see Section 33-2-102.
Dissenters' rights, see Chapter 13.
Duration of corporate existence, see Section
  33-3-102.
Effective date of amendment, see Section
  33-1-230.
Powers of corporation, see Section 33-3-102.
Procedure for amendment, see Sections 33-10-102
  through 33-10-104.
Purposes of corporation, see Section 33-3-101.
Restatement of articles, see Section 33-10-107.
Share transfer restrictions, see Section
  33-6-270.
Voting by voting groups, see Sections 33-7-250,
  33-7-260, and 33-10-104.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 10.01(a) (Section 33-10-101(a)) authorizes a corporation to amend its articles of incorporation by adding a new provision to its articles of incorporation, modifying an existing provision, or deleting a provision in its entirety. The sole test for the validity of an amendment is whether the provision could lawfully have been included in (or in the case of a deletion, omitted from), the original articles of incorporation as of the effective date of the amendment.
  The power of amendment must be exercised pursuant to the procedures set forth in the rest of this chapter, which require significant amendments to be approved either by a majority of the votes cast on the proposed amendment or by a majority of all of the votes eligible to be cast on the proposed amendment (section 10.03)(Section 33-10-103). This majority vote requirement is supplemented by section 10.04 (Section 33-10-104), which establishes a right of voting by voting group on amendments that directly affect a single class or series of shares, and by section 7.27 (Section 33-7-270), which treats amendments that change the voting requirements for future amendments.
  Section 10.01(b) (Section 33-10-101(b)) restates explicitly the policy embodied in earlier versions of the Model Act and in all modern state corporation statutes, that a shareholder "does not have a vested property right" in any provision of the articles of incorporation. Corporations and their shareholders are also subject to amendments of the governing statute by the state under section 1.02 (Section 33-1-102).
  Section 10.01(b) (Section 33-10-101(b)) should be construed liberally and without qualification or restriction to achieve the fundamental purpose of this chapter of permitting corporate adjustment and change by majority vote. Section 10.01(b) (Section 33-10-101(b)) rejects decisions by a few courts that have applied a "vested rights" or "property right" doctrine to restrict or invalidate amendments to articles of incorporation because they modified particular rights conferred on shareholders by the original articles of incorporation. These holdings are rejected because their effect often is to create a tyranny of the minority; the individual consent of each shareholder becomes necessary to adopt any important change, and each shareholder, no matter how small his holding, can prevent the change.
  Section 10.01(b) (Section 33-10-101(b)) does not change in any way the purpose of similar provisions in earlier versions of the Model Act, which included, along with general language similar to section 10.01(b) (Section 33-10-101(b)), a long list of specific permissible amendments. This list was designed to eliminate the last possible vestige of the "vested rights" theory by expressly referring to and validating all types of amendments to which a vested rights challenge could be made. Section 10.01(b) (Section 33-10-101(b)) omits this "laundry list" of permissible amendments as prolix and unnecessary to carry out the policies of the section. Examples of amendments that may be made under section 10.01 (Section 33-10-101) include:
(1)Amendments to eliminate a narrow or limited purpose clause (thereby authorizing the corporation to engage in any lawful business) or a limited duration clause (thereby authorizing the corporation to have perpetual duration).
(2)Amendments increasing or decreasing the number of shares a corporation is authorized to issue.
(3)Amendments exchanging, classifying, reclassifying, or cancelling any part of a corporation's shares, whether or not previously issued.
(4)Amendments limiting or cancelling the right of holders of a class of shares to receive dividends, whether or not the dividends or rights to receive the dividends had accumulated or accrued in the past.
(5)Amendments creating new classes of shares whether superior or inferior to shares already outstanding, or changing the designations of shares, or the preferences, limitations, or rights of classes of shares, whether or not previously issued.
(6)Amendments dividing a class of shares into series and authorizing the directors to fix the relative rights and preferences of a class or series.
(7)Amendments changing the voting rights of outstanding shares, including elimination of the power to vote cumulatively or assigning multiple or fractional votes per share, or denying the power to vote entirely to classes of shares, whether or not previously issued.
  This listing is partial and illustrative only.
  A provision in the articles of incorporation is subject to amendment under section 10.01 (Section 33-10-101) even though the provision is described, referred to, or stated in a share certificate, information statement, or other document issued by the corporation that reflects provisions of the articles of incorporation. The only exception to this unlimited power of amendment is section 6.27 (Section 33-6-270), which provides that share transfer restrictions may not be imposed by amendment on shares that
were previously issued without the consent of the holder.
  Section 10.01 (Section 33-10-101) relates only to amendments to articles of incorporation. It does not relate to the impairment of obligations of a corporation to its shareholders based upon contracts independent of the articles of incorporation. An amendment permitted by this section may constitute a breach of such a contract or of a contract between the shareholders themselves. A shareholder with contractual rights (or who otherwise is concerned about possible onerous amendments) may obtain complete protection against these amendments only by establishing procedures in the articles of incorporation or bylaws that limit the power of amendment without his consent. In appropriate cases, a shareholder may be able to enjoin an amendment that constitutes a breach of a contract.
  Minority shareholders are protected from the power of the majority to impose onerous or objectionable amendments by two basic devices: the right to vote on amendments by separate voting groups (section 10.04) (Section 33-10-104) and the right to dissent under chapter 13. In addition, courts have held that a decision by majority shareholders to exercise the powers granted by this section in a way that is arguably detrimental or unfair to minority interests may be examined by a court under its inherent equity power to review transactions for good faith and fair dealing. McNulty v. W. & J. Sloane, 184 Misc. 835, 54 N.Y.S.2d 253 (Sup. Ct. 1945); Kamena v. Janssen Dairy Corp., 133 N.J. Eq. 214, 31 A.2d 200, 203 (1943), aff'd, 134 N.J. Eq. 359, 35 A.2d 894 (1944) (where the court stated that it "is more a question of fair dealing between the strong and the weak than it is a question of percentages or proportions of the votes favoring the plan.") See also Teschner v. Chicago Title & Trust Co., 59 Ill.
2d 452, 322 N.E.2d 54, 57 (1974), where the court, in upholding a transaction that had a reasonable business purpose, relied partially on the fact that there was "no claim of fraud or deceptive conduct . . . [or] that the exchange offer was unfair or that the price later offered for the shares was inadequate."
  Because of the broad power of amendment contained in this section, it is unnecessary and undesirable to make any reference to, or reserve, an express power to amend in articles of incorporation.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 10.01) has been adopted unchanged. It represents no substantive change from the 1981 South Carolina Business Corporation Act. The laundry list of permissible amendments that was contained in prior Section 33-15-10(b) is unnecessary and is not continued. The right to dissent contained in prior Section 33-15-10(d) has been moved to new Section 33-13-102, in accordance with the pattern of the Model Act, placing all of the dissenters' rights provisions in Chapter 13.
DERIVATION: 1984 Model Act Section 10.01.
  Section 33-10-102. Amendment by board of directors.
  Unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt one or more amendments to the corporation's articles of incorporation without shareholder action to:
  (1) delete the names and addresses of the initial directors;
  (2) delete the name and address of the initial registered agent or registered office, if a statement of change is on file with the Secretary of State;
  (3) change each issued and unissued authorized share of an outstanding class into a greater number of whole shares if the corporation has only shares of that class outstanding;
  (4) change the corporate name by substituting the word 'corporation', 'incorporated', 'company', 'limited', or the abbreviation 'corp.', 'inc.', 'co.', or 'ltd.' for a similar word or abbreviation in the name or by adding, deleting, or changing a geographical attribution for the name; or
  (5) make any other change expressly permitted by this act to be made without shareholder action.
CROSS REFERENCES
Action by board of directors, see Sections
  33-8-200 through 33-8-240.
Articles of amendment, see Section 33-10-106.
Classes and series of shares, see Sections
  33-6-101 and 33-6-102.
Duration of corporate existence, see Section
  33-3-102.
Effective date of amendment, see Section
  33-1-230.
Initial directors, see Section 33-2-102.
Merger, see Chapter 11.
Name of corporation, see Chapter 4.
Reacquisition of shares, see Section 33-6-310.
Registered office and agent, see Chapter 5.
Restatement of articles, see Section 33-10-107.
OFFICIAL COMMENT
  The amendments described in clauses (1) through (6) are so routine and "housekeeping" in nature as not to require action by shareholders. None affects substantive rights in any meaningful way. For example, section 10.02(1) (not adopted in South Carolina -- see the South Carolina Reporters' Comments)
authorizes amendments by the board of directors to extend the duration of a corporation that was formed at a time when limited duration was required by law. The extension normally will be in the form of an amendment to delete all reference to the duration of the corporation, which automatically makes the duration perpetual. See section 3.02 (Section 33-3-102). Similarly, sections 10.02(2) and (3) (Section 33-10-102(1) and (2)) authorize the board of directors to delete the names of initial directors, or the name and address of the initial registered agent and registered office, set forth in the original articles if that information is obsolete. Section 10.02(4) (Section 33-10-102(3)) authorizes the board of directors to change each issued and unissued share of an outstanding class of shares into a greater number of whole shares if the corporation has only that class of shares outstanding. All shares of the class being changed must be treated identically under this clause. Section 10.02(5) (Section 33-10-102(4)) authorizes minor name changes without shareholder approval.
  Section 10.02(6) (Section 33-10-102(5)) recognizes that other sections of the Model Act expressly permit other amendments to be made by the board of directors without prior shareholder approval. Examples of these include section 6.02 (Section 33-6-102) (creation of series of shares pursuant to authority already granted in the articles) and section 6.31 (Section 33-6-310) (cancellation of reacquired shares if the articles provide they are not to be reissued).
  Amendments provided for in this section may be included in restated articles of incorporation under section 10.07 (Section 33-10-107) or in articles of merger under chapter 11.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 10.02) has been adopted with one change. Although the 1981 South Carolina Business Corporation Act provided no similar procedure for such "housekeeping" amendments, it formerly did allow amendments by the directors to change the registered agent or registered office of the corporation. See Section 33-15-30 of the 1976 Code, repealed by Section 2 of Act 146 of 1981. In addition, prior Section 33-15-80(d) allowed the board of directors to omit the names of incorporators from restated articles. It is desirable to permit such amendments to be authorized by the board of directors without shareholder approval, since no rights of shareholders or third parties will be impaired. For example, anyone desiring to find out who the registered agent or initial directors of a corporation were can check the initial articles of incorporation in the Secretary of State's archives even if that information has been deleted by an amendment approved by the board of directors.
  However, subsection (1) of the Model Act section, which authorizes amendments by the board of directors to extend the duration of a corporation that was formed at a time when limited duration was required by law, has not been included in this section because it would have no possible application. Limited duration has not been required by South Carolina law since 1869. Because the maximum duration prior to that was fourteen years, the provision is purely hypothetical; any corporation to which it could apply has been dissolved for more than a century.
DERIVATION: 1984 Model Act Section 10.02.
  Section 33-10-103. Amendment by board of directors and shareholders.
  (a) A corporation's board of directors may propose amendments to the articles of incorporation for submission to the shareholders.
  (b) For an amendment proposed by the board of directors to be adopted:
    (1) the board of directors must recommend the amendment to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis of its determination to the shareholders with the amendment; and
    (2) the shareholders entitled to vote on the amendment must approve the amendment as provided in subsection (f).
  (c) The board of directors may condition on any basis its submission of an amendment that it proposes.
  (d) If the holders of at least ten percent of any class of voting shares of the corporation propose amendments to the articles of incorporation, the board of directors shall submit the proposed amendments to the shareholders at the next possible special or annual meeting.
  (e) The corporation shall notify each shareholder, whether or not entitled to vote, of the shareholders' meeting in accordance with Section 33-7-105. The notice of meeting must state also 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 or summary of the amendment.
  (f) Unless this act or the articles of incorporation require a different vote or the board of directors (acting pursuant to subsection (c)) requires a greater vote than
that specified by this subsection or the articles of incorporation, to be adopted the amendment must be approved by: (1) two-thirds of the votes entitled to be cast on the amendment, regardless of the class or voting group to which the shares belong, and (2) two-thirds of the votes entitled to be cast on the amendment within each voting group entitled to vote as a separate voting group on the amendment.
  (g) The articles of incorporation may require a lower or higher vote for approval than that specified in subsection (f), but the required vote must be at least (1) a majority of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights, and (2) the votes required by Sections 33-7-250 and 33-7-260 by every other voting group entitled to vote on the amendment.
CROSS REFERENCES
Articles of amendment, see Section 33-10-106.
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
Dissenters' rights, see Section 33-13-102.
"Notice" defined, see Section 33-1-410.
Notice of shareholders' meeting, see Section
  33-7-105.
Quorum at shareholders' meeting, see Section
  33-7-250.
Restatement of articles of incorporation,
  see Section 33-10-107.
Supermajority quorum and voting requirements,
  see Section 33-7-270.
Voting by voting group, see Sections 33-7-250,
  33-7-260, and 33-10-104.
Voting entitlement of shareholders generally,
  see Section 33-7-210.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Significant amendments to articles of incorporation must be approved by the shareholders after being proposed by the board of directors. When proposing an amendment, the board of directors must make a recommendation to the shareholders that the amendment be approved, unless it determines that because of conflict of interest or other special circumstances it should make no recommendation. If the board of directors so determines, it must describe the conflict or circumstance, and communicate the basis for its determination, when presenting the proposed amendment to the shareholders.
  Section 10.03(c) (Section 33-10-103(c)) codifies existing practice by expressly permitting the board of directors to submit an amendment to the shareholders on a conditional basis. This power of the board of directors does not alter the balance of power between the board of directors and shareholders since the board of directors may always withhold its approval entirely and not submit an amendment. Examples of conditions commonly imposed are that the amendment not be approved unless (1) a favorable vote by a specified proportion (larger than ordinarily required) of the shareholders is obtained, (2) no more than a specified fraction of the shareholders file written dissents, or (3) a class or series of shares must approve the amendment as a separate voting group. These conditions may be used, for example, to discourage unwise depletion of corporate assets by the adoption of the amendment. The board of directors is not limited to conditions of these types, however, and may condition the submission on any basis.
  The vote of shareholders needed to approve an amendment depends in part on the voting groups entitled to vote separately on the amendment and in part on whether any of those voting groups
would be entitled to dissenters' rights if the amendment were adopted. See section 10.04 (Section 33-10-104). However, section 10.03(e) (Section 33-10-103(e)) itself establishes a dual requirement for approval by shareholders of each voting group depending on the nature of the amendment; under section 7.25 (Section 33-7-250) and 7.26 (Section 33-7-260) a majority of the votes cast affirmatively and negatively on the amendment at a meeting at which a quorum is present is necessary to approve most amendments; but if the amendment would give rise to dissenters' rights under chapter 13, section 10.03(e) (Section 33-10-103(e)) requires that it be approved by a majority of the votes of the outstanding shares of each voting group that will have dissenters' rights if the amendment were adopted, and by the vote required by sections 7.25 (Section 33-7-250) and 7.26 (Section 33-7-260) by other voting groups that are entitled to vote on the amendment. This increased voting requirement reflects the importance of these proposals. Of course, the articles of incorporation may specify a greater quorum or voting requirement for a voting group to approve an amendment of any type. See section 7.27 (Section 33-7-270).
  The articles of incorporation or the board of directors may require that a proposed amendment be approved by a class or series of shares voting as a separate voting group; such a requirement may only be in addition to that otherwise required by section 10.04 (Section 33-10-104) of this Act.
SOUTH CAROLINA REPORTERS' COMMENTS
  The Official Text of the Model Act provision (Section 10.03) would have effected two major changes in South Carolina law: eliminating the power of the holders of ten percent of the shares of any class to require that a proposed
amendment be submitted to the shareholders for approval and reducing to a majority the shareholder vote required for approval of amendments.
  The first of these changes would diminish shareholders' rights and, thus, was found to be unacceptable. If holders of a significant block of shares favor an amendment, they should be able to propose it to their fellow shareholders. Furthermore, it is possible under the Model Act that the will of the holders of a majority of the shares could be thwarted by the board of directors' refusal to propose an amendment to the shareholders. The new section continues the prior South Carolina law allowing shareholders to propose amendments to the articles of incorporation but limits the right to holders of voting shares. The board of directors is required to submit the shareholder-proposed amendment to the shareholders the next time they meet (either at an annual or a special meeting) unless the proposal was made too late for inclusion on the agenda or in the proxy materials. The board does not have to call a special meeting to consider the proposal although, of course, it may do so. Under Section 33-7-102, the shareholders may call a special meeting to consider the amendment.
  It was concluded that the second of the Model Act changes is not desirable either, and it is not included in the new law. During the process of preparing and adopting the 1981 South Carolina Business Corporation Act, extensive consideration was given to what vote should be required for amendment of the articles of incorporation and other major corporate changes. The decision was made to join the growing rank of states that provide a standard requirement of a two-thirds vote but allow particular corporations to reduce this to a simple majority. Louisiana and Ohio have had
such provisions for a number of years. In addition to South Carolina's 1981 adoption, this provision has been approved recently in Colorado, Massachusetts, and Virginia. Virginia's adoption is especially significant since Virginia is the first state to enact the 1984 Model Act. Connecticut accomplishes a similar result by requiring a two-thirds vote for the amendment of the articles of all corporations having fewer than one hundred shareholders of record; amendment of the articles of corporations having one hundred or more shareholders requires a majority vote. In addition, eleven states require a two-thirds vote to amend the articles, with no provision for lowering the requirement in the articles: Alaska, Arkansas, Illinois, Maryland, Mississippi, Nebraska, South Dakota, Texas, Vermont, Washington, and Wyoming.
  A major reason for concern about lowering the normal required vote is that most of the seventy thousand existing South Carolina corporations would be affected. In 1978, Professor Harry J. Haynsworth had a survey conducted of all of the articles of incorporation filed with the Secretary of State in 1967 and 1977. The survey demonstrated, among other things, that it is quite rare for special control provisions to be included in the articles of South Carolina corporations. See Haynsworth, The 1981 Revision of the South Carolina Business Corporation Act: A Critique and Agenda for Further Reform, 33 S.C.L. Rev. 449, 461 n. 49 (1982). Thus, one of the few protections available to minority shareholders in tens of thousands of South Carolina corporations is the two-thirds vote required to amend the articles of incorporation and to make other major corporate changes. Adopting the Model Act proposal would destroy this protection in every one of these corporations. Only in those corporations where the shareholders recognized the problem and the
minority could persuade the majority to join them in amending their articles to raise the required vote back to two-thirds would the present protection be restored. Horizon House Microwave, Inc. v. Bazzy, 487 N.E.2d 70 (Mass. App. Ct. 1985) demonstrates how real this danger is. Following a 1976 amendment of the Massachusetts corporation act reducing the vote required to amend the articles of incorporation or approve a merger from two-thirds to a simple majority, the majority shareholder of Horizon House Microwave, Inc., froze out the minority shareholder, whose statutory protection had been destroyed by the legislature. It is particularly noteworthy that Massachusetts afterwards replaced its recently-adopted majority voting requirement with the provision continued in the South Carolina Business Corporation Act of 1988.
  In 1971, the Wisconsin corporation statute was amended to reduce the required vote from two-thirds to a majority. The Official Comment noted the problem of such a change and discussed the Wisconsin solution:
  "Because the two-thirds affirmative voting requirement on special matters has been statutory in Wisconsin for many years, it has in effect become an implied provision in the articles of incorporation of existing corporations and undoubtedly many corporate relationships have been created in reliance thereon. Therefore, the two-thirds requirement is preserved for pre-existing corporations . . . but all such corporations are permitted to amend their articles by a two-thirds vote so as to change for the future to the majority vote rule on any or all of these special subjects."
The problem pointed out is significant. However, it is believed that the solution of the 1981 South Carolina revision and the new law (and of Louisiana, Ohio, Colorado, Massachusetts,
and Virginia) is much better than that of Wisconsin (and New Mexico) -- having dual standards depending upon when the corporation was incorporated. This section maintains the protection of minority shareholders afforded by the two-thirds vote in the typical closely-held corporation while allowing publicly-held corporations, and other corporations where majority voting requirements are desirable, to adopt them. The minimum voting requirement that this section permits is identical to the standard proposed in the Model Act.
  In addition to these two major changes, the Model Act provision requires that the board of directors recommend the amendment to the shareholders unless a conflict of interest or other special circumstances make this inappropriate, in which case the board must explain why it makes no recommendation. Also, the board is allowed to condition its submission on any basis, such as the occurrence of a specified event or the receipt of a higher favorable vote than otherwise required. Both of these changes are included in this section, but only for amendments proposed by the board of directors and not for those proposed by shareholders under subsection (d).
  Finally, the Model Act provision requires that notice of the proposed amendment be given to all shareholders, whether entitled to vote on the proposal or not. The 1981 South Carolina Business Corporation Act only required notice to shareholders entitled to vote. This section contains the broader Model Act notice requirement.
DERIVATION: 1984 Model Act Section 10.03.
  Section 33-10-104. Voting on amendments by voting groups.
  (a) The holders of the outstanding shares of a class are entitled to vote as a separate voting
group (if shareholder voting is otherwise required by this act) on a proposed amendment if the amendment would:
    (1) increase or decrease the aggregate number of authorized shares of the class;
    (2) effect an exchange or reclassification of all or part of the shares of the class into shares of another class;
    (3) effect an exchange or reclassification, or create the right of exchange, of all or part of the shares of another class into shares of the class;
    (4) change the designation, rights, preferences, or limitations of all or part of the shares of the class;
    (5) change the shares of all or part of the class into a different number of shares of the same class;
    (6) create a new class of shares having rights or preferences with respect to distributions or to dissolution that are prior, superior, or substantially equal to the shares of the class;
    (7) increase the rights, preferences, or number of authorized shares of any class that, after giving effect to the amendment, have rights or preferences with respect to distributions or to dissolution that are prior, superior, or substantially equal to the shares of the class;
    (8) limit or deny an existing preemptive right of all or part of the shares of the class; or
    (9) cancel or otherwise affect rights to distributions or dividends that have accumulated but not yet been declared on all or part of the shares of the class.
  (b) If a proposed amendment would affect a series of a class of shares in one or more of the ways described in subsection (a), the shares of that series are entitled to vote as a separate voting group on the proposed amendment.
  (c) If a proposed amendment that entitles two or more series of a class of shares to vote as separate voting groups under this section would affect those two or more series in the same or a substantially similar way, the shares of all the series so affected must vote together as a single voting group on the proposed amendment.
  (d) Shares are entitled to the voting rights granted by this section although the articles of incorporation provide that the shares are nonvoting shares.
CROSS REFERENCES
Authorized shares, see Section 33-6-101.
Classes of shares, see Sections 33-6-101 and
  33-6-102.
Dissenters' rights, see Section 33-13-102.
Quorum for shareholders' meeting, see
  Section 33-7-250.
Series of shares, see Section 33-6-102.
Share rights and limitations, see Section
  33-6-101.
Voting by voting groups generally, see Sections
  33-7-250 and 33-7-260.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  A class or series of shares is generally entitled to vote separately as a voting group on any amendment that affects the class or series in the manner described in subdivisions (1) through (9) of section 10.04(a) (Section 33-10-104(a)). Shares are entitled to vote as separate voting groups under this section even though they are designed as nonvoting shares in the articles of incorporation, or the articles of incorporation purport to deny them entirely the right to vote on the proposal in question, or purport to allow other classes or series of shares to vote as part of the same voting
group. See section 10.04(d) (Section 33-10-104(d)). If an amendment would create dissenters' rights with respect to any class or series of shares, the amendment must be approved by each voting group that would have dissenters' rights by a majority of all votes entitled to be cast on the amendment, and by other voting groups by the vote required by sections 7.25 and 7.26 (Sections 33-7-250 and 33-7-260). See section 10.04(b) (Section 33-10-104(b)). All other amendments are subject to the voting requirements generally applicable to voting groups under sections 7.25 and 7.26 (Sections 33-7-250 and 33-7-260).
  The right to vote by voting groups under section 10.04 (Section 33-10-104) is applicable only if "shareholder voting is otherwise required by this Act." An amendment that does not require shareholder approval, such as the creation of a new series of shares pursuant to authority reserved in the original articles of incorporation (see section 6.02 (Section 33-6-102)), does not trigger the right to vote by voting groups under this section.
  The right to vote as a separate voting group provides a major protection for classes or series of shares with preferential rights or classes or series of limited or nonvoting shares against amendments that are especially burdensome to that class. This section, however, does not make the right to vote by separate voting group dependent on an evaluation of whether the amendment is detrimental to the class or series; if the amendment is one of those described in section 10.04(a) (Section 33-10-104(a)), the class or series is automatically entitled to vote as a separate voting group on the amendment. The question whether an amendment is detrimental is often a question of judgment, and approval by the affected class or series is required, irrespective of whether the board or other
shareholders believe it is beneficial or detrimental to the affected class or series.
  The nine types of changes that give rise to voting by voting groups are essentially the same as in earlier versions of the Model Act, though their number has been reduced based on the conclusion that some of the changes listed in earlier versions were subsumed within other listed changes. Subsections (b) and (c) extend the privilege of voting by separate voting group to one or more series of a class of shares if the series has unique financial or voting provisions and is affected in one or more of the ways described in subsection (a). These subsections must necessarily be phrased in general terms; any significant distinguishing feature of a series, which an amendment affects or alters, should trigger the right of voting by separate voting group for that series.
  The application of subsections (b) and (c) may best be illustrated by an example. Assume there is a class of shares with preferential rights comprised of three series, each with different preferential dividend rights. A proposed amendment would reduce the rate of dividend applicable to the "Series A" shares and would change the dividend right of the "Series B" shares from a cumulative to a noncumulative right. The amendment would not affect the preferential dividend right of the "Series C" shares. Both Series A and B would be entitled to vote as separate voting groups on the proposed amendment; the holders of the Series C shares, not directly affected by the amendment, would not be entitled to vote at all unless the shares are otherwise voting shares under the articles of incorporation, in which case they would not vote as a separate voting group but in the voting group consisting of all shares with general voting rights under the articles of incorporation. If the proposed amendment would reduce the dividend right of Series A and change
the dividend right of both Series B and C from a cumulative to a noncumulative right, the holders of Series A would be entitled to vote as a single voting group, and the holders of Series B and C would be required to vote together as a single, separate voting group.
  Sections 7.25 and 7.26 (Sections 33-7-250 and 33-7-260) set forth the mechanics of voting by multiple voting groups.
  Section 10.04(d) (Section 33-10-104(d)) makes clear that the limited right to vote by separate voting groups provided by section 10.04 (Section 33-10-104) may not be narrowed or eliminated by the articles of incorporation. Even if a class or series of shares is described as "nonvoting" and the articles purport to make that class or series nonvoting "for all purposes," that class or series nevertheless has the limited voting right provided by this section. Section 10.04(d) (Section 33-10-104(d)) was included because of the ambiguity that would normally arise whenever a class or series of nonvoting shares is created; no inference of any kind should be drawn from section 10.04(d) (Section 33-10-104(d)) as to whether other, unrelated sections of the Model Act may be modified by the provisions in the articles of incorporation.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 10.04) is substantively similar to the 1981 South Carolina Business Corporation Act and was adopted with one minor change.
  Subsection (c) of the Model Act implies that two or more series of different classes can be aggregated into one voting group, although that is not the intent. In the new section, the words "of a class" have been added to the Model Act provision to make it clear that only series of a single class may be aggregated.
  The Model Act provision eliminates the enumeration of the kinds of changes in a class's designation, rights, preferences, or limitations that give rise to the right to vote as a group. See Section 33-15-50(a)(4)(A) through (I) of the 1981 South Carolina Business Corporation Act. This is merely a stylistic revision, with no change in the law intended. Preemptive rights, however, are so significant that they are listed separately in the Model Act and the new law, as they were in prior South Carolina law. See Section 33-6-300 of this act.
DERIVATION: 1984 Model Act Section 10.04.
  Section 33-10-105. Amendment before issuance of shares.
  (a) If a corporation has not yet issued shares, its board of directors or, if directors have not been named, its incorporators may adopt amendments to the corporation's articles of incorporation by a unanimous vote.
  (b) If any amendment permitted by subsection (a) effects a material change in the articles of incorporation, subscribers not assenting to the amendment may rescind their subscriptions without liability, notwithstanding any contrary provision of the subscription agreement or this act.
CROSS REFERENCES
Articles of amendment, see Section 33-10-106.
Effective date of amendment, see Section
  33-1-230.
Incorporators, see Section 33-2-101.
Initial directors, see Section 33-2-102.
Organization of corporation, see Section
  33-2-105.
Restated articles of incorporation, see Section
  33-10-107.
OFFICIAL COMMENT
  Section 10.05 (Section 33-10-105) provides that, before any shares are issued, amendments may be made by the persons empowered to complete the organization of the corporation. Under section 2.04 (Section 33-2-104) the organizers may, at the option of the corporation, be either the incorporators or the initial directors named in the articles of incorporation. An amendment to the articles made at this stage of the formation process should involve a minimum of formality.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 10.05) differs substantially from the 1981 South Carolina Business Corporation Act in three regards:
  1. It allows either the incorporators or the directors to amend the articles before shares are issued.
  2. It does not require unanimity for such an amendment.
  3. It does not release subscribers from their obligations if the amendment materially changes the articles.
  Although the first of these changes may be desirable, its implementation in the Model Act is too ambiguous to be adopted verbatim. The second and third changes represent undesirable shifts in policy.
  The new section makes it clear that the incorporators have the power to amend the articles only if the directors have not been named in the articles or elected by the incorporators. This is the intended meaning of the Model Act provision, according to the Official Comment. Additionally, the new section continues the prior law's requirement of unanimity and allows dissenting subscribers to
rescind their subscriptions if the amendment effects a material change.
DERIVATION: 1984 Model Act Section 10.05.
  Section 33-10-106. Articles of amendment.
  A corporation amending its articles of incorporation shall deliver to the Secretary of State for filing articles of amendment setting forth:
  (1) the name of the corporation;
  (2) the text of each amendment adopted;
  (3) if an amendment provides for an exchange, reclassification, or cancellation of issued shares, provisions for implementing the amendment if not contained in the amendment itself;
  (4) the date of each amendment's adoption;
  (5) if an amendment was adopted by the incorporators or board of directors without shareholder action, a statement to that effect and that shareholder action was not required;
  (6) if an amendment was approved by the shareholders:
    (i) the designation, number of outstanding shares, number of votes entitled to be cast by each voting group entitled to vote separately on the amendment, and number of votes of each voting group indisputably represented at the meeting;
  (ii) either the total number of votes cast for and against the amendment by each voting group entitled to vote separately on the amendment or the total number of undisputed votes cast for the amendment by each voting group and a statement that the number cast for the amendment by each voting group was sufficient for approval by that voting group.
CROSS REFERENCES
Amendment by:
  board of directors, see Section 33-10-102.
  incorporators or initial directors, see
    Section 33-10-105.
  shareholders, see Sections 33-10-103 and
    33-10-104.
"Deliver" includes mail, see Section 33-1-400.
Effective date of amendment, see Section
  33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Merger, see Chapter 11.
Share exchange, see Chapter 11.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  The articles of amendment must set forth both the amendment itself and the manner in which it was adopted. In the case of an amendment approved by shareholder vote (sections 10.03 and 10.04 (Sections 33-10-103 and 33-10-104)), the articles must state either the total vote in favor and against the proposal or the undisputed vote for and a statement that this vote was sufficient to adopt the amendment. The latter tally method is permitted because in many situations the precise vote may depend on the resolution of protracted disputes with respect to proxy votes. The filing of the articles of amendment should not be dependent on the resolution of every dispute if it is certain that a sufficient vote has been obtained without considering the disputed votes. In most situations, of course, the precise vote can be readily determined, and when it can the articles should record it.
  Section 10.06(3) (Section 33-10-106(3)) requires the articles of amendment to contain a statement of the manner in which an exchange,
reclassification, or cancellation of issued shares is to be put into effect if not set forth in the amendment itself. This requirement avoids any possible confusion that may arise as to how the amendment is to be put into effect and also permits the amendment itself to be limited to provisions of permanent applicability, with transitional provisions having no long-range effect appearing only in the articles of amendment.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision has been adopted unchanged. It represents no substantive change from the 1981 South Carolina Business Corporation Act. The signature and filing requirements which were contained in former Section 33-15-60 are located in new Section 33-1-200, and the provision for a delayed effective date is found in new Section 33-1-230(b). The provision of former Section 33-15-60(a)(6) requiring that the Articles of Amendment specify the manner in which stated capital was effected, if it was, is not contained in the Model Act or the new law because stated capital has no legal significance under them.
DERIVATION: 1984 Model Act Section 10.06.
  Section 33-10-107. Restated articles of incorporation.
  (a) A corporation's board of directors may restate its articles of incorporation with or without shareholder action.
  (b) The restatement may include amendments to the articles. If the restatement includes an amendment requiring shareholder approval, it must be adopted as provided in Section 33-10-103.
  (c) If the board of directors submits a restatement for shareholder action, the
corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with Section 33-7-105. The notice must state also that the purpose, or one of the purposes, of the meeting is to consider the proposed restatement and contain or be accompanied by a copy of the restatement that identifies any amendment or other change it would make in the articles.
  (d) A corporation restating its articles of incorporation shall deliver to the Secretary of State for filing articles of restatement setting forth the name of the corporation (and, if it has been changed, all of its former names), the date of filing of its original articles, and the text of the restated articles of incorporation together with a certificate setting forth:
    (1) whether the restatement contains an amendment to the articles requiring shareholder approval and, if it does not, that the board of directors adopted the restatement; or
    (2) if the restatement contains an amendment to the articles requiring shareholder approval, the information required by Section 33-10-106.
  (e) Duly adopted restated articles of incorporation supersede the original articles of incorporation and all amendments to them.
  (f) The Secretary of State may certify restated articles of incorporation, as the articles of incorporation currently in effect, without including the certificate information required by subsection (d).
CROSS REFERENCES
Amendment of articles of incorporation:
  before issuance of shares, see Section
    33-10-105.
  by board of directors, see Section 33-10-102.
  by board of directors and by shareholders, see
    Section 33-10-103.
Certified copies, see Section 33-1-220.
"Deliver" includes mail, see Section 33-1-400.
Effective date of restatement, see Section
  33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
"Notice" defined, see Section 33-1-410.
Notice of shareholders' meeting, see Section
  33-7-105.
OFFICIAL COMMENT
  Restated articles of incorporation serve the useful purpose of permitting articles of incorporation that have been amended from time to time to be consolidated into a single document. Such a restatement may also eliminate "historical" or obsolete provisions that have no present relevance.
  A restatement of articles of incorporation that does not involve any substantive change in the articles (or that makes only amendments that may be made by the board of directors without shareholder approval) may be approved by the board of directors alone. In order to increase the reliability of restated articles as the definitive governing document of the corporation, section 10.07 (Section 33-10-107) authorizes the restated articles of incorporation to be submitted to the shareholders for approval in the same manner as amendments to the articles. If duly submitted to the shareholders, substantive variation between the original articles of incorporation, as amended, and the restated articles becomes academic if the shareholders' vote is the appropriate one required to amend the articles to the extent of the inconsistency.
  Substantive amendments may also be adopted as part of a restatement. If substantive amendments are proposed, the same procedure must be followed as for the adoption of amendments under sections 10.02 (Section 33-10-102), 10.03
(Section 33-10-103), or 10.05 (Section 33-10-105).
  If restated articles are submitted to the shareholders, the notice of meeting should identify changes in the articles that may reasonably be viewed as more than mere changes of form.
  Section 10.07(e) (Section 33-10-107(e)) makes it clear that the restated articles of incorporation supersede the original articles of incorporation and all amendments to them, and section 10.07(f) (Section 33-10-107(f)) permits the secretary of state to certify the restatement uncluttered by the information set forth in subsection (e).
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 10.07) is substantively similar to the 1981 South Carolina Business Corporation Act and has been adopted with two minor changes. Former Section 33-15-80(d) required that the restated articles list all of the corporation's prior names and the date of filing of its original articles of incorporation. This helpful information is not required by the Model Act provision but is included in this provision. See subsection (d).
  Section 33-15-80(d) of the 1981 South Carolina Business Corporation Act permitted the restated articles to omit the names of the incorporators and original subscribers and required retention of statements about initial stated capital and the minimum consideration to be received before commencing business. The Model Act has no similar provisions, and they have not been included in the revised statute.
DERIVATION: 1984 Model Act Section 10.07.
  Section 33-10-108. Amendment pursuant to reorganization.
  (a) A corporation's articles of incorporation may be amended without action by the board of directors or shareholders to carry out a plan of reorganization ordered or decreed by a court of competent jurisdiction under federal statute if the articles of incorporation after amendment contain only provisions required or permitted by Section 33-2-102.
  (b) The individual designated by the court shall deliver to the Secretary of State for filing articles of amendment setting forth:
    (1) the name of the corporation;
    (2) the text of each amendment approved by the court;
    (3) the date of the court's order or decree approving the articles of amendment;
    (4) the title of the reorganization proceeding in which the order or decree was entered; and
    (5) a statement that the court had jurisdiction of the proceeding under federal statute.
  (c) Shareholders of a corporation undergoing reorganization do not have dissenters' rights except as and to the extent provided in the reorganization plan.
  (d) This section does not apply after entry of a final decree in the reorganization proceeding even though the court retains jurisdiction of the proceeding for limited purposes unrelated to consummation of the reorganization plan.
CROSS REFERENCES
Dissenters' rights, see Chapter 13.
"Deliver" includes mail, see Section 33-1-400.
Effective date of amendment, see Section
  33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
"Proceeding" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 10.08 (Section 33-10-108) provides a simplified method of conforming corporate documents filed under state law with the federal statues relating to corporate reorganization. If a federal court confirms a plan of reorganization that requires articles of amendment to be filed, those amendments may be prepared and filed by the persons designated by the court and the approval of neither the shareholders nor the board of directors is required. Further, shareholders do not have dissenters' rights unless the plan specifically provides for them.
  This section applies only to amendments in articles of incorporation approved before the entry of a final decree in the reorganization plan.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 10.08) has been adopted unchanged. It represents no substantive change from the 1981 South Carolina Business Corporation Act, except that it is limited to reorganizations under federal statute. Because there is no state corporate reorganization statute and these proceedings take place under the federal Bankruptcy Code or other federal statutes, this limitation makes no difference in practice.
DERIVATION: 1984 Model Act Section 10.08.
  Section 33-10-109. Effect of amendment.
  An amendment to articles of incorporation does not affect a cause of action existing against or
in favor of the corporation, a proceeding to which the corporation is a party, or the existing rights of persons other than shareholders of the corporation. An amendment changing a corporation's name does not abate a proceeding brought by or against the corporation in its former name.
CROSS REFERENCES
Amendment after issuance of shares, see Sections
  33-10-102 through 33-10-104.
Amendment before issuance of shares, see
  Section 33-10-105.
Delayed effective date, see Section 33-1-230.
Effective time and date of filing, see Section
  33-1-230.
"Proceeding" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Under section 10.09 (Section 33-10-109), amendments to articles of incorporation do not interrupt the corporate existence and do not abate a proceeding by or against the corporation even though the amendment changes the name of the corporation.
  Amendments are effective when filed unless a delayed effective date is elected. See section 1.23 (Section 33-1-230).
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 10.09) has been adopted unchanged. It represents no substantive change from the 1981 South Carolina Business Corporation Act. The provision for a delayed effective date which was contained in former Section 33-15-70(a) is located in new Section 33-1-230(b).
DERIVATION: 1984 Model Act Section 10.09.
Article 2
Amendment of Bylaws
Sec.
33-10-200.Amendment by board of directors or shareholders.
33-10-210.Bylaw increasing quorum or voting requirement for shareholders.
33-10-220.Bylaw increasing quorum or voting requirement for directors.
  Section 33-10-200. Amendment by board of directors or shareholders.
  (a) A corporation's board of directors may amend or repeal the corporation's bylaws unless:
    (1) the articles of incorporation or this act reserves this power exclusively to the shareholders in whole or part; or
    (2) the shareholders in adopting, amending, or repealing a particular bylaw provide expressly that the board of directors may not adopt, amend, or repeal that bylaw or any bylaw on that subject.
  (b) A corporation's shareholders may amend or repeal the corporation's bylaws even though the bylaws also may be amended or repealed by its board of directors.
  (c) Any notice of a meeting of shareholders at which bylaws are to be adopted, amended, or repealed shall state that the purpose, or one of the purposes, of the meeting is to consider the adoption, amendment, or repeal of bylaws and contain or be accompanied by a copy or summary of the proposal.
CROSS REFERENCES
Action by:
  board of directors, see Sections 33-8-200
  through 33-8-240.
  shareholders, see Sections 33-7-101 through
    33-7-104.
Articles of incorporation, see Section
  33-2-102 and Chapter 10, Article 1.
Bylaws, see Sections 33-2-106 and 33-2-107.
Close corporations, see Statutory Close
  Corporation Supplement, Section 33-18-220.
Supermajority requirements, see Section
  33-10-210.
OFFICIAL COMMENT
  In the absence of a provision in the articles of incorporation, the power to amend or repeal bylaws is shared by the board of directors and shareholders. Amendment of bylaws by the board of directors is often simpler and more convenient than amendment by the shareholders and avoids the expense of calling a shareholders' meeting, a cost that may be significant in publicly held corporations. As used in this subchapter, "amendment" includes the adoption of a bylaw on a new subject as well as the alteration of existing bylaws.
  Section 10.20(a) (Section 33-10-200(a)) provides, however, that the power to amend or repeal bylaws may be reserved exclusively to the shareholders by an appropriate provision in the articles of incorporation. This option may appropriately be elected by a closely held corporation -- for example, where control arrangements appear in the bylaws but one shareholder or group of shareholders has the power to name a majority of the board of directors. In such a corporation, the control arrangements may alternatively be placed in the articles of incorporation rather than the bylaws
if there is no objection to making them a matter of public record.
  Section 10.20(a)(1) (Section 33-10-200(a)(1)) provides that the power to amend or repeal the bylaws may be reserved to the shareholders "in whole or part." This language permits the reservation of power to be limited to specific articles or sections of the bylaws or to specific subjects or topics addressed in the bylaws. It is important that the areas reserved exclusively to the shareholders be delineated clearly and unambiguously.
  Section 10.20(a)(2) (Section 33-10-200(a)(2)) permits the shareholders to adopt or amend a bylaw and reserve exclusively to themselves the power to amend or repeal it later. This reservation must be expressed in the action by the shareholders adopting or amending the bylaw. This option is also included for the benefit of closely held corporations.
  Section 10.20(b) (Section 33-10-200(b)) states that the power of shareholders to amend or repeal bylaws exists even though that power is shared with the board of directors. This section makes inapplicable the holdings of a few cases under differently phrased statutes that shareholders do not have a general or residual power to amend bylaws or that the power to amend bylaws may be vested exclusively in the board of directors. Under the Model Act the shareholders always have the power to amend or repeal the bylaws.
  Sections 10.21 (Section 33-10-210) and 10.22 (Section 33-10-220) limit the power of directors to adopt or amend supermajority provisions in bylaws.
SOUTH CAROLINA REPORTERS' COMMENTS
  The Official Text of the 1984 Model Act provision (Section 10.20) has been adopted with two changes. Under the Model Act, shareholders
are not entitled to notice that bylaws are to be adopted, amended, or repealed at the annual meeting of the shareholders. This notice was required under the 1981 South Carolina Business Corporation Act and is required under the new statute. However, the new statute does not continue the prior law's requirement of notice to directors that bylaw action is on the agenda for a board meeting.
  Another change is that the new statute explicitly states in subsection (a)(2) that in adopting or amending a particular bylaw the shareholders may prohibit the board of directors from amending or repealing that bylaw. The Model Act states that the shareholders may do so in amending or repealing a particular bylaw, although the Official Comment makes it clear that it intended to grant the power to shareholders in adopting as well as in amending a particular bylaw. Further, the new law broadens the Model Act language to allow the shareholders to restrict the power of the board of directors to adopt, amend, or repeal bylaws on a particular subject. The shareholders had this power under Section 33-11-10(c) of the 1981 South Carolina Business Corporation Act. The new statute and the Model Act, however, do not contain the prior South Carolina law's unbridled shareholder power to use the bylaws generally to limit the power of the directors to amend or repeal bylaws. If control provisions for a closely-held corporation are placed in the bylaws, it may be desirable to provide in the articles of incorporation that the bylaws may not be amended by the board of directors or to provide in the bylaws that the control provisions may not be amended or repealed by the board. Otherwise, there is danger that the protection of control provisions may be removed by those intended to be restricted by those very provisions. See Blount v. Taft, 295 N.C. 472, 246 S.E.2d 763 (1978). In addition, it may be
desirable to require in the articles of incorporation, pursuant to Section 33-10-210, a supermajority shareholder vote to amend or repeal control provisions in the bylaws.
  The Model Act and the new statute do not contain special voting requirements for action on the bylaws but leave this to the general shareholder and director voting requirements. The result is to reduce the shareholder vote required from that under prior South Carolina law, a majority of all of the shares entitled to vote, to the general requirement for shareholder action, that the votes cast in favor of the proposal exceed those cast against it. See Section 33-7-250(c). The required vote of the directors likewise is reduced from the prior law's majority of all directors to a majority of the directors present. See Section 33-8-240(c).
DERIVATION: 1984 Model Act Section 10.20.
  Section 33-10-210. Bylaw increasing quorum or voting requirement for shareholders.
  (a) If authorized by the articles of incorporation, the shareholders may adopt or amend a bylaw that fixes a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is required by this act. The adoption or amendment of a bylaw that adds, changes, or deletes a greater quorum or voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
  (b) A bylaw that fixes a greater quorum or voting requirement for shareholders under subsection (a) may not be adopted, amended, or repealed by the board of directors.
CROSS REFERENCES
Bylaws:
  amendment, see Section 33-10-200.
  generally, see Section 33-2-106.
Director supermajority requirements, see
  Section 33-10-220.
Quorum and voting of shareholders:
  normal, see Sections 33-7-250 and 33-7-260.
  supermajority requirements, see Section
    33-7-270.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  This section permits "supermajority" provisions relating to shareholder meetings to appear in the bylaws if express authorization for the provisions appears in the articles of incorporation.
  The Model Act generally requires that supermajority provisions relating to shareholder voting appear in the articles of incorporation where they are a matter of public record. See section 7.27 (Section 33-7-270). Section 10.21(a) (Section 33-10-210(a)) is consistent with this general principle since it permits a supermajority provision relating to shareholders to appear in the bylaws only if expressly authorized in the articles of incorporation. The option to place shareholder supermajority provisions in the bylaws rather than in the articles is designed primarily for the benefit of closely held corporations. Such a supermajority provision, like supermajority provisions appearing in articles of incorporation (section 7.27 (Section 33-7-270)), may be adopted or amended only by the shareholders (section 10.21(b) (Section 33-10-210(b)) and the vote must meet the supermajority requirement then being imposed or amended, whichever is greater (section 10.21(a)
(Section 33-10-210(a)). For an example of the application of this language, see the Official Comment to section 7.27 (Section 33-7-270).
  A supermajority provision in the bylaws relating to shareholder voting that is not expressly authorized by the articles of incorporation is not effective under the Model Act. The Model Act does not, however, address whether such a provision may be binding as a contract upon those shares voting in favor of the bylaw or upon subsequent holders of those shares with knowledge of the bylaw provision.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 10.21) has been adopted unchanged. There was no similar provision in the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 10.21.
  Section 33-10-220. Bylaw increasing quorum or voting requirement for directors.
  (a) A bylaw that fixes a greater quorum or voting requirement for the board of directors may be amended or repealed:
    (1) if originally adopted by the shareholders, only by the shareholders;
    (2) if originally adopted by the board of directors, either by the shareholders or by the board of directors.
  (b) A bylaw adopted or amended by the shareholders that fixes a greater quorum or voting requirement for the board of directors may provide that it may be amended or repealed only by a specified vote of either the shareholders or the board of directors.
  (c) Action by the board of directors under subsection (a)(2) to adopt or amend a bylaw that changes the quorum or voting requirement for the board of directors must meet the same quorum
requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
CROSS REFERENCES
Bylaws:
  amendment, see Section 33-10-200.
  generally, see Section 33-2-106.
Quorum and voting of directors, see Section
  33-8-240.
Quorum and voting of shareholders:
  normal, see Sections 33-7-250 and 33-7-260.
  supermajority requirements, see Section
    33-7-270.
OFFICIAL COMMENT
  Supermajority provisions relating to the board of directors may appear in the bylaws of the corporation without specific authorization in the articles of incorporation. See section 8.24(a) and (c) (Section 33-8-240(a) and (c)). Like other bylaw provisions, they may be adopted either by the board of directors or by the shareholders. See section 10.20 (Section 33-10-200). Such provisions, further, may be amended or repealed by the board of directors or shareholders as provided in this section. This treatment of supermajority provisions for the board of directors should be contrasted with the treatment of analogous provisions for shareholders which must either be set forth in the articles of incorporation, section 7.27 (Section 33-7-270), or included in the bylaws when expressly authorized by the articles, section 10.21 (Section 33-10-210), and their adoption, amendment, or repeal must be approved by the shareholders by the vote specified in sections 7.27 (Section 33-7-270) and 10.21 (Section 33-10-210).
  Supermajority provisions relating to the board of directors are usually part of control arrangements in closely held corporations, and section 10.22 (Section 33-10-22) is designed with this end in view. Its basic purpose is to ensure that control arrangements negotiated by shareholders for their own protection will not be prematurely terminated by a majority vote of the shareholders or the board of directors. Thus, section 10.22(a)(1) (Section 33-10-220(a)(1)) provides that if a supermajority requirement is originally imposed by a bylaw adopted by the shareholders, only the shareholders may amend or repeal it. Further, under section 10.22(b) (Section 33-10-220(b)), that bylaw may impose restrictions on the manner in which it may be thereafter amended or repealed by the shareholders. On the other hand, if a supermajority requirement is originally imposed in a bylaw adopted by the board of directors, that bylaw may be amended either by the board of directors or shareholders (see section 10.22(a)(2)(Section 33-10-220(a)(2)), but if it is to be amended by the board of directors, section 10.22(c) (Section 33-10-22(c)) requires approval by the supermajority requirement then being imposed or amended, whichever is greater. This requirement is analogous to that imposed on supermajority amendments appearing in the articles of incorporation. See section 7.27 (Section 33-7-270). For an example of the application of this language, see the Official Comment to section 7.27 (Section 33-7-270).
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 10.22) has been adopted unchanged. There was no similar provision in the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 10.22.
CHAPTER 11
Merger and Share Exchange
Sec.
33-11-101. Merger.
33-11-102. Share exchange.
33-11-103. Action on plan.
33-11-104. Merger of subsidiary.
33-11-105. Articles of merger or share exchange.
33-11-106. Effect of merger or share exchange.
33-11-107.Merger or share exchange with foreign corporation.
33-11-108. Merger of parent into subsidiary.
  Section 33-11-101. Merger.
  (a) Corporations may merge into another corporation if the board of directors of each corporation adopts and its shareholders (if required by Section 33-11-103) approve a plan of merger.
  (b) The plan of merger must set forth the:
    (1) name of each corporation planning to merge and the name of the surviving corporation into which each other corporation plans to merge;
    (2) terms and conditions of the merger; and
    (3) manner and basis of converting the shares of each corporation into shares, obligations, or other securities of the surviving or any other corporation or into cash or other property in whole or part.
  (c) The plan of merger may set forth:
    (1) amendments to the articles of incorporation of the surviving corporation; and
    (2) other provisions relating to the merger.
CROSS REFERENCES
Abandonment of merger, see Section 33-11-103.
Amendment of articles of incorporation, see
  Section 33-11-106.
Approval by shareholders, see Section 33-11-103.
Articles of merger, see Section 33-11-105.
Close corporations, see Statutory Close
  Corporation Supplement, Section 33-18-300.
Dissenters' rights, see Chapter 13.
Effect of merger, see Section 33-11-106.
Merger of subsidiary into parent, see Section
  33-11-104.
Merger with foreign corporation, see Section
  33-11-107.
Share exchange, see Section 33-11-102.
OFFICIAL COMMENT
1. Introductory Comment
  Chapter 11 deals with mergers and compulsory share exchanges by corporations. A merger is a transaction by which one or more corporations disappear into the surviving corporation, which becomes vested with all the business and assets, and becomes liable for the debts and liabilities, of each disappearing corporation. A share exchange is a transaction by which a corporation becomes the owner of all the outstanding shares of one or more classes of another corporation by an exchange that is compulsory on all owners of the acquired shares. The two types of transactions have similar consequences, though in the case of a merger the separate existence of the non-surviving corporations disappears while in a share exchange the separate existence of each corporation is not affected; if all the shares of a corporation are acquired through a share exchange, that corporation becomes a wholly owned subsidiary of the acquiring corporation.
  Earlier versions of the Model Act also provided for a "consolidation," which was similar to a merger, except that all corporate parties to the transaction disappeared and an entirely new corporation was created. In modern corporate practice consolidation transactions are obsolete since it is nearly always advantageous for one of the parties in the transaction to be the surviving corporation. (If creation of a new entity is considered desirable, a new entity may be created before the merger and the disappearing entities merged into it.) As a result all references to a statutory "consolidation" have been deleted from the Model Act.
  The procedures required for approval of merger and share exchange transactions are relatively simple: adoption of a plan of merger or share exchange by the boards of directors of all corporations that are parties to the transaction, approval by the shareholders to the extent required by section 11.03 (Section 33-11-103), and filing articles of merger or share exchange under section 11.05 (Section 33-11-105).
2. Statutory Mergers
  Section 11.01(a) (Section 33-11-101(a)) authorizes a statutory merger, to be accomplished by the adoption of a plan of merger under section 11.01(b) (Section 33-11-101(b)), approval of the transaction by the shareholders (if required by section 11.03 (Section 33-11-103)), and filing articles of merger under section 11.05 (Section 33-11-105). Upon the effective date of the merger, the surviving corporation becomes vested with all the assets of the disappearing corporations and becomes subject to their liabilities.
  Under the Model Act, there are virtually no restrictions or limitations on the terms of a statutory merger. Shareholders of the
disappearing corporations may receive securities of the surviving corporation, securities of a third corporation, e.g., shares issued by the parent of the surviving or disappearing corporation (which may be publicly traded and marketable while the shares of the surviving or disappearing corporation are not), or cash or other property (a "cash" or "cash-out" merger). Some of the holders of a single class of shares may be required to accept securities or properties while the remaining holders may be compelled to accept different securities, property, or cash. The capitalization of the surviving corporation may be restructured in the merger, or its articles of incorporation may be amended by the articles of merger in any way deemed appropriate. Any other provisions considered necessary or desirable with respect to the merger may be included in the plan of merger.
  Merger transactions may give rise to voting by separate voting groups of shareholders under section 11.03(f) (Section 33-11-103(f)), and dissenting shareholders may have dissenters' rights under chapter 13.
  Courts have held that merger transactions that are formally authorized by the procedures set forth in this chapter may in some circumstances constitute a breach of duty to minority shareholders where the effect of the transaction is to eliminate them from further equity participation in the enterprise. See McBride, "Delaware Corporate Law: Judicial Scrutiny of Mergers -- The Aftermath of Singer v. Magnavox Co.," 33 BUS. LAW. 2231 (1978). In Delaware, case law establishes that these transactions must be fully disclosed and entirely fair to the minority shareholders. See Singer v. Magnavox Co., 380 A.2d 969 (Del. 1977); Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983); Harman v. Masoneilan International, Inc., 442 A.2d 487 (Del. 1982).
3. Equivalent Nonstatutory Transactions
  A transaction may have the same economic effect as a statutory merger even though it is cast in the form of a nonstatutory transaction. For example, assets of the disappearing corporations may be sold for consideration in the form of shares of the surviving corporation, followed by the distribution of those shares by the disappearing corporations to their shareholders and their subsequent dissolution. Transactions have sometimes been structured in nonstatutory form for tax reasons or in an effort to avoid some of the consequences of a statutory merger, particularly appraisal rights to dissenting shareholders. Faced with these transactions, a few courts have developed or accepted the "de facto merger" concept which, to some uncertain extent, grants to dissenting shareholders the rights they would have had if the transaction had been structured as a statutory merger. See Folk, "De Facto Mergers in Delaware: Hariton v. Arco Electronics, Inc.," 49 VA. L. REV. 1261 (1963). These problems should not occur under the Model Act since the procedural requirements for authorization and consequences of various types of transactions are largely standardized. For example, dissenters' rights are granted not only in mergers but also in share exchanges, in sales of all or substantially all the corporate assets, and in amendments to articles of incorporation that significantly affect rights of shareholders.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision was adopted unchanged. It represents no significant substantive change from the 1981 South Carolina Business Corporation Act's provisions for mergers, although, as noted in the Official Comments, the Model Act does not provide for statutory consolidations. The Model Act and new
South Carolina provision permit the inclusion in the plan of any amendments to the articles necessitated by the merger; under prior South Carolina law, their inclusion was mandatory. Additionally, the Model Act and the new provision do not contain a provision similar to Section 33-17-10(c) of the 1981 South Carolina Business Corporation Act authorizing the merger of a corporation with a joint stock company, an unincorporated association, a business trust, or a corporation organized under a special statute.
DERIVATION: 1984 Model Act Section 11.01.
  Section 33-11-102. Share exchange.
  (a) A corporation may acquire all of the outstanding shares of one or more classes or series of another corporation if the board of directors of each corporation adopts and its shareholders, if required by Section 33-11-103, approve the exchange.
  (b) The plan of exchange must set forth the:
    (1) name of the corporation whose shares will be acquired and the name of the acquiring corporation;
    (2) terms and conditions of the exchange;
    (3) manner and basis of exchanging the shares to be acquired for shares, obligations, or other securities of the acquiring or any other corporation or for cash or other property in whole or part.
  (c) The plan of exchange may set forth other provisions relating to the exchange.
  (d) This section does not limit the power of a corporation to acquire all or part of the shares of one or more classes or series of another corporation through a voluntary exchange or otherwise.
CROSS REFERENCES
Abandonment of share exchange, see Section
  33-11-103.
Approval by shareholders, see Section 33-11-103.
Articles of share exchange, see Section
  33-11-105.
Classes of shares, see Section 33-6-101.
Close corporations, see Statutory Close
  Corporation Supplement, Section 33-18-300.
Dissenters' rights, see Chapter 13.
Effect of share exchange, see Section 33-11-106.
Series of shares, see Section 33-6-102.
Share exchange with foreign corporation, see
  Section 33-11-107.
OFFICIAL COMMENT
  Section 11.02 (Section 33-11-102) establishes a procedure by which a direct exchange of shares for cash or other consideration in corporate combinations may be effected under the same safeguards applicable to statutory mergers or similar transactions. A share exchange under section 11.02 (Section 33-11-102) is binding upon all shareholders of the acquired class or series of shares.
  It is often desirable to effect a reorganization or combination so that the corporation being acquired does not go out of existence but becomes a subsidiary of the acquiring corporation or holding company, the securities of which are issued as part of the transaction. These objectives often are particularly important in the formation of holding company systems for, or for the acquisition of, insurance companies and banks, but are not limited to these transactions. In the absence of a share exchange procedure, this kind of a transaction often may be accomplished only by the process of a "reverse triangular merger": the formation of a new subsidiary of
the acquiring or holding company, followed by a merger of that subsidiary into the corporation to be acquired in which securities of the new subsidiary's parent are exchanged for securities of the corporation to be acquired. Section 11.02 (Section 33-11-102) provides a straightforward procedure to accomplish the same end.
  Under section 11.02 (Section 33-11-102), all shares of a particular class or series of shares must be acquired. However, shares of one or more classes or series may be excluded from the plan or may be included on different bases. After the plan is adopted and approved by the shareholders as required by section 11.03 (Section 33-11-103), it is binding on all holders of shares of the class or series to be acquired; members of the class or series, however, have the right to dissent under chapter 13.
  It is not necessary that a share exchange under section 11.02 (Section 33-11-102) be on a share-for-share basis. The consideration for the shares being acquired may be "shares, obligations, or other securities of the acquiring or any other corporation or . . . cash or other property in whole or part."
  Section 11.02(c) (Section 33-11-102(c)) is designed to make it clear that the mandatory exchange provided by section 11.02 (Section 33-11-102) does not affect the power of corporations to acquire shares by voluntary exchange or otherwise by agreement with the shareholders.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 11.02) was adopted unchanged. It represents no significant substantive change from the 1981 South Carolina Business Corporation Act, although it does not continue the requirement of
prior law that the plan set forth all of the statutory notice provisions.
DERIVATION: 1984 Model Act Section 11.02.
  Section 33-11-103. Action on plan.
  (a) 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 are to be acquired in the share exchange, shall submit the plan of merger (except as provided in subsection (h)) or share exchange for approval by its shareholders.
  (b) For a plan of merger or share exchange to be approved:
    (1) the board of directors must recommend the plan of merger or share exchange to the shareholders, unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the plan; and
    (2) the shareholders entitled to vote must approve the plan.
  (c) The board of directors may condition its submission of the proposed merger or share exchange on any basis.
  (d) The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with Section 33-7-105. The notice also must state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger or share exchange and contain or be accompanied by a copy or summary of the plan. In addition, the notice must be accompanied by balance sheets of each corporation participating in the merger or share exchange showing in reasonable detail the financial condition of the corporation as of the close of the two preceding fiscal years and
by income statements of each participating corporation for the three preceding fiscal years.
  (e) Unless this act or the articles of incorporation require a different vote or the board of directors (acting pursuant to subsection (c)) requires a greater vote than that specified by this subsection or the articles of incorporation, the plan of merger or share exchange to be adopted must be approved by: (1) two-thirds of the votes entitled to be cast on the plan, regardless of the class or voting group to which the shares belong, and (2) two-thirds of the votes entitled to be cast on the plan within each voting group entitled to vote as a separate voting group on the plan.
  (f) The articles of incorporation may require a lower or higher vote for approval than that specified in subsection (e), but the required vote must be at least a majority of the votes entitled to be cast on the plan by each voting group entitled to vote separately on the plan.
  (g) Separate voting by voting groups is required:
    (1) on a plan of merger if the plan contains a provision that, if contained in a proposed amendment to the articles of incorporation, would require action by one or more separate voting groups on the proposed amendment under Section 33-10-104;
    (2) on a plan of share exchange by each class or series of shares included in the exchange, with each class or series constituting a separate voting group.
  (h) Action by the shareholders of the surviving corporation on a plan of merger is not required if:
    (1) the articles of incorporation of the surviving corporation will not differ (except for amendments enumerated in Section 33-10-102) from its articles before the merger;
    (2) 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;
    (3) 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 by more than twenty percent the total number of voting shares of the surviving corporation outstanding immediately before the merger; and
    (4) 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 by more than twenty percent the total number of participating shares outstanding immediately before the merger.
  (i) As used in subsection (h):
    (1) 'Participating shares' means shares that entitle their holders to participate without limitation in distributions.
    (2) 'Voting shares' means shares that entitle their holders to vote unconditionally in elections of directors.
  (j) After a merger or share exchange is authorized, 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 action, 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.
CROSS REFERENCES
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
Dissenters' rights, see Chapter 13.
Distributions, see Sections 33-1-400 and
  33-6-400.
"Notice" defined, see Section 33-1-410.
Notice of shareholders' meeting, see Section
  33-7-105.
Supermajority quorum and voting requirements,
  see Section 33-7-270.
Unanimous consent of shareholders, see Section
  33-7-104.
Voluntary share exchange, see Sections 33-11-102
  and 33-11-107.
Voting by voting groups generally, see
  Sections 33-7-250 and 33-7-260.
Voting by voting group on amendment of articles
  of incorporation, see Section 33-10-104.
Voting entitlement of shareholders generally,
  see Section 33-7-210.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
1. Introduction
  Section 11.03 (Section 33-11-103) requires mergers or share exchanges to be approved by the shareholders as follows:
  In the case of a merger:
(1)the transaction must always be approved by the shareholders of the disappearing corporation; and
(2)the transaction must be approved by the shareholders of the surviving corporation if the number of voting or participating shares is increased by more than 20 percent as a result of the transaction.
  In the case of a share exchange:
(1)the transaction must always be approved by the shareholders of the corporation whose shares are being acquired; and
(2)the transaction need not be approved by the shareholders of the corporation acquiring the shares.
  Section 11.03 (Section 33-11-103) requires the board of directors to propose the plan of merger or sale exchange and then submit the proposal to the shareholders. When proposing a plan of merger or share exchange, the board of directors must make a recommendation to the shareholders that the plan be approved, unless it determines that because of conflict of interest or other special circumstances it should make no recommendation. if the board of directors so determines, it must describe the conflict or circumstances, and communicate the basis of its determination, when presenting the proposed plan of merger or share exchange to the shareholders.
  Section 11.03(c) (Section 33-11-103(c)) permits the board of directors to condition its submission of a plan of merger or share exchange on any basis; for example, the board may direct that the plan is approved only if it receives a favorable vote of a specified percentage of the disinterested shareholders voting on the plan or that shareholders holding no more than a specified number or percentage of shares file notice of intent to demand payment under chapter 13. See the discussion of conditional submissions in the Official Comment to section 10.03 (Section 33-10-103).
  A plan of merger or share exchange, to be approved, must be approved by each voting group entitled to vote on the merger by a majority of all the votes entitled to be cast on the plan. This is a greater vote than that required for ordinary matters under section 7.25 (Section 33-7-250). The articles of incorporation of either corporation, however, may require a
greater vote by one or more voting groups of that corporation, and if the transaction involves an amendment to the articles of incorporation of the surviving corporation which affects the voting requirements for future amendments, the transaction must also be approved by the vote required by section 7.27 (Section 33-7-270). See section 11.03(e) (Section 33-11-103(e)). In addition, voting by more than one voting group may be required by section 11.03(f) (Section 33-11-103(f)) or by the articles of incorporation. Finally, the board of directors may require a greater vote or a vote by voting groups under their power to make conditional submissions to shareholders described above. The articles of incorporation or the board of directors, however, may only require a vote by separate voting groups in addition to that otherwise required by this Act.
  Only shareholders who have the right to vote on a merger or share exchange under section 11.03 (Section 33-11-103) have the right to dissent and obtain payment for their shares under chapter 13.
2.When Surviving Corporation Shareholder Approval is Not Required
  Section 11.03(g) (Section 33-11-103(g)) describes when approval by the shareholders of the surviving corporation is not required. The theory behind this subsection is that shareholders' votes should be required only if the transaction fundamentally alters the character of the enterprise or substantially reduces the shareholders' participation in voting or profit distribution. It is believed that the transactions for which shareholder approval is not required by subsection (g) do not alter the investors' prospects any more than many other management decisions, and thus should not require a shareholder vote. In particular, the 20 percent requirement of subsections (g)(3)
and (4) is broadly consistent with the statutes of several states, including Delaware (20 percent), Michigan (20 percent), and Pennsylvania (15 percent), and also with the New York Stock Exchange requirement that shareholders must be consulted if the number of outstanding shares is to be increased by more than 18.5 percent.
  The requirement that shareholders of the surviving corporation in a statutory merger have a right to vote if the increase in the number of shares exceeds 20 percent may be avoided by arranging the transaction in the form of a merger involving a subsidiary of the acquiring corporation or as a share exchange under section 11.02 (Section 33-11-102). This anomaly reflects a compromise among basically conflicting points of view.
  The 20 percent requirement is applicable only if the corporation has available enough authorized shares to permit it to issue the shares without amending its articles of incorporation to increase authorized capital. If it must amend its articles of incorporation to authorize the shares necessary to complete the transaction, a shareholder vote on the amendment will be necessary in all cases. See section 10.03 (Section 33-10-103).
3. Voting by Multiple Voting Groups
  Section 11.03(f)(1) (Section 33-11-103(f)(1)) requires voting by voting groups on a plan of merger if the plan contains a provision that "if contained in a proposed amendment to articles of incorporation, would require action by one or more separate voting groups on the proposed amendment." See section 10.04 (Section 33-10-104). Under this provision, voting by voting groups may be required for one or more classes or series of shares of the surviving corporation as well as for one or more classes or series of the disappearing corporation.
  Section 11.03(f)(2) (Section 33-11-103(f)(2)) requires voting by voting groups in a share exchange, with each class or series of shares that is to be acquired in a share exchange entitled to vote as a separate voting group. This provision protects all classes of shareholders when more than one class or series of shares are being acquired on different terms.
4. Application of the 20-percent Requirement
  In a merger transaction that involves an increase in shares of more than 20 percent, section 11.03(g) (Section 33-11-103(g)) requires a shareholder vote in order to prevent significant dilution without the approval of the shareholders involved. Sections 11.03(g)(3) and (4) (Sections 33-11-103(g)(3) and 33-11-103(g)(4)) separately apply the 20-percent test to increases in the "voting shares" (as defined in section 11.03(h)(2)) (Section 33-11-103(h)(2)) and increases in "participating shares" (as defined in section 11.03(h)(1)) (Section 33-11-103(h)(1)). If either type of shares is increased by more than 20 percent in the merger transaction, the transaction must be approved by the shareholders.
  Under the definitions in subsections (h)(1) and (2), the 20 percent requirement may be applied to shares with preferential rights if they are either voting or fully participating, and to deferred or contingent shares issued as a result of the merger. On the other hand, it is typically not applicable to shares issuable under anti-dilution clauses to balance share splits or share dividends; these shares would not become issuable "pursuant to the merger," but by virtue of later corporate action authorizing the split or dividend.
  Sections 11.03(g)(3) and (4) (Sections 33-11-103(g)(3) and 33-11-103(g)(4)) only determine when a shareholders' vote is required; they do not relate to voting by voting groups.
Whether or not a class or series of shares is entitled to vote as a separate voting group is determined by section 11.03(f) (Section 33-11-103(f)).
5. Abandonment of Merger or Share Exchange
  Section 11.03(i) (Section 33-11-103(i)) makes it clear that the corporations may abandon without shareholder approval a merger or share exchange even though it has been previously approved by the shareholders. Abandonment under this section does not affect contract rights of third parties. The plan, however, may require that abandonments be approved by shareholders before they are effective.
SOUTH CAROLINA REPORTERS' COMMENTS
  The Official Text of the 1984 Model Act (Section 11.03) differs significantly from the 1981 South Carolina Business Corporation Act in three major regards: (1) subsection (g) had no counterpart in prior South Carolina law, (2) it provides for approval by a majority vote rather than two-thirds, and (3) it does not require that the notice to the shareholders be accompanied by financial statements for the participating corporations. The new provision adopts the first of these from the Model Act but generally follows prior South Carolina law on the other two matters. The voting provision is parallel to that of new Section 33-10-103 for amendment of the articles of incorporation. The financial statements which must be furnished with the notice are those required under federal proxy regulations -- balance sheets for the two previous years and income statements for the three previous years -- rather than balance sheets and income statements for the three previous years as formerly required by Section 33-17-30(b)(3) of the 1981 South Carolina
Business Corporation Act. See Securities Exchange Act Rule 14a-3, 17 C.F.R. Section 240.14a-3. However, unlike SEC Rule 14a-3, the new provision does not require that the financial statements be audited nor does it require that statements of changes of financial position be included. Although the financial statements under this provision do not have to be prepared in accordance with generally accepted accounting principles, they must not be false or misleading. See new Section 33-7-220.
DERIVATION: 1984 Model Act Section 11.03.
  Section 33-11-104. Merger of subsidiary.
  (a) A parent corporation owning at least ninety percent of the outstanding shares of each class of a subsidiary corporation may merge the subsidiary into itself without approval of the shareholders of the parent or subsidiary.
  (b) The board of directors of the parent shall adopt a plan of merger that sets forth the:
    (1) names of the parent and subsidiary; and
    (2) manner and basis of converting the shares of the subsidiary into shares, obligations, or other securities of the parent or any other corporation or into cash or other property in whole or part.
  (c) The parent shall mail a copy or summary of the plan of merger to each shareholder of the subsidiary who does not waive the mailing requirement in writing.
  (d) The parent may not deliver articles of merger to the Secretary of State for filing until at least thirty days after the date it mailed a copy of the plan of merger to each shareholder of the subsidiary who did not waive the mailing requirement.
  (e) Articles of merger under this section may not contain amendments to the articles of incorporation of the parent corporation (except for amendments enumerated in Section 33-10-102).
CROSS REFERENCES
Amendment of articles of incorporation by
  directors, see Section 33-10-102.
Articles of merger, see Section 33-11-105.
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
Dissenters' rights, see Chapter 13.
OFFICIAL COMMENT
  Section 11.04(a) (Section 33-11-104(a)) defines a "parent" corporation as one that owns at least 90 percent of the outstanding shares of each class of another corporation, and a "subsidiary" corporation as one whose shares are so owned. Section 11.04 (Section 33-11-104) permits merger of a subsidiary into its parent corporation upon adoption of a plan of merger by the board of directors of the parent alone. Separate action by the board of directors of the subsidiary is unnecessary because the share ownership of the parent corporation is normally sufficient to permit it to elect or remove the subsidiary's board of directors.
  Further, the merger transaction need not be approved by the shareholders of either corporation. Approval by the shareholders of the subsidiary is meaningless because the parent's share ownership is sufficient to ensure the plan will be approved. Approval by the parent's shareholders is also unnecessary because the transaction does not materially change their rights: the ownership of the parent corporation is being changed only from 90 percent indirect ownership to 100 percent direct ownership of the same assets, and no significant amendment of the parent's articles of incorporation is being made. For the same reason, shareholders of the parent corporation do not have the right to dissent from the transaction under chapter 13.
  Minority shareholders of the subsidiary corporation may receive shares, obligations, or other securities of the parent or any other corporation, or cash or other property in whole or in part in exchange for their shares. These shareholders are entitled to 30 days' notice of the plan of merger before it is effectuated.
  Shareholders of the subsidiary corporation have a right to dissent from the merger transaction under chapter 13. Courts have held that in some circumstances such a transaction may constitute a breach of duty owed by the parent corporation to the shareholders of the subsidiary. See Roland International Corp. v. Najjar, 407 A.2d 1032 (Del. 1979).
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 11.04) has been adopted unchanged. The only significant substantive change from the 1981 South Carolina Business Corporation Act is that it does not apply to a merger of one subsidiary into another. Dissenters' rights, which were mentioned in former Section 33-17-50, are now provided for solely in new Section 33-13-102. Subsection (e) of the Model Act section and the new provision merely state explicitly what was implicit in Section 33-17-50(b) of the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 11.04.
  Section 33-11-105. Articles of merger or share exchange.
  (a) After a plan of merger or share exchange is approved by the shareholders, or adopted by the board of directors if shareholder approval is not required, the surviving or acquiring corporation shall deliver to the Secretary of State for filing articles of merger or share exchange setting forth:
    (1) the plan of merger or share exchange;
    (2) if shareholder approval was not required, a statement to that effect;
    (3) if approval of the shareholders of one or more corporations party to the merger or share exchange was required:
      (i) the designation, number of outstanding shares, and number of votes entitled to be cast by each voting group entitled to vote separately on the plan as to each corporation; and
    (ii) either the total number of votes cast for and against the plan by each voting group entitled to vote separately on the plan or the total number of undisputed votes cast for the plan separately by each voting group and a statement that the number cast for the plan by each voting group was sufficient for approval by that voting group.
  (b) A merger or share exchange takes effect upon the effective date of the articles of merger or share exchange.
CROSS REFERENCES
Approval of merger or share exchange, see
  Sections 33-11-101 through 33-11-103.
"Deliver" includes mail, see Section 33-1-400.
Effective time and date of filing, see Section
  33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Short form merger, see Section 33-11-104.
Voting by voting group, see Sections 33-7-250
  and 33-7-260.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  The articles of merger or share exchange formally make the terms of the transaction a matter of public record and the effective date of the articles is the effective date of their
filing unless a delayed effective date is utilized. See section 1.23 (Section 33-1-230). The articles of merger or share exchange must describe whether the plan was submitted to the vote of one or more voting groups of the participating corporations entitled to vote separately on the plan, and, if so, either the total vote in favor and against the plan or a statement that the plan was approved by at least the number of undisputed votes required to approve the merger or share exchange by each voting group of each participating corporation entitled to vote separately on the plan.
SOUTH CAROLINA REPORTERS' COMMENT
  The 1984 Model Act provision (Section 11.05) was adopted unchanged. It makes no significant substantive change from Section 33-17-40 of the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 11.05.
  Section 33-11-106. Effect of merger or share exchange.
  (a) When a merger takes effect:
    (1) every other corporation party to the merger merges into the surviving corporation and the separate existence of every corporation except the surviving corporation ceases;
    (2) the title to all real estate and other property owned by each corporation party to the merger is vested in the surviving corporation without reversion or impairment;
    (3) the surviving corporation has all liabilities of each corporation party to the merge;
    (4) a proceeding pending against any corporation party to the merger may be continued as if the merger did not occur or the surviving corporation may be substituted in the proceeding for the corporation whose existence ceased;
    (5) the articles of incorporation of the surviving corporation are amended to the extent provided in the plan of merger; and
    (6) the shares of each corporation party to the merger that are to be converted into shares, obligations, or other securities of the surviving or any other corporation or into cash or other property are converted, and the former holders of the shares are entitled only to the rights provided in the articles of merger or to their rights under Chapter 13.
  (b) When a share exchange takes effect, the shares of each acquired corporation are exchanged as provided in the plan, and the former holders of the shares are entitled only to the exchange rights provided in the articles of share exchange or to their rights under Chapter 13.
CROSS REFERENCES
Dissenters' rights, see Chapter 13.
Effective date of merger or share exchange, see
  Section 33-1-230.
"Proceeding" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 11.06 (Section 33-11-106) describes the legal consequences of a merger or share exchange on its effective date.
  Section 11.06(a) (Section 33-11-106(a)) describes the effect of a merger. On the effective date every disappearing corporation that is a party to the merger disappears into the surviving corporation and the surviving corporation automatically becomes the owner of all real and personal property and becomes subject to all liabilities, actual or contingent, of each disappearing corporation. A merger is not a conveyance or transfer, and does not give rise to claims of reverter or
impairment of title based on a prohibited conveyance or transfer. See section 11.06(a)(2) (Section 33-11-106(a)(2)). Further, all pending litigation is continued; the name of the surviving corporation may, but need not be, substituted for the name of a disappearing corporation that is a party to litigation.
  Section 11.06(a)(6) (Section 33-11-106(a)(6) provides that if any shareholders to any party to the merger are to receive different shares or cash or property under the plan of merger, the rights of those shareholders after the articles of merger are filed are limited to their rights under the plan of merger or their rights under chapter 13 of this Act.
  The articles of incorporation of the surviving corporation are amended as provided in the plan of merger on the effective date of the merger. See section 11.06(a)(5) (Section 33-11-106(a)(5)).
  Section 11.06(b) (Section 33-11-106(b)) describes the effect of a share exchange. On the effective date, the shareholders of the acquired class of shares cease to be shareholders of the acquired corporation. On that date they are entitled to receive only the consideration provided in the plan of share exchange, or the rights of dissenting shareholders under chapter 13.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 11.06) has been adopted unchanged. It represents no significant substantive change from Section 33-17-60 of the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 11.06.
  Section 33-11-107. Merger or share exchange with foreign corporation.
  (a) Foreign corporations may merge or enter into a share exchange with domestic corporations if:
    (1) in a merger, the merger is permitted by the law of the state or country under whose law each foreign corporation is incorporated and each foreign corporation complies with that law in effecting the merger;
    (2) in a share exchange, the corporation whose shares are to be acquired is a domestic corporation, whether or not a share exchange is permitted by the law of the state or country under whose law the acquiring corporation is incorporated;
    (3) the foreign corporation complies with Section 33-11-105 if it is the surviving corporation of the merger or acquiring corporation of the share exchange; and
    (4) each domestic corporation complies with the applicable provisions of Sections 33-11-101 through 33-11-104 and, if it is the surviving corporation of the merger or acquiring corporation of the share exchange, with Section 33-11-105.
  (b) Upon the merger or share exchange taking effect, the surviving foreign corporation of a merger and the acquiring foreign corporation of a share exchange is considered to:
    (1) appoint the Secretary of State as its agent for service of process in a proceeding to enforce any obligation or the rights of dissenting shareholders of each domestic corporation party to the merger or share exchange; and
    (2) agree that it will pay promptly to the dissenting shareholders of each domestic corporation party to the merger or share
exchange the amount, if any, to which they are entitled under Chapter 13.
  (c) This section does not limit the power of a foreign corporation to acquire all or part of the shares of one or more classes or series of a domestic corporation through a voluntary exchange or otherwise.
CROSS REFERENCES
Articles of merger or share exchange, see
  Section 33-11-105.
Authority to transact business in this State,
  see Chapter 15.
"Deliver" includes mail, see Section 33-1-400.
Dissenters' rights, see Chapter 13.
Effective time and date of filing, see
  Section 33-1-230.
Fee for service of process on Secretary of
  State, see Section 33-1-220.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
"Proceeding" defined, see Section 33-1-400.
Shareholder approval of merger or share
  exchange, see Section 33-11-103.
OFFICIAL COMMENT
  Section 11.07 (Section 33-11-107) permits mergers or share exchanges between domestic and foreign corporations.
  In connection with a plan of merger, the plan must be permitted under the law of the state or country of incorporation of the foreign corporation as well as under the law of the domestic state. The surviving corporation, if it is a foreign corporation, must file articles of merger to accomplish the disappearance of the domestic corporation or corporations, and thereby irrevocably appoints the secretary of state as agent for service of process and agrees to pay dissenters in accordance with chapter 13.
  A plan of share exchange, unlike a plan of merger, need not be authorized by the state or country of incorporation of the acquiring foreign corporation. If the domestic law authorizes a compulsory share exchange to acquire a class or series of shares of a domestic corporation, it makes no difference whether the acquiring corporation is foreign or domestic. This kind of transaction does not affect the separate corporate existence of, or impose the liabilities of the disappearing corporation on, the acquiring foreign corporation.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 11.07) has been adopted unchanged. It is less restrictive than the equivalent provision in the 1981 South Carolina Business Corporation Act in that it allows a share exchange with a foreign acquiring corporation regardless of whether the law of its state of incorporation authorizes the share exchange.
DERIVATION: 1984 Model Act Section 11.07.
  Section 33-11-108. Merger of parent into subsidiary.
  (a) A parent corporation owning at least ninety percent of the outstanding shares of each class of a subsidiary corporation may merge itself into the subsidiary without approval of the shareholders of the subsidiary if the plan of merger is submitted to and approved by the shareholders of the parents in accordance with Section 33-11-103.
  (b) The board of directors of the parent shall adopt a plan of merger that sets forth the:
    (1) names of the parent and subsidiary; and
    (2) manner and basis of converting the shares
of the parent pro rata into shares of the subsidiary.
  (c) The subsidiary shall mail a copy or summary of the plan of merger to each of its shareholders who does not waive the mailing requirement in writing.
  (d) The subsidiary may not deliver articles of merger to the Secretary of State for filing until at least thirty days after the date it mailed a copy of the plan of merger to each of its shareholders who did not waive the mailing requirement.
  (e) Articles of merger under this section may not contain amendments to the articles of incorporation of the subsidiary corporation (except for amendments enumerated in Section 33-10-102).
CROSS REFERENCES
Amendment of articles of incorporation by
  directors, see Section 33-10-102.
Articles of merger, see Section 33-11-105.
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
Dissenters' rights, see Chapter 13.
OFFICIAL COMMENT
  None. This section has no 1984 Model Act counterpart.
SOUTH CAROLINA REPORTERS' COMMENTS
  This provision is not found in the 1984 Model Act or the 1981 South Carolina Business Corporation Act but is based upon Section 253(a) of the Delaware General Corporation Law, Del. Code Ann. tit. 8, Section 253(a), allowing a short-form merger of a parent corporation into any subsidiary of which the parent owns at least ninety percent of the outstanding shares of each class of stock. Since this is significantly different than the standard short-form merger
provided for in Section 33-11-104 in that it requires notice to and approval by the parent's shareholders and entitles them to dissenters' rights, the provision is a separate statutory section.
DERIVATION: This section has no 1984 Model Act counterpart -- See the South Carolina Reporters' Comments.
CHAPTER 12
Sale of Assets
Sec.
33-12-101.Sale of assets in regular course of business and mortgage of assets.
33-12-102.Sale of assets other than in regular course of business.
33-12-103. 'Sale' defined.
  Section 33-12-101. Sale of assets in regular course of business and mortgage of assets.
  (a) A corporation, on the terms and conditions and for the consideration determined by the board of directors, may:
    (1) sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property in the usual and regular course of business; or
    (2) mortgage, pledge, dedicate to the repayment of indebtedness (whether with or without recourse), or otherwise encumber all, or substantially all, of its property whether or not in the usual and regular course of business.
  (b) Unless the articles of incorporation require it, approval by the shareholders of a transaction described in subsection (a) is not required.
CROSS REFERENCES
Articles of incorporation, see Section 33-2-102
  and Chapter 10, Article 1.
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
"Sale", definition, see Section 33-12-103.
Sale not in the usual and regular course of
  business, see Section 33-12-102.
OFFICIAL COMMENT
  This chapter deals with the procedures that corporations must follow when they transfer or dispose of "all, or substantially all," of their property. It does not deal with transactions that involve less than "all, or substantially all," of the corporation's property.
  A sale of "all or substantially all" the corporate assets in the regular course of business is governed by section 12.01 (Section 33-12-101). Mortgages of all of the corporation's assets or redeployment of those assets through a wholly owned subsidiary are also covered by section 12.01 (Section 33-12-101). All other sales of "all or substantially all" the corporate assets are governed by section 12.02 (Section 33-12-102). Dispositions or transfers of property that do not involve "all or substantially all" the property of the corporation are not controlled by statute and may be approved by the board of directors (or authorized corporate officer) in the same manner as any other corporate transaction.
1. The Meaning of "All or Substantially All"
  The phrase "all or substantially all," chosen by the draftsmen of the Model Act, is intended to mean what it literally says, "all or substantially all." The phrase "substantially all" is synonymous with "nearly all" and was
added merely to make it clear that the statutory requirements could not be avoided by retention of some minimal or nominal residue of the original assets. A sale of all the corporate assets other than cash or cash equivalents is normally the sale of "all or substantially all" of the corporation's property. A sale of several distinct manufacturing lines while retaining one or more lines is normally not a sale of "all or substantially all" even though the lines being sold are substantial and include a significant fraction of the corporation's former business. If the lines retained are viewed only as a temporary operation or as a pretext to avoid the "all or substantially all" requirements, however, the statutory requirements of chapter 12 must be complied with. Similarly, a sale of a plant but retention of operating assets (e.g., machinery and equipment), accounts receivable, good will, and the like with a view toward continuing the operation at another location is not a sale of "all or substantially all" the corporation's property.
  Some court decisions have adopted a narrower construction of somewhat similar statutory language. These decisions should be viewed as resting on the diverse statutory language involved in those cases and should not be viewed as illustrating the meaning of "all or substantially all" intended by the draftsmen of the Model Act.
2.Transfers of "All or Substantially All" of a Corporation's Assets that do not Require Shareholder Approval
  Section 12.01 (Section 33-12-101) describes transfers or dispositions of "all or substantially all" the corporate assets that do not require shareholder approval unless the articles of incorporation require it. These transactions consist of (1) mortgages or pledges
of all the corporation's property, whether or not the loan they secure is in the ordinary course of business, (2) transactions within the usual and regular course of business, and (3) transfers to wholly owned subsidiaries.
  a. Mortgages or pledges
  Mortgages or pledges of all the corporate assets may be demanded by lenders. They are essentially and substantively different from a sale or other disposition of assets even though they may take the form of a formal transfer of title to the mortgagee for security purposes, or of a dedication of assets to the repayment of indebtedness, as in the case of oil and gas production payments. The corporation remains in possession of the mortgaged property, may continue to use it for corporate purposes, in most cases must continue to manage the property, and may recover full title to the property by discharging the indebtedness.
  b.Sales in the usual and regular course of business
  Most transfers of "all or substantially all" the corporate property (as defined above) are, almost by definition, not in the usual and regular course of business; sales by real estate corporations and by corporations organized to liquidate a business are examples of sales that may be included in this part of section 12.01(a) (Section 33-12-101(a)). Typically, sales falling within the usual and regular course of business do not involve the sale of the corporate name or good will.
  c. Transfers to a subsidiary
  Section 12.01 (Section 33-12-101) provides that a transfer of property to a wholly owned subsidiary does not require a vote of shareholders. This provision, however, may not
be used as a device to avoid a vote of shareholders by a multiple-step transaction.
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 12.01) is substantively similar to the 1981 South Carolina Business Corporation Act except that it allows a sale of all or substantially all of a corporation's assets to a wholly-owned subsidiary without shareholder approval. Although the Official Comment to the section claims that "[t]his provision, however, may not be used as a device to avoid a vote of shareholders by a multiple-step transaction," the opportunities for abuse are clear. The new provision therefore follows prior South Carolina law and does not dispense with the necessity for shareholder approval of such transactions.
  The Model Act provision that a corporation may mortgage or grant another security interest in any or all of its property without shareholder approval is the same as prior South Carolina law, which accomplished this result by defining a "sale" as excluding a mortgage or other security interest. See Section 33-19-10 of the 1981 South Carolina Business Corporation Act which has been continued in Section 33-12-103 of this act. The new provision modifies the Model Act section by substituting the standard language "all, or substantially all," for the Model Act's atypical "any or all" to clarify the meaning. This was done to avoid the unintended implication of the Model Act language that all mortgages or other security interests require board approval.
DERIVATION: 1984 Model Act Section 12.01.
  Section 33-12-102. Sale of assets other than in regular course of business.
  (a) A corporation may sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property (with or without the good will), 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.
  (b) For a transaction to be authorized, the:
    (1) board of directors must recommend the proposed transaction to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the submission of the proposed transaction; and
    (2) shareholders entitled to vote must approve the transaction.
  (c) The board of directors may condition its submission of the proposed transaction on any basis.
  (d) The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with Section 33-7-105. The notice also must 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.
  (e) Unless the articles of incorporation require a different vote or the board of directors (acting pursuant to subsection (c)) requires a greater vote than that specified by this subsection or the articles of incorporation
or a vote by voting groups, the transaction to be authorized must be approved by two-thirds of all the votes entitled to be cast on the transaction.
  (f) The articles of incorporation may require a lower or higher vote for approval than that specified in subsection (e) and may require a vote by voting groups, but the required vote must be at least a majority of all the votes entitled to be cast on the transaction.
  (g) After a sale, lease, exchange, or other disposition of property is authorized, the transaction may be abandoned (subject to any contractual rights) without further shareholder action.
  (h) A transaction that constitutes a distribution is governed by Section 33-6-400 and not by this section.
CROSS REFERENCES
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
Dissenters' rights, see Chapter 13.
"Distribution" defined, see Section 33-1-400.
"Notice" defined, see Section 33-1-410.
Notice of shareholders' meeting, see Section
  33-7-105.
Quorum at shareholders' meeting, see Section
  33-7-250.
Supermajority quorum and voting requirements,
  see Section 33-7-270.
Voting by voting group, see Sections 33-7-250 and
  33-7-260.
Voting entitlement of shareholders generally,
  see Section 33-7-210.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  The scope of the phrase "all or substantially all" is discussed in the Official Comment to
section 12.01 (Section 33-12-101). All transactions that involve the sale or transfer of "all or substantially all" the corporate property must be approved by the shareholders unless they fall within one of the exceptions of section 12.01 (Section 33-12-101).
  Section 12.02 (Section 33-12-102) requires the board of directors to propose the sale and then submit the proposal to the shareholders. The board of directors must make a recommendation to the shareholders that the transaction be approved, unless the board determines that because of conflict of interest or other special circumstances it should make no recommendation. If the board so determines, it must describe the conflict of circumstances, and communicate the basis for its determination, to the shareholders when it presents the proposed sale.
  The proposed sale, to be approved, must receive the vote of a majority of the outstanding votes entitled by the articles of incorporation to be cast on the proposal. This is a greater vote than that required for ordinary matters under section 7.25 (Section 33-7-250). Nonvoting classes of shares are not given a statutory right to vote on proposed sales (either as separate voting groups or together with voting shares) by the revised Model Act on the theory that classes or series of shares that are made nonvoting by the articles of incorporation generally did not retain a voice in the areas of business the corporation may engage in the future. The articles of incorporation, however, may stipulate that specified classes or series of shares are entitled to vote by separate voting groups. Thus, in the absence of special provision in the articles of incorporation, only the shares of the corporation entitled to vote generally by the articles of incorporation are entitled to vote on sales of substantially all the assets of the corporation. The articles of
incorporation may also specify that a greater percentage of votes is required to approve the proposal than specified in section 12.02 (Section 33-12-102).
  The board of directors may condition its submission of a proposal to the shareholders under subsection (c) on any basis -- for example, on its receiving a certain percentage of shareholders' affirmative votes or that specified classes or series of shares, voting by separate voting groups, must approve the transaction or on some other basis; see the discussion of conditional submissions in the Official Comment to section 10.03 (Section 33-10-103).
  The approval of most sales of "all or substantially all" of the corporation's assets gives rise to dissenters' rights under chapter 13 to shareholders who are entitled to vote on the transaction and avail themselves of the procedures described in that chapter. Sales subject to section 12.02 (Section 33-12-102) that do not give rise to dissenters' rights even for voting shares include (1) sales pursuant to a court order and (2) sales that require all or substantially all of the net proceeds to be distributed to the shareholders in accordance with their respective interests within one year after the date of sale. See section 13.02 (Section 33-13-102). Shares not entitled to vote on the transaction do not have dissenters' rights by statute; the articles of incorporation may grant those rights or the board of directors may elect to make them available.
  Section 12.02(f) (Section 33-12-102(f)) authorizes a board of directors to abandon a proposed sale without shareholder approval after it has been previously approved by the shareholders. An abandonment does not affect contractual rights that third persons may have against the corporation.
  Certain corporate divisions, often called "spin offs," "split offs," or "split ups," sometimes involve transactions that may be formally characterized as sales of "all or substantially all" the corporate assets when in fact they are only a step in a corporate division that does not give rise to the problem of a major change in corporate direction and therefore does not need shareholder approval. Section 12.02(g) (Section 33-12-102(g)) is designed to make clear that transactions like this, which actually constitute a distribution, are not subject to section 12.02 (Section 33-12-102). See Siegal, "When Corporations Divide: A Statutory and Financial Analysis," 79 HARV. L. REV. 534 (1966).
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 12.02) is substantively similar to the 1981 South Carolina Business Corporation Act except for the vote required and has been adopted with changes to conform the voting pattern to that of Section 33-10-103 for amendment of the articles of incorporation and Section 33-11-103 for mergers or share exchanges.
DERIVATION: 1984 Model Act Section 12.02.
  Section 33-12-103. 'Sale' defined.
  Whenever used in this chapter, 'sale' includes a sale, lease, exchange, or other disposition of property and assets of the corporation except a mortgage of or other security interest in the property and assets.
CROSS REFERENCES
Sale of assets does not include a mortgage,
  Section 33-12-101(a)(2).
OFFICIAL COMMENT
  None. This section has no 1984 Model Act counterpart.
SOUTH CAROLINA REPORTERS' COMMENTS
  There is no similar Model Act provision. This section is based directly upon Section 33-19-10 of the 1981 South Carolina Business Corporation Act. Although the substance of this definition is covered also by new Section 33-12-101(a)(2), this section makes it perfectly clear that a corporation may grant a mortgage or other security interest without shareholder approval.
DERIVATION: This section has no 1984 Model Act counterpart -- See the South Carolina Reporters' Comments.
CHAPTER 13
Dissenters' Rights
Article 1.Right to Dissent and Obtain Payment for Shares.
Article 2.Procedure for Exercise of Dissenters' Rights.
Article 3.Judicial Appraisal of Shares.
Article 1
Right to Dissent and Obtain Payment for Shares
Sec.
33-13-101. Definitions.
33-13-102. Right to dissent.
33-13-103.Dissent by nominees and beneficial owners.
  Section 33-13-101. Definitions.
  In this chapter:
  (1) 'Corporation' means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer.
  (2) 'Dissenter' means a shareholder who is entitled to dissent from corporate action under Section 33-13-102 and who exercises that right when and in the manner required by Sections 33-13-200 through 33-13-280.
  (3) 'Fair value', with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. The value of the shares is to be determined by techniques that are accepted generally in the financial community.
  (4) 'Interest' means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances.
  (5) 'Record shareholder' means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation.
  (6) 'Beneficial shareholder' means the person who is a beneficial owner of shares held by a nominee as the record shareholder.
  (7) 'Shareholder' means the record shareholder or the beneficial shareholder.
CROSS REFERENCES
Act definitions, see Section 33-1-400.
Merger and share exchange, see Chapter 11.
OFFICIAL COMMENT
1. Introductory Comment.
  Chapter 13 deals with the tension between the desire of the corporate leadership to be able to enter new fields, acquire new enterprises, and rearrange investor rights and the desire of investors to adhere to the rights and the risks on the basis of which they invested. Most contemporary corporation codes in the United States attempt to resolve this tension through a combination of two devices. On the one hand, the majority is given an almost unlimited power to change the nature and shape of the enterprise and the rights of its members. On the other hand, the members who dissent from these changes are given a right to withdraw their investment at a fair value.
  The traditional accommodation has been sharply criticized from two directions. From the viewpoint of dissident investors, the dissent procedure is criticized for providing little help to the ordinary investor because its technicalities make its use difficult, expensive, and risky. From the viewpoint of the corporate leadership, it is criticized because it fails to protect the corporation from suits brought by dissenting shareholders on grounds of unfairness or fraud, and from demands that are motivated by the hope of a nuisance settlement or by fanciful conceptions of value.
  Chapter 13 contains a unique compromise between these opposing points of view that was developed in 1976 as an amendment to the 1969 version of the Model Act. It seeks to increase the frequency with which assertion of dissenters' rights leads to economical and
satisfying solutions, and to decrease the frequency with which they lead to delay, expense, and dissatisfaction. It seeks this aim primarily by motivating the parties to settle their differences in private negotiations, without resort to judicial appraisal proceedings.
  This approach involves a substantial change in the prevailing concept of the dissenters' right in most corporation codes. The right has sometimes been characterized as the "appraisal right," implying that its object is to provide each dissenter with a judicial appraisal. The objective of chapter 13 is to permit each dissenter to receive fair value without the formality of judicial appraisal, which involves delays and uncertainties and legal expenses that are prohibitive to small investors. Appraisal is the ultimate sanction to be invoked only when the parties fail to reach reasonable terms of settlement. In line with this conception, this chapter completely avoids the term "appraisal right" and refers consistently to "dissenters' rights to obtain payment for their shares."
2. Specialized Definitions
  Section 13.01 (Section 33-13-101) contains specialized definitions applicable only to chapter 13.
(1)The definition of "corporation" in section 13.01(1) (Section 33-13-101(1)) includes successor or acquiring corporations in mergers or share exchanges within the scope of that definition. In these transactions, the obligations of the disappearing or acquired corporations must be assumed by the successor or acquiring corporation and they are thus included within the definition of "corporation".
(2)The definition of "dissenter" in section 13.01(2) (Section 33-13-101(2)) is phrased in terms of a "shareholder," a term that is itself specially defined in section 13.01(7)
(Section 33-13-101(7)). The definition of "shareholder" for purposes of chapter 13 differs from the definition of that term used elsewhere in the Model Act. Section 1.40 (Section 33-1-400) defines "shareholder" as used elsewhere in the Act to include only "record shareholders" as defined in section 13.01(5) (Section 33-13-101(5)). Section 13.01(7) (Section 33-13-101(7)), on the other hand, defines "shareholder" to include not only "record shareholders" but "beneficial shareholders," a term that is itself defined in section 13.01(6) (Section 33-13-101(6)). The specially defined terms "record shareholder" and "beneficial shareholder" appear primarily in section 13.03 (Section 33-13-103), which establishes the manner in which beneficial shareholders, and record shareholders who are acting as nominees for more than one beneficial shareholder, establish dissenters' rights. The broadest definition of "shareholder" is used generally throughout the balance of Chapter 13 in order to permit beneficial shareholders to take advantage of the provisions of this chapter as provided in section 13.03 (Section 33-13-103). The definition of "dissenter" in section 13.01(2) (Section 33-13-101(2)) is also limiting, since only a shareholder who has performed all the conditions imposed on him by this chapter in order to obtain payment for his shares is a "dissenter". Under this definition, a shareholder who initially objects but fails to perform any of these conditions within the times specified by this chapter loses his status as "dissenter" under this section.
(3)The definition of "fair value" in section 13.01(3) (Section 33-13-101(3)) leaves to the parties (and ultimately to the courts)
the details by which "fair value" is to be determined within the broad outlines of the definition. This definition thus leaves untouched the accumulated case law about market value, value based on prior sales, capitalized earnings value, and asset value. It specifically preserves the former language excluding appreciation and depreciation in anticipation of the proposed corporate action, but permits an exception for equitable considerations. The purpose of this exception ("unless exclusion would be inequitable") is to permit consideration of factors similar to those approved by the Supreme Court of Delaware in Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983), a case in which the court found that the transaction did not involve fair dealing or fair price: "In our view this includes the elements of rescissory damages if the Chancellor considers them susceptible of proof and a remedy appropriate to all the issues of fairness before him." Consideration of appreciation or depreciation which might result from other corporate actions is permitted; these effects in the past have often been reflected either in market value or capitalized earnings value.
  "Fair value" is to be determined immediately before the effectuation of the corporate action, instead of the date of the shareholder's vote, as is the case under most state statutes that address the issue. This comports with the plan of this chapter to preserve the dissenter's prior rights as a shareholder until the effective date of the corporate action, rather than leaving him in a twilight zone where he has lost his former rights, but has not yet gained his new ones.
(4)The definition of "interest" in section 13.01(4) (Section 33-13-101(4)) is included to make interest computations under this chapter more realistic. The right to receive interest is based on the elementary consideration that the corporation has the use of the dissenter's money, and the dissenter has no use of it, from the effective date of the corporate action until the date of payment. The definition also requires the adjustment of rates to accommodate radical changes in prevailing rates like those seen in the late 1970s and early 1980s and that may be seen again in the future. The specification of the rate currently paid by the corporation provides a prima facie standard which should facilitate voluntary settlements. The date from which interest runs has been changed from the date of the shareholders' vote to the effective date of the corporate action, in conformity with the change of the valuation date in section 13.01(3) (Section 33-13-101(3)).
SOUTH CAROLINA REPORTERS' COMMENTS
  There was no comparable provision in the 1981 South Carolina Business Corporation Act. However, former Section 33-11-270(a) stated that the fair value of a dissenter's shares was to be determined as of the day before the vote, whereas the 1984 Model Act provides that valuation should be as of the day before the action is effectuated. Both provisions provide that appreciation or depreciation in anticipation of the action should be ignored in valuing the shares, but the Model Act allows it to be considered if excluding it would be inequitable. Additionally, former Section 33-11-270(i)(6) provided for calculating interest on the fair value at a rate "fair and equitable under all the circumstances." The
definition of "interest" in the new provision sets the rate, if the corporation has bank loans outstanding, at the current rate paid by the corporation on its principal bank loans. By this is meant short-term loans. Although the provision uses the same test as prior South Carolina law if the corporation has no bank loans outstanding, what is fair and equitable should be determined with regard to short-term debt of the corporation or similar corporations.
  The 1984 Model Act definitions were adopted with one change. The definition of "fair value" has been modified to include language from Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983), specifying that the Delaware block method of valuation has been superseded by the methods used in the financial community. No longer should courts use artificial methods which produce values lower than those that would be used in a voluntary sale of the shares. This is the purpose of the Model Act definition.
DERIVATION: 1984 Model Act Section 13.01.
  Section 33-13-102. Right to dissent.
  A shareholder is entitled to dissent from, and obtain payment of the fair value of, his shares in the event of any of the following corporate actions:
  (1) consummation of a plan of merger to which the corporation is a party (i) if shareholder approval is required for the merger by Section 33-11-103 or the articles of incorporation and the shareholder is entitled to vote on the merger or (ii) if the corporation is a subsidiary that is merged with its parent under Section 33-11-104 or 33-11-108 or if the corporation is a parent that is merged with its subsidiary under Section 33-11-108;
  (2) consummation of a plan of share exchange to which the corporation is a party as the
corporation whose shares are to be acquired, if the shareholder is entitled to vote on the plan;
  (3) consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale must be distributed to the shareholders within one year after the date of sale;
  (4) an amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it:
    (i) alters or abolishes a preferential right of the shares;
  (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares;
  (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities;
  (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or
    (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Section 33-6-104; or
  (5) the approval of a control share acquisition under Article 1 of Chapter 2 of Title 35;
  (6) any corporate action to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
CROSS REFERENCES
Amendment of articles of incorporation, see
  Chapter 10, Article 1.
Bylaws, see Section 33-2-105 and Chapter 10,
  Article 2.
Cumulative voting, see Section 33-7-280.
Dissolution, see Chapter 14.
Fractional shares, see Section 33-6-104.
Preemptive rights, see Section 33-6-300.
Redemption of shares, see Sections 33-6-101 and
  33-6-310.
Sale of assets, see Chapter 12.
Share dividends, see Section 33-6-230.
Share preferences, see Sections 33-6-101 and
  33-6-102.
"Voting group" defined, see Section 33-1-400.
Voting rights generally, see Section 33-7-210.
OFFICIAL COMMENT
1.Transactions Giving Rise to Dissenters' Rights
  Section 13.02(a) (Section 33-13-102) establishes the scope of a shareholder's right to dissent (and his resulting right to obtain payment for his shares) by defining the transactions with respect to which a right to dissent exists. These transactions are:
(1)A plan of merger if the shareholder (i) is entitled to vote on the merger under section 11.03 (Section 33-11-103) or pursuant to provisions in the articles of incorporation, or (ii) is a shareholder of a subsidiary that is merged with a parent under section 11.04 (Section 33-13-104). The right to vote on a merger under section 11.03 (Section 33-11-103) extends to corporations whose separate existence disappears in the
merger and to the surviving corporation if the number of its outstanding shares is increased by more than 20 percent as a result of the merger.
(2)A share exchange under section 11.02 (Section 33-11-102) if the corporation is a party whose shares are being acquired by the plan and the shareholder is entitled to vote on the exchange.
(3)A sale or exchange of all or substantially all of the property of the corporation not in the usual course of business under section 12.02 (Section 33-12-102) if the shareholder is entitled to vote on the sale or exchange. Section 13.02(a)(3) (Section 33-13-102(a)(3)) generally grants dissenters' rights in connection with sales in the process of dissolution but excludes them in connection with sales by court order and sales for cash that require substantially all the proceeds to be distributed to the shareholders within one year. The inclusion of sales in dissolution is designed to ensure that the right to dissent cannot be avoided by characterizing sales as made in the process of dissolution long before distribution is made. An exception is provided for sales for cash pursuant to a plan that provides for distribution within one year. These transactions are unlikely to be unfair to minority shareholders since majority and minority are being treated in precisely the same way and all shareholders will ultimately receive cash for their shares. A sale other than for cash gives rise to a right of dissent since property sometimes cannot be converted into cash until long after receipt and a minority shareholder should not be compelled to assume the risk of delays or market declines. Similarly, a plan that provides for a prompt distribution
of the property received gives rise to the right of dissent since the minority shareholder should not be compelled to accept for his shares different securities or other property that may not be readily marketable.
    The exclusion of court-ordered sales from the dissenter's right is based on the view that court review and approval ensures that an independent appraisal of the fairness of the transaction has been made.
(4)Amendments to articles of incorporation that impair the shareholders' rights as shareholders in any of the enumerated ways. The reasons for granting a right of dissent in these situations are similar to those granting such rights in cases of merger and transfer of assets. The grant of these rights increases the security of investors by allowing them to escape when the nature of their investment rights is fundamentally altered or they are compelled to accept cash for their investment in an amount established by the corporation. The grant also enhances the freedom of the majority to make changes, because the existence of an escape hatch makes fair and reasonable a change that might be unfair if it forced a fundamental change of rights upon unwilling investors without giving them a reasonable alternative.
(5)Any corporate action to the extent the articles, bylaws, or a resolution of the board of directors grant a right of dissent. Corporations may wish to grant on a voluntary basis dissenters' rights in connection with important transactions (e.g., those submitted for shareholder approval). The grant may be to nonvoting shareholders in connection with transactions that give rise to dissenters' rights with respect to voting shareholders. The grant
of dissenters' rights may add to the attractiveness of preferred shares, and may satisfy shareholders who would, in the absence of dissenters' rights, sue to enjoin the transaction. Also, in situations where the existence of dissenters' rights may otherwise be disputed, the voluntary offer of those rights under this section will avoid a dispute.
  Generally, only shareholders who are entitled to vote on the transaction are entitled to assert dissenters' rights with respect to the transaction. The right to vote may be based on the articles of incorporation or other provisions of the Model Act. For example, a class of nonvoting shares may nevertheless be entitled to vote (either as a separate voting group or as part of the general voting group) on an amendment to the articles of incorporation that affects them as provided in one of the ways set forth in section 10.04 (Section 33-10-104); such a class is entitled to assert dissenters' rights if the transaction also falls within section 13.02 (Section 33-13-102). On the other hand, such a class does not have the right to vote on a sale of substantially all the corporation's assets not in the ordinary course of business, and therefore that class is not entitled to assert dissenters' rights with respect to that sale. One exception to this principle is the merger of a subsidiary into its parent under section 11.04 (Section 33-11-104) in which minority shareholders of the subsidiary have the right to assert dissenters' rights even though they have no right to vote.
2.Exclusivity of Dissenters' Rights [Note: Section 13.02(b) of the Model Act is not included in this Act -- See the South Carolina Reporters' Comments.]
  Section 13.02(b) basically adopts the New York formula as to exclusivity of the dissenters'
remedy of this chapter. The remedy is the exclusive remedy unless the transaction is "unlawful" or "fraudulent." The theory underlying this section is as follows: when a majority of shareholders has approved a corporate change, the corporation should be permitted to proceed even if a minority considers the change unwise or disadvantageous, and persuades a court that this is correct. Since dissenting shareholders can obtain the fair value of their shares, they are protected from pecuniary loss. Thus in general terms an exclusivity principle is justified. But the prospect that shareholders may be "paid off" does not justify the corporation in proceeding unlawfully or fraudulently. If the corporation attempts an action in violation of the corporation law on voting, in violation of clauses in articles of incorporation prohibiting it, by deception of shareholders, or in violation of a fiduciary duty -- to take some examples -- the court's freedom to intervene should be unaffected by the presence or absence of dissenters' rights under this chapter. Because of the variety of situations in which unlawfulness and fraud may appear, this section makes no attempt to specify particular illustrations. Rather, it is designed to recognize and preserve the principles that have developed in the case law of Delaware, New York and other states with regard to the effect of dissenters' rights on other remedies of dissident shareholders. See Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (appraisal remedy may not be adequate "where fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross or palpable overreaching are involved.") See also Vorenberg, "Exclusiveness of the Dissenting Stockholders' Appraisal Right," 77 HARV. L. REV. 1189 (1964).
SOUTH CAROLINA REPORTERS' COMMENTS
  The 1984 Model Act provision (Section 13.02) and this provision, which is identical to it in most respects, contains a number of substantial changes from the 1981 South Carolina Business Corporation Act. Under the 1981 act, shareholders of a corporation that has shares listed on a national securities exchange did not have dissenters' rights unless the articles provided them; the Model Act and the new South Carolina provision delete this limitation.
  Section 33-13-102(1) provides dissenters' rights for shareholders of a merging corporation. Like former Section 33-17-90, it grants dissenters' rights to shareholders of a subsidiary corporation merged into its parent in a short-form merger but not to the shareholders of the parent. In other mergers, the determining factor is whether the shareholder has the right to vote on the merger. Shareholders of a surviving corporation whose outstanding shares are increased by less than twenty percent in a merger do not have the right to vote on the merger under Section 33-11-103(g) and thus do not have dissenters' rights. This is much broader than former Section 33-17-90(b) which denied dissenters' rights to shareholders of a corporation that merged a wholly-owned subsidiary into itself. In addition, this provision grants dissenters' rights to shareholders of the parent and the subsidiary corporations in a short-form merger of a parent into its ninety percent-owned subsidiary under Section 33-11-108. Since Section 33-11-108 did not come from the Model Act, it had to be added to the triggering events listed.
  Section 33-13-102(2) provides dissenters' rights for shareholders whose shares are acquired in a share exchange. Although this provision limits the right to shareholders entitled to vote on the plan, this limitation is
without significance since all shareholders whose shares are to be acquired in a share exchange have the right to vote under Section 33-11-103. Thus, this section provides the same result as did Section 33-17-90(c) of the 1981 South Carolina Business Corporation Act.
  Section 33-13-102(3) provides dissenters' rights for shareholders of a corporation engaging in a sale of all or substantially all of its assets. This provision is identical substantively to Section 33-19-50 of the 1981 South Carolina Business Corporation Act.
  Section 33-13-102(4) provides dissenters' rights for shareholders of a corporation making certain amendments to its articles. Under both this provision and Section 33-15-10(d)(1) of the 1981 South Carolina Business Corporation Act, shareholders suffering a material, adverse affect to a preferential right or redemption right or sinking fund have dissenters' rights. The prior South Carolina law's limitation of the amount receivable as the fair value to the lesser of the amount that would be due upon redemption or liquidation is not contained in the new provision. In addition to these dissenters' rights granted in both present and prior law, the new provision provides dissenters' rights if the articles are amended to alter or abolish the shareholder's preemptive rights, to limit his voting rights, including the right to vote cumulatively, or to reduce the number of shares he owns to a fraction of a share which is to be cashed out. Prior South Carolina law did not provide dissenters' rights in these situations.
  Section 33-13-102(5) allows the corporation to provide dissenters' rights for voting or nonvoting shareholders in other events. The 1984 Model Act provision is limited to events approved by a shareholder vote. This limitation was not contained in the 1981 South Carolina Business Corporation Act and is not included in
the new provision. As was noted in the South Carolina Reporter's Comments to former Section 33-11-270 explaining the addition of this power, "[t]his is particularly beneficial to the close corporation and can become an important control device. Now, by provision in the articles one interest can 'bail out' upon the happening of any number of events, such as cessation of employment, etc." Although prior South Carolina law required that the provision be included in the articles, the Model Act and the new provision permit it to be in the bylaws or a resolution of the board.
  Subsection (b) of the 1984 Model Act section contains a provision attempting to limit judicial scrutiny of corporate actions that give rise to dissenters' rights. There was nothing similar in prior South Carolina law, and it is not included in the new provision because it would probably be largely ineffective and is undesirable.
DERIVATION: 1984 Model Act Section 13.02.
  Section 33-13-103. Dissent by nominees and beneficial owners.
  (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares to which he dissents and his other shares were registered in the names of different shareholders.
  (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if he dissents with respect to all shares of which he is the beneficial shareholder
or over which he has power to direct the vote. A beneficial shareholder asserting dissenters' rights to shares held on his behalf shall notify the corporation in writing of the name and address of the record shareholder of the shares, if known to him.
CROSS REFERENCES
"Beneficial shareholder" defined, see
  Section 33-13-101.
Notice to the corporation, see Section 33-1-410.
"Person" defined, see Section 33-1-400.
"Record shareholder" defined, see Section
  33-13-101.
"Shareholder" defined, see Sections 33-1-400 and
  33-13-101.
Shares held by nominee, see Section 33-7-230.
Voting agreements, see Section 33-7-310.
Voting trusts, see Section 33-7-300.
OFFICIAL COMMENT
  Section 13.03 (Section 33-13-103) addresses the relationship between dissenters' rights and the widespread practice of nominee or street name ownership of publicly held shares. Generally, a shareholder must dissent with respect to all the shares he owns or over which he has power to direct the vote. If a record shareholder is a nominee for several beneficial shareholders, however, some of whom wish to dissent and some of whom do not, section 13.03(a) (Section 33-13-103(a)) permits the record shareholder to dissent with respect to a portion of the shares owned by him but only with respect to all the shares beneficially owned by a single person. This limitation is necessary to prevent speculative abuse by a single beneficial shareholder who is not fundamentally opposed to the proposed corporate action but who
may wish to gamble, as to some of his shares, on the possibility of a high payment to dissenters.
  Section 13.03(a) (Section 33-13-103(a)) also requires a record shareholder who dissents with respect to a portion of the shares held by him to notify the corporation of the name and address of the beneficial owner on whose behalf he has dissented.
  Section 13.03(b) (Section 33-13-103(b)) permits a beneficial shareholder to assert dissenters' rights directly if he submits the record shareholder's written consent. Generally, corporations treat the record shareholder as the owner of shares, and a beneficial shareholder is entitled to assert dissenters' rights only as set forth in this section. It would be foreign to the premises underlying nominee and street name ownership to require these record shareholders to forward demands and participate in litigation on behalf of their clients. In order to make dissenters' rights effective without burdening record shareholders, beneficial shareholders should be allowed to assert their own claims as provided in this subsection. The beneficial shareholder is required to submit a written consent by the record shareholder to his assertion of dissenters' rights to verify the beneficial shareholder's entitlement and to permit the protection of any security interest in the shares. In practice, a broker's customer who receives a forwarded notice of proposed corporate action and who wishes to dissent may request the broker to supply him with the name of the record shareholder (which may be a house nominee or a nominee of the Depository Trust Company), and a form of consent signed by the record shareholder. From that point forward, the corporation must deal with the beneficial shareholder.
SOUTH CAROLINA REPORTERS' COMMENTS
  The new provision, like the 1984 Model Act:
  (1) continues the requirement in Section 33-11-270(l) of the 1981 South Carolina Business Corporation Act that a dissenting shareholder must dissent as to all the shares that he owns beneficially or that are owned beneficially by any one person;
  (2) makes explicit the implicit rule under prior South Carolina law, that a nominee may dissent as to all of the shares of some beneficial owners and not dissent as to the shares beneficially owned by others;
  (3) adds procedural detail not in prior South Carolina law and provides that a beneficial shareholder may assert dissenters' rights as to his shares; under prior South Carolina law only record shareholders could dissent.
  The new provision, however, does not contain the Model Act requirement that a dissenting beneficial shareholder submit to the corporation the written consent of the record shareholder to his assertion of dissenters' rights. Since the corporation need only give ten days' notice of the meeting under Section 33-7-105, and since the notice will have to be forwarded to the beneficial shareholder by the record shareholder before the beneficial owner can take any action, it is unreasonable to require that the beneficial shareholder obtain permission from the record holder before filing the notice of intent to dissent, which must be filed with the corporation before the vote is taken on the proposed action. The Official Comment to the Model Act explains that this requirement was included to verify the beneficial shareholders' interest in the shares and to protect any security interest in the shares. However, these interests are preserved adequately by the requirement that the dissenter deposit the shares in order to perfect his rights.
Furthermore, subsection (b) of the new provision adds to the Model Act the requirement that the beneficial owner asserting dissenters' rights notify the corporation of the record owner's name and address. Thus, the Model Act requirement is not necessary for the claimed purposes and serves merely as a needless impediment to the assertion of dissenters' rights by countless shareholders whose shares are held in street names.
DERIVATION: 1984 Model Act Section 13.03.
Article 2
Procedure for Exercise of Dissenters' Rights
Sec.
33-13-200. Notice of dissenters' rights.
33-13-210. Notice of intent to demand payment.
33-13-220. Dissenters' notice.
33-13-230. Shareholder's payment demand.
33-13-240. Share restrictions.
33-13-250. Payment.
33-13-260. Failure to take action.
33-13-270. After-acquired shares.
33-13-280. Procedure if shareholder
            dissatisfied with payment or offer.
  Section 33-13-200. Notice of dissenters' rights.
  (a) If proposed corporate action creating dissenters' rights under Section 33-13-102 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this chapter and be accompanied by a copy of this chapter.
  (b) If corporate action creating dissenters' rights under Section 33-13-102 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to
assert dissenters' rights that the action was taken and send them the dissenters' notice described in Section 33-13-220.
CROSS REFERENCES
Acting without meeting, see Section 33-7-104.
Meeting notice, see Section 33-7-105.
"Notice" defined, see Section 33-1-410.
"Record shareholder" defined, see Section
  33-13-101.
Right to dissent, see Section 33-13-102.
"Shareholder" defined, see Section 33-13-101.
Shareholders' meetings, see Sections 33-7-101
  through 33-7-103.
OFFICIAL COMMENT
  Section 13.20(a) (Section 33-13-200(a)) requires the corporation to notify record shareholders of the existence of dissenters' rights before the vote is taken on the corporate action. This notice provides the reassurance to investors that the right to dissent is intended to provide because many shareholders have no idea what rights of dissent they may have or know to assert them. If the corporation is uncertain whether or not the shareholders have dissenters' rights, it may comply with this notice requirement by stating that the shareholders "may have" dissenters' rights.
  A similar requirement of notice is expressly required by proxy rules, by the dissenters' rights statutes of several states, and possibly under more general disclosure requirements of federal and state securities laws.
  Section 13.20(b) (Section 33-13-200(b)) provides that notice be given after the action is taken in situations where the action is validly taken without a vote of shareholders, e.g., in a merger of a subsidiary into its parent under section 11.04 (Section 33-11-104).
This notice may be combined with the dissenters' notice required by section 13.22 (Section 33-13-220).
SOUTH CAROLINA REPORTERS' COMMENTS
  The new provision, which is identical to Section 13.20 of the 1984 Model Act, requires that the corporation inform the shareholders of the existence of dissenters' rights and send them a copy of the statutory dissenters' rights provisions so they can determine what they must do to assert their rights. In addition, the new provision requires that a corporation send a dissenters' notice to shareholders if the action creating the right to dissent was taken without a vote of the shareholders. No such requirements existed under the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 13.20.
  Section 33-13-210. Notice of intent to demand payment.
  (a) If proposed corporate action creating dissenters' rights under Section 33-13-102 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights (1) must give to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated and (2) must not vote his shares in favor of the proposed action. A vote in favor of the proposed action cast by the holder of a proxy solicited by the corporation shall not disqualify a shareholder from demanding payment for his shares under this chapter.
  (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this chapter.
CROSS REFERENCES
"Deliver" includes mail, see Section 33-1-400.
Dissenters' rights as exclusive remedy, see
  Section 33-13-102.
Effective date of notice, see Section 33-1-410.
"Notice" defined, see Section 33-1-410.
OFFICIAL COMMENT
  If a shareholder's vote is called for, section 13.21(a) (Section 33-13-210(a)) requires the shareholder to give notice of his intent to demand payment before the vote on the corporate action is taken. This notice enables other voters to determine how much of a cash payment may be required. It also serves to limit the number of persons to whom the corporation must give further notice, including the technical details of depositing share certificates. This subsection has no application to actions taken without a shareholder vote.
  In order to be and remain a dissenter eligible to demand payment for his shares, the section requires that a shareholder must not only give the notice required by this section but must also vote against, or abstain from voting on, the proposal.
SOUTH CAROLINA REPORTERS' COMMENTS
  The new provision, like Section 13.21 of the 1984 Model Act, continues the requirement of the 1981 South Carolina Business Corporation Act that a dissenting shareholder inform the corporation that he intends to dissent. Under prior South Carolina law, he could do so at any time before or at the shareholders' meeting; under the new provision, which follows the Model Act, he must do so before the vote is taken. The new provision replaces "deliver" in the Model Act section with "give" to make it clear
that, to be timely, the notice must be effective under Section 33-1-410(e) before the vote is taken. The Model Act language was susceptible of the interpretation that a written notice mailed before the vote was taken but not received until after the vote was timely. See Section 33-1-400(5) defining "deliver" as including the act of mailing.
  Additionally, the new provision, like the Model Act, continues the requirement of prior South Carolina law that a dissenting shareholder not vote his shares in favor of the action. The new provision, however, adds that a vote cast by the corporation's proxyholders under a proxy solicited by the corporation does not disqualify the shareholder from dissenting. If the shareholder has notified the corporation that he intends to dissent and also has sent the corporation his proxy, the corporation should not vote his shares in favor of the proposed action. Its doing so should not destroy his dissenters' rights, although the vote itself may be valid.
  The new provision, like the Model Act, continues the requirement of the 1981 South Carolina Business Corporation Act that a shareholder must satisfy the procedural requirements in order to perfect his dissenters' rights. This requirement should be applied in a reasonable manner. One of the major inadequacies of dissenters' rights has been that, occasionally, courts and corporations have been unyielding in demanding hypertechnical, precise compliance. The modern tendency is for courts to accept substantial, good-faith compliance as sufficient when doing so provides fair treatment of shareholders while protecting the legitimate interests of the corporation. See, e.g., Raab v. Villager Industries, Inc., 355 A.2d 888 (Del. 1976), in which the court held that pre-vote written objection signed by
the husband was sufficient to allow dissent as to shares jointly owned by the husband and wife.
DERIVATION: 1984 Model Act Section 13.21.
  Section 33-13-220. Dissenters' notice.
  (a) If proposed corporate action creating dissenters' rights under Section 33-13-102 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Section 33-13-210(a).
  (b) The dissenters' notice must be delivered no later than ten days after the corporate action was taken and must:
    (1) state where the payment demand must be sent and where certificates for certificated shares must be deposited;
    (2) inform holders of uncertificated shares to what extent transfer of the shares is to be restricted after the payment demand is received;
    (3) supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether or not he or, if he is a nominee asserting dissenters' rights on behalf of a beneficial shareholder, the beneficial shareholder acquired beneficial ownership of the shares before that date;
    (4) set a date by which the corporation must receive the payment demand, which may not be fewer than thirty nor more than sixty days after the date the subsection (a) notice is delivered and set a date by which certificates for certificated shares must be deposited, which may not be earlier than twenty days after the demand date; and
    (5) be accompanied by a copy of this chapter.
CROSS REFERENCES
Action without meeting, see Section 33-7-104.
After-acquired shares, see Section 33-13-270.
Certificateless shares, see Section 33-6-260.
"Deliver" includes mail, see Section 33-1-400.
Effective date of notice, see Section 33-1-410.
"Notice" defined, see Section 33-1-410.
Share transfer restrictions, see Sections
  33-6-270 and 33-13-240.
OFFICIAL COMMENT
  The basic purpose of section 13.22 (Section 33-13-220) is to require the corporation to tell all actual or potential dissenters what they must do in order to take advantage of their right of dissent. The requirements of what this notice (called a "dissenters' notice") must contain are spelled out in detail to ensure that this notice serves this basic purpose.
  In the case of an action that is submitted to the vote of shareholders, the dissenters' notice must be sent only to those persons who gave notice of their intention to dissent under section 13.21 (Section 33-13-210) and who refrained from voting in favor of the proposed actions. In the case of a transaction not involving a vote by shareholders, the dissenters' notice must be sent to all persons who are eligible to dissent and demand payment. In either case the dissenters' notice must be sent within 10 days after the corporate action is taken and must be accompanied by a copy of this chapter.
  The notice must contain or be accompanied by a form which a person asserting dissenters' right may use to complete the demand for payment under section 13.23 (Section 33-13-230). The form must specify the date by which it must be received by the corporation, which date must be
at least 30 days after the effective date of the notice of how to demand payment.
  The dissenters' notice must also specify where and when share certificates must be deposited, or, in the case of uncertificated shares, when restrictions on transfer will become effective under section 13.24 (Section 33-13-240). The date for deposit of share certificates may not be set at a date earlier than the date for receiving the demand for payment.
  Section 13.22(b)(3) (Section 33-13-220(b)(3)) requires the corporation to specify the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action. This is the critical date for determining the rights of shareholder transferees: persons who became shareholders prior to that date are entitled to the full right to dissent and obtain payment for their shares, while persons who became shareholders on or after that date are entitled only to the more limited rights provided by section 13.27 (Section 33-13-270). See the Official Comments to sections 13.23. and 13.27 (Sections 33-13-230 and 33-13-270). It is appropriate for the corporation to furnish this critical date since it knows when information relating to the transaction was publicly released. The date selected should be the date the terms were announced, not the earlier date when consideration of the proposed transaction may have been announced.
SOUTH CAROLINA REPORTERS' COMMENTS
  The new provision, which is similar to Section 13.22 of the 1984 Model Act with a couple of technical corrections, requires that the corporation send a notice to dissenters informing them of where and when they must demand payment and deposit their shares in order to perfect their dissenters' rights. It also
requires that the corporation include with the notice a form that can be filled out to demand payment. The form must set forth the date on which the first announcement of the terms of the proposed corporate action was made and request the dissenter to certify whether he acquired beneficial ownership of his shares before that date to aid the corporation in determining whether it will withhold payment for those shares pursuant to new Section 33-13-270. No such requirements existed under the 1981 South Carolina Business Corporation Act. In addition, the new provision requires the corporation to set the period for receiving the demand as thirty to sixty days from the delivery (which includes mailing; see Section 33-1-400(5)) of the notice, which must be sent by the corporation within ten days of the taking of the action giving rise to the dissenters' rights. The new provision changes "sent" in subsection (b) of the Model Act to the defined term "delivered", which includes mailed, for the sake of consistency. Under prior South Carolina law, the demand had to be filed within twenty days of the vote on the proposed action.
  Although the 1984 Model Act would give the corporation unfettered discretion in setting the time for deposit of the shares, this provision requires that this deposit date not be earlier than twenty days after the demand date. Under prior South Carolina law, the shares had to be submitted for notation within twenty days of demand.
DERIVATION: 1984 Model Act Section 13.22.
  Section 33-13-230. Shareholder's payment demand.
  (a) A shareholder sent a dissenters' notice described in Section 33-13-220 must demand payment, certify whether he (or the beneficial shareholder on whose behalf he is asserting
dissenters' rights) acquired beneficial ownership of the shares before the date set forth in the dissenters' notice pursuant to Section 33-13-220(b)(3), and deposit his certificates in accordance with the terms of the notice.
  (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action.
  (c) A shareholder who does not comply substantially with the requirements that he demand payment and deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this chapter.
CROSS REFERENCES
After-acquired shares, see Section 33-13-270.
Dissenters' notice, see Section 33-13-220.
Dissenters' rights as exclusive remedy, see
  Section 33-13-102.
Effective date of notice, see Section 33-1-410.
Share transfer restrictions, see Sections
  33-6-270 and 33-13-240.
OFFICIAL COMMENT
  The demand for payment required by section 13.23 (Section 33-13-230) is the definitive statement by the dissenter. In the case of a transaction involving a vote by shareholders, it is a confirmation of the "intention" expressed earlier; in the case of any other transaction, it is the person's first statement of position. In either event, the filing of these demands informs the corporation of the extent of the potential cash drain if it proceeds with the proposed corporate action.
  The demand for payment must include a certificate as to whether the date on which the dissenter acquired ownership of the shares was before (or on or after) the announcement date. See section 13.22(b)(3) (Section 33-13-220(b)(3)). This information permits the issuer to detect acquisitions made for speculative or obstructive purposes and to exercise its right under section 13.27 (Section 33-13-270) to defer payment of compensation for these shares.
  Section 13.23(a) (Section 33-13-230(a)) also requires a person who files a demand for payment to deposit his share certificates as directed by the corporation in its dissenters' notice. The deposit of share certificates is necessary to prevent dissenters from giving themselves a 30-day option to take payment if the market price of the shares goes down, but sell their shares on the open market if the price goes up. If this kind of speculation were possible, all sophisticated investors might be expected to file demands that they would not intend to carry through unless the price should fall. If the shares are not represented by certificates, the corporation can prevent speculation by restricting their transfer, as authorized by section 13.24 (Section 33-13-240).
  With respect to certificated shares, this provision differs from many statutes in that the certificates are "deposited" for retention, rather than "submitted for notation." This change assumes that the corporation will retain the certificates unless it fails to effectuate the proposed corporate action; it thus avoids the need of sending the certificates back to the shareholders, only to be surrendered again when payment is made. In most cases, payment will be made promptly, and the shuttling of certificates back and forth is unnecessary.
  A person who fails to file the demand for payment or does not deposit his share
certificates as required by section 13.23(a) (Section 33-13-230(a)) loses his status as a dissenter entitled to payment for his shares. But a person who fails to certify whether he acquired his shares before (or on or after) the announcement date does not lose his right to dissent; if he does not thereafter establish that he acquired his shares before the announcement date, the corporation may treat him as an after-acquiring shareholder under section 13.27 (Section 33-13-270).
  A shareholder who deposits his shares retains all other rights of a shareholder until those rights are modified by effectuation of the proposed corporate action. See section 13.23(b) (Section 33-13-230(b)).
SOUTH CAROLINA REPORTERS' COMMENTS
  The title of Section 13.23 of the 1984 Model Act has been changed to clarify that shareholders have no "duty" to file a demand for payment. This act uses the phrase "shareholder's payment demand". The Model Act's careless use of "duty" was confusing and carried the potential for creating the mistaken impression that the corporation had the right to force the shareholder to file a demand for payment or to pay damages if he did not. Clearly, this was not intended by the draftsman of the Model Act provision since it applied equally to shareholders who had filed a notice of intent to demand payment under Section 33-13-210 and to those who were not entitled to vote on the proposed action and, thus, received a written dissenters' notice under Section 33-13-220 without having filed a Section 33-13-210 notice of intent to demand payment. Of course, there is no general duty of all shareholders who are not entitled to vote on the proposed action to file a demand for payment and perfect their dissenters' rights; they are
perfectly free not to dissent. There is nothing in the statute to indicate that shareholders who have filed a Section 33-13-210 notice of intent to demand payment have a duty to actually do so. As the note in the Model Business Corporation Act Annotated on the Historical Background of Model Act Section 13.23 indicates, this provision is based on Section 81(e) of the 1969 Model Act, as revised in 1978. That provision does not speak of a "duty" and neither did prior South Carolina law. What is intended is that the shareholder must file a demand for payment and deposit his share certificates in order to perfect his dissenters' rights; this is a condition precedent, not a "duty."
  Except for this change in title, a couple of technical corrections, and the addition of language making it explicit that a dissenter's substantial compliance with the requirements of this section is sufficient to perfect his appraisal rights, the new provision is identical to Section 13.23 of the 1984 Model Act. Major defects of dissenters' rights in the past have been the hypertechnical requirements for their assertion and a tendency of courts to be extremely unyielding in demanding precise compliance. Although the modern tendency is for courts to accept substantial compliance as sufficient to satisfy the requirements for perfecting dissenters' rights, some courts have insisted on technical compliance in making the demand for payment. See, e.g., Raab v. Villager Industries, Inc., 355 A.2d 888 (Del. 1976). The addition of substantial compliance language in subsection (c) is designed to ensure that the same reasonable attitude prevails in applying this section as under Section 33-13-210, promoting the fair treatment of shareholders while protecting the legitimate interests of the corporation. Under it, courts should be far more liberal in determining whether a shareholder has perfected his dissenters'
rights. Similar language is found in Okla. Stat. Ann. tit. 18 Section 1.159(8).
  As under the 1981 South Carolina Business Corporation Act, filing the demand is the determinative event in establishing the shareholder as a dissenter. The new provision requires that the shareholder (1) demand payment and (2) deposit his shares in order to perfect his rights. Prior South Carolina law required the filing of the demand and the submission of his share certificates for notation. Thus, under prior law, a dissenting shareholder could sell or pledge his shares, representing his right to be paid their fair value, while under the new provision he cannot. An additional difference is that the deposit of the shares is necessary to perfect the dissenters' rights under the new provision while, under prior law, the failure of the dissenter to submit his shares for notation gave the corporation the power to terminate his rights as a dissenter. Under prior law, a dissenter lost all his rights as a shareholder once he had filed his demand while, under the new provision, he only loses those rights once the proposed action has been effected.
  The new provision requires that the dissenter certify whether he acquired beneficial ownership of the shares before the date of the announcement of the terms of the proposed action, but there is no sanction if he does not do so.
DERIVATION: 1984 Model Act Section 13.23.
  Section 33-13-240. Share restrictions.
  (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for payment for them is received until the proposed corporate action is taken or the restrictions are released under Section 33-13-260.
  (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action.
CROSS REFERENCES
Certificateless shares, see Section 33-6-260.
Information statement for certificateless
  shares, see Section 33-6-260.
Payment demand, see Section 33-13-230.
Share transfer restrictions generally, see
  Section 33-6-270.
OFFICIAL COMMENT
  Section 13.24 (Section 33-13-240) deals with uncertificated shares in the dissent process. Section 13.23(a) (Section 33-13-230(a)) requires certificated shares to be deposited as directed by the corporation in its dissenters' notice; the restrictions on transfer of uncertificated shares provided by this section impose an analogous restriction on uncertificated shares for the same reasons. See the Official Comment to section 13.23 (Section 33-13-230).
  Section 13.24(b) (Section 33-13-240(b)) makes express that the restriction on transfer of shares provided by this section does not affect any other rights of the shareholder until these rights are modified by the corporate action.
SOUTH CAROLINA REPORTERS' COMMENTS
  Except for a couple of technical corrections, the new provision is identical to Section 13.24 of the 1984 Model Act. There was no provision for dealing with the possibility of uncertificated shares in the dissenters' rights provisions of the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 13.24.
  Section 33-13-250. Payment.
  (a) Except as provided in Section 33-13-270, as soon as the proposed corporate action is taken, or upon receipt of a payment demand, the corporation shall pay each dissenter who substantially complied with Section 33-13-230 the amount the corporation estimates to be the fair value of his shares, plus accrued interest.
  (b) The payment must be accompanied by:
    (1) the corporation's balance sheet as of the end of a fiscal year ending not more than sixteen months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any;
    (2) a statement of the corporation's estimate of the fair value of the shares and an explanation of how the fair value was calculated;
    (3) an explanation of how the interest was calculated;
    (4) a statement of the dissenter's right to demand additional payment under Section 33-13-280; and
    (5) a copy of this chapter.
CROSS REFERENCES
After-acquired shares, see Section 33-13-270.
Dissenters' notice, see Section 33-13-220.
"Fair value" defined, see Section 33-13-101.
"Interest" defined, see Section 33-13-101.
Payment demand, see Section 33-13-230.
Rejection of corporation's estimate of fair
  value, see Section 33-13-280.
OFFICIAL COMMENT
  Section 13.25 (Section 33-13-250) changes the relative balance between corporation and dissenting shareholders by requiring immediate payment by the corporation upon the completion of the transaction or (if the transaction did not need shareholder approval and has been completed) upon receipt of the demand for payment. The corporation may not wait for a final agreement on value before making payment, and the shareholder has the immediate use of the amount determined by the corporation to represent fair value without waiting for the conclusion of appraisal proceedings.
  This obligation to make immediate payment is based on the view that since the person's rights as a shareholder are terminated with the completion of the transaction, he should have immediate use of the money to which the corporation agrees it has no further claim. A difference of opinion over the total amount to be paid should not delay payment of the amount that is undisputed.
  Since the shareholder must decide whether or not to accept the payment in full satisfaction, he must be furnished at this time with the financial information specified in section 13.25(b) (Section 33-13-250(b)), with a reminder of his further rights and liabilities, and with a copy of this chapter.
SOUTH CAROLINA REPORTERS' COMMENTS
  Except for one technical correction, the addition of the substantial compliance language (see the South Carolina Reporters' Comments to Section 33-13-230), and the addition of the requirements that the corporation explain how it calculated the fair value, the new provision is identical to Section 13.25 of the 1984 Model Act.
  This provision is a significant change from the 1981 South Carolina Business Corporation Act which merely required that the corporation offer to pay the amount it contended was the fair value. The payment was only required after the shareholder had agreed to the value. Under the new provision, the corporation must pay to each dissenter the amount it calculates is the fair value of his shares (except for after-acquired shares under Section 33-13-270).
  Other, more technical, changes are made in the timing and the financial statements and explanations required to accompany the offer. Additionally, the new provision does not contain the requirement of prior South Carolina law that the amount per share offered each shareholder be identical.
  The financial statements required by Section 33-13-250(b)(1) include interim financial statements if any have been prepared that are more recent than the balance sheet, the income statement, and the statement of changes in shareholders' equity. Interim statements do not have to be prepared just for distribution to dissenters, although any of the annual statements that the corporation did not usually prepare would have to be prepared.
  The requirement of Section 33-13-250(b)(2) that the corporation explain to the dissenter how it calculated the fair value it is offering him is intended to further the process of settling the parties' differences in private negotiations as well as to give the shareholder the information needed to make an informed decision whether or not to accept the payment in full satisfaction. The explanation must describe the method used in calculating the fair value and designate the data used in making the calculations.
  For example, a corporation might explain that it had calculated the value of the shares by capitalizing its average earnings over the past
three years at a rate of X, or its explanation might be that it had calculated the value of the shares by adding a Y percent premium to the highest quoted price for the shares on the New York Stock Exchange during the preceding six months, or it might explain that its offer was the net asset value per share as shown on the accompanying balance sheet. Although minimal explanations such as these would satisfy the statutory mandate, if they accurately described the method used and did not omit any material factors included in the calculation of the offered fair value, a more complete explanation might serve better to convince the dissenting shareholders of the fairness of the value offered or at least to provide a more meaningful basis for discussion of the parties' differences.
  In providing the valuation information, the corporation must take care to avoid liability under other applicable laws, such as Rule 10b-5 under the Securities Exchange Act of 1934.
DERIVATION: 1984 Model Act Section 13.25.
  Section 33-13-260. Failure to take action.
  (a) If the corporation does not take the proposed action within sixty days after the date set for demanding payment and depositing share certificates, the corporation, within the same sixty-day period, shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares.
  (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Section 33-13-220 and repeat the payment demand procedure.
CROSS REFERENCES
Certificateless shares, see Section 33-6-260.
Court action to compel payment, see Sections
  33-13-300 and 33-13-310.
Dissenters' notice, see Section 33-13-220.
Information statement for certificateless
  shares, see Section 33-6-260.
Share transfer restrictions, see Section
  33-13-240.
OFFICIAL COMMENT
  Section 13.26 (Section 33-13-260) essentially grants the corporation 60 days after the payment demand date to complete the transaction and make payment for the shares as required by section 13.25 (Section 33-13-250). If the corporation is unable to complete the corporate action within 60 days, it must release the shares, and give a new notice when it is ready to repeat the cycle.
This requirement prevents the corporation from holding the dissenter indefinitely in a position where he has no possibility of realizing on his shares either by obtaining payment from the corporation or by selling them. If the transaction has been effected but the corporation fails to make payment as required by this chapter, it is subject to the sanctions of section 13.31(b) (Section 33-13-310(b)).
  Section 13.26(b) (Section 33-13-260(b)) makes it clear that the corporation at any time after returning the deposited shares may send a new dissenters' notice under section 13.22 (Section 33-13-220) and repeat the procedure.
SOUTH CAROLINA REPORTERS' COMMENTS
  This provision, which is nearly identical to Section 13.26 of the 1984 Model Act, adds a new sixty-day time limit to the law. The 1981 South
Carolina Business Corporation Act only required the corporation to return dissenters to the status of shareholders if the action were abandoned or the shareholders revoked the authority for it. The new provision adds to the Model Act the language "within the same sixty-day period" to make explicit what was implicit and, therefore, a trap for the unwary, under Model Act Section 13.28 (Section 33-13-280). Under that section, if the shares have not been returned within sixty days after the date set for demanding payment, the shareholder is entitled to payment even if the action has been abandoned.
DERIVATION: 1984 Model Act Section 13.26.
  Section 33-13-270. After-acquired shares.
  (a) A corporation may elect to withhold payment required by section 33-13-250 from a dissenter as to any shares of which he (or the beneficial owner on whose behalf he is asserting dissenters' rights) was not the beneficial owner on the date set forth in the dissenters' notice as the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action, unless the beneficial ownership of the shares devolved upon him by operation of law from a person who was the beneficial owner on the date of the first announcement.
  (b) To the extent the corporation elects to withhold payment under subsection (a), after taking the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of his demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the fair value and interest were calculated, and a statement of the
dissenter's right to demand additional payment under Section 33-13-280.
CROSS REFERENCES
Acquisition date, see Section 33-13-220.
"Dissenter" defined, see Section 33-13-101.
"Fair value" defined, see Section 33-13-101.
"Interest" defined, see Section 33-13-101.
Rejection of corporation's offer, see Section
  33-13-280.
OFFICIAL COMMENT
  Section 13.27 (Section 33-13-270) provides for separate treatment of shares acquired on or after the date of public announcement of the proposed corporate action; this date is specified by the corporation in its dissenters' notice under section 13.22 (Section 33-13-220). At the corporation's option, holders of shares acquired on or after this date are not entitled to immediate payment under section 13.25 (Section 33-13-250); rather, they may receive only an offer of payment which is conditioned on their agreement to accept it in full satisfaction of their claim. If the right of unconditional immediate payment were granted as to all after-acquired shares, speculators and others might be tempted to buy shares merely for the purpose of dissenting. Since the function of dissenters' rights is to protect investors against unforeseen changes, there is no need to give equally favorable treatment to purchasers who knew or should have known about the proposed changes.
  Corporations are given discretion whether to apply section 13.27 (Section 33-13-270) to after-acquired shares. Considerations of simplicity and harmony may prompt the corporation to make immediate payment for shares
acquired on or after the specified date as well as for reacquired shares.
  The date used as a cut-off for determining the application of this section is "when the terms" of the transaction are first announced to the news media or shareholders. The cut-off should not be set at an earlier date, such as when the first public statement that the corporate action was under consideration was made, because the goal of this section is to prevent use of dissenters' rights as a speculative device after the terms of the transaction are announced. See the Official Comment to section 13.22 (Section 33-13-220).
  A dissenter under this section may accept the offered payment in full satisfaction; if he does not, he is entitled to demand a judicial determination of the amount to which he is entitled under sections 13.28 and 13.30 (Sections 33-13-280 and 33-13-300). He is then entitled to payment of the amount so determined at the termination of the proceeding.
SOUTH CAROLINA REPORTERS' COMMENTS
  Except for a couple of technical corrections (including one to make it clear that this provision only affects payment for after-acquired shares and not all shares owned by a shareholder who bought additional shares after the date of the announcement), the addition of the requirement that the corporation explain how it calculated the fair value (see the South Carolina Reporters' Comments to Section 33-13-250), and the addition of language based upon Section 33-11-290 of the 1981 South Carolina Business Corporation Act to make this provision inapplicable to a shareholder who inherited or otherwise acquired the shares through the operation of law, the new provision is identical to Section 13.27 of the 1984 Model Act. There was nothing similar in the 1981 South
Carolina Business Corporation Act, since it did not require the corporation to make payment until the dissenter had agreed to accept the amount offered.
DERIVATION: 1984 Model Act Section 13.27.
  Section 33-13-280. Procedure if shareholder dissatisfied with payment or offer.
  (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due and demand payment of his estimate (less any payment under Section 33-13-250) or reject the corporation's offer under Section 33-13-270 and demand payment of the fair value of his shares and interest due, if the:
    (1) dissenter believes that the amount paid under Section 33-13-250 or offered under Section 33-13-270 is less than the fair value of his shares or that the interest due is calculated incorrectly;
    (2) corporation fails to make payment under Section 33-13-250 or to offer payment under Section 33-13-270 within sixty days after the date set for demanding payment; or
    (3) corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within sixty days after the date set for demanding payment.
  (b) A dissenter waives his right to demand additional payment under this section unless he notifies the corporation of his demand in writing under subsection (a) within thirty days after the corporation made or offered payment for his shares.
CROSS REFERENCES
After-acquired shares, see Section 33-13-270.
"Deliver" includes mail, see Section 33-1-400.
"Dissenter" defined, see Section 33-13-101.
Dissenters' rights as exclusive remedy, see
  Section 33-13-102.
Effective date of notice, see Section 33-1-410.
"Fair value" defined, see Section 33-13-101.
"Interest" defined, see Section 33-13-101.
Judicial appraisal, see Section 33-13-300.
"Notice" defined, see Section 33-1-410.
Offer of payment for after-acquired shares, see
  Section 33-13-270.
Payment for shares, see Section 33-13-250.
OFFICIAL COMMENT
  Section 13.28 (Section 33-13-280) also departs significantly from the prior law of dissenters' rights.
  The dissenter who is not content with the corporation's remittance must state in writing the amount he is willing to accept. A dissenter who acquired his shares after public announcement of the transaction (section 13.27 (Section 33-13-270)) and is dissatisfied with the corporation's offer must also state in writing the amount he is willing to accept. A dissenter cannot, by remaining silent, force the corporation into the expense and delay of a judicial appraisal. Furthermore, if his supplemental demand is unreasonable, he runs the risk of being assessed litigation expenses under section 13.31 (Section 33-13-310). These provisions are designed to encourage settlement without a judicial proceeding.
  A dissenter to whom the corporation has made payment (or who has been offered payment under section 13.27 (Section 33-13-270)) must make his supplemental demand within 30 days after receipt of the payment (or offer of payment) in order to
permit the corporation to make an early decision on initiating appraisal proceedings. If he fails to do so, he loses the right to demand additional payment under section 13.28(b) (Section 33-13-280(b)).
  If the corporation, having failed to make payment, also fails to return the certificates previously deposited or release the restrictions on transfer of uncertificated securities within 60 days, the shareholder may treat the shares as purchased by the corporation and demand payment of the full amount claimed under this section. See section 13.30(a) (Section 33-13-300(a)). This provision creates no hardship for the corporation since, if it cannot complete the transaction within 60 days, it may return the certificates (or release the restrictions on uncertified shares) and start the process over again at any time.
SOUTH CAROLINA REPORTERS' COMMENTS
  Except for a couple of technical corrections, the new provision is identical to Section 13.28 of the 1984 Model Act. There was no specific procedure similar to this in the 1981 South Carolina Business Corporation Act. This is an important part of the Model Act's attempt to encourage settlement of differences of opinion as to the value of the shares.
DERIVATION: 1984 Model Act Section 13.28.
Article 3
Judicial Appraisal of Shares
Sec.
33-13-300. Court action.
33-13-310. Court costs and counsel fees.
  Section 33-13-300. Court action.
  (a) If a demand for additional payment under Section 33-13-280 remains unsettled, the corporation shall commence a proceeding within sixty days after receiving the demand for additional payment and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the sixty-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded.
  (b) The corporation shall commence the proceeding in the circuit court of the county where the corporation's principal office (or, if none in this State, its registered office) is located. If the corporation is a foreign corporation without a registered office in this State, it shall commence the proceeding in the county in this State where the principal office (or, if none in this State, the registered office) of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located.
  (c) The corporation shall make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication, as provided by law.
  (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) is plenary and exclusive. The court may appoint persons as appraisers to receive evidence and recommend decisions on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings.
  (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation.
CROSS REFERENCES
After-acquired shares, see Section 33-13-270.
"Dissenter" defined, see Section 33-13-101.
"Fair value" defined, see Section 33-13-101.
"Interest" defined, see Section 33-13-101.
"Person" defined, see Section 33-1-400.
"Principal Office":
  defined, see Section 33-1-400.
  designated in annual report, see Section
    33-16-220.
"Proceeding" defined, see Section 33-1-400.
Registered Office:
  designated in annual report, see Section
    33-16-220.
  required, see Sections 33-2-102 and 33-5-101.
OFFICIAL COMMENT
  Section 13.30 (Section 33-13-300) retains the concept of judicial appraisal as the ultimate means of determining fair value. The proceeding is to be commenced by the corporation within 60 days after receiving a demand for payment under section 13.28 (Section 33-13-280). Section 13.30(a) (Section 33-13-300(a)) makes this time period jurisdictional; if the petition is not commenced within this period the corporation must pay the additional amounts demanded by the shareholders under section 13.28 (Section 33-13-280). See the Official Comment to that section. Each shareholder may sue directly for this amount, if necessary, and in an appropriate case may be entitled to charge the corporation with the costs of suit.
  All demands for payment made under section 13.28 (Section 33-13-280) are to be resolved in a single proceeding brought in the county where the corporation's principal office is located or, if none, in other specified counties. All shareholders making section 13.28 (Section 33-13-280) demands must be made parties, with service by publication authorized if necessary. Appraisers may be appointed within the discretion of the court. The final judgment establishes not only the fair value of the shares in the abstract but also determines how much each shareholder who made a section 13.28 (Section 33-13-280) demand should actually receive.
  If the corporation fails to commence a judicial proceeding to establish the fair value of the shares as required by this section, it must pay the full amount claimed under this section.
SOUTH CAROLINA REPORTERS' COMMENTS
  Except for several technical corrections, the new provision is identical to the 1984 Model Act. Item (2) from subsection (e) of the Model Act, which states the form of a judgment in a dissenters' rights case where after-acquired shares are involved, has been deleted. This deletion is not intended to effect any change from the Model Act's intended meaning. The item was redundant because item (1) adequately provided for after-acquired shares for which the corporation had elected to withhold payment. For such shares the amount paid by the corporation is nothing and the amount due under item (1) is the fair value of the shares, plus interest. Additionally, the Model Act subsection provides confusing guidance about what is due to a shareholder who owned some shares before the first announcement and acquired other shares for which payment has been withheld under Section
33-13-270. The wording of new subsection (e) provides clear directions for this case as well.
  The new provision makes a number of changes in prior South Carolina law under the 1981 South Carolina Business Corporation Act. See generally, the Official Comment to this section. The most significant change is in the effect of the corporation's failure to commence judicial proceedings when required; under the new law the corporation becomes liable for the amount demanded by the dissenters.
DERIVATION: 1984 Model Act Section 13.30.
  Section 33-13-310. Court costs and counsel fees.
  (a) The court in an appraisal proceeding commenced under Section 33-13-300 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Section 33-13-280.
  (b) The court also may assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable:
    (1) against the corporation and in favor of any or all dissenters if the court finds the corporation did not comply substantially with the requirements of Sections 33-13-200 through 33-13-280; or
    (2) against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights provided by this chapter.
  (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited.
  (d) In a proceeding commenced by dissenters to enforce the liability under Section 33-13-300(a) of a corporation that has failed to commence an appraisal proceeding within the sixty-day period, the court shall assess the costs of the proceeding and the fees and expenses of dissenters' counsel against the corporation and in favor of the dissenters.
CROSS REFERENCES
Appraisers, see Section 33-13-300.
"Dissenter" defined, see Section 33-13-101.
"Proceeding" defined, see Section 33-1-400.
OFFICIAL COMMENT
  Section 13.31 (Section 33-13-310) provides that generally the costs of the appraisal proceeding should be assessed against the corporation. But the court is authorized to assess these costs, in whole or in part, against the dissenters if it concludes they acted arbitrarily, vexatiously, or not in good faith in making the section 13.28 (Section 33-13-280) demand for additional payment. Similarly, counsel fees may be charged against the corporation or against dissenters upon a finding of a failure to comply in good faith with the requirements of this chapter. Individual dissenters, in turn, can be called upon to pay counsel fees for other dissenters if the court
finds that the services were of substantial benefit to the other dissenters.
  The purpose of all these grants of discretion with respect to costs and counsel fees is to increase the incentives of both sides to proceed in good faith under this chapter to attempt to resolve their disagreement without the need of a formal judicial appraisal of the value of the shares.
SOUTH CAROLINA REPORTERS' COMMENTS
  Except for the addition of subsection (d) to make explicit the result discussed in the Official Comment to Section 33-13-300, the new provision is identical to Section 13.31 of the 1984 Model Act. It makes a number of changes in prior South Carolina law. See, generally, the Official Comment to this section. Under the new provision, if the court finds that the dissenters acted arbitrarily, vexatiously, or not in good faith, it may assess costs, including attorneys' fees, against them but it may not deny them interest as it could do under the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 13.31.
CHAPTER 14
Dissolution
Article 1. Voluntary Dissolution.
Article 2. Administrative Dissolution.
Article 3. Judicial Dissolution.
Article 4. Miscellaneous.
Article 1
Voluntary Dissolution
Sec.
33-14-101. Dissolution by incorporators or
            initial directors.
33-14-102. Dissolution by board of directors
            and shareholders.
33-14-103. Articles of dissolution.
33-14-104. Revocation of dissolution.
33-14-105. Effect of dissolution.
33-14-106.Known claims against dissolved corporation.
33-14-107.Unknown claims against dissolved corporation.
  Section 33-14-101. Dissolution by incorporators or initial directors.
  The board of directors or, if the corporation has no directors, a majority of the incorporators of a corporation that has not issued shares or has not commenced business may dissolve the corporation by delivering to the Secretary of State for filing articles of dissolution that set forth:
  (1) the name of the corporation;
  (2) the date of its incorporation;
  (3) either (i) that none of the corporation's shares has been issued or (ii) that the corporation has not commenced business;
  (4) that no debt of the corporation remains unpaid;
  (5) that the net assets of the corporation remaining after winding up have been distributed to the shareholders, if shares were issued; and
  (6) that a majority of the incorporators or initial directors authorized the dissolution.
CROSS REFERENCES
Claims against dissolved corporation, see
  Sections 33-14-106 and 33-14-107.
"Deliver" includes mail, see Section 33-1-400.
Dissolution by board of directors and
  shareholders, see Section 33-14-102.
Effective date of dissolution, see Section
  33-14-103.
Effect of dissolution, see Section 33-14-105.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Incorporators, see Section 33-2-101.
Initial directors, see Section 33-2-105.
Revocation of dissolution, see Section 33-14-104.
OFFICIAL COMMENT
Section 14.01 (Section 33-14-101) provides a simple method of voluntary dissolution for a corporation that has not issued shares or commenced business. These provisions are alternative; a corporation may utilize section 14.01 (Section 33-14-101) if it has not issued shares (even though it has commenced business) or if it has issued shares but has not commenced business. Dissolution may be accomplished in either of these situations simply by a majority vote of the incorporators or initial directors. (See section 2.05 (Section 33-2-105) and its Official Comment for a discussion of the roles of "incorporators" or "initial directors" in the organization of a corporation.)
  This simple method of dissolution is likely to be used by name-holding corporations or by corporations formed for the initiation of a new venture when the reasons for the initial creation of the corporation have been completely realized or will never come to fruition.
  The form of articles of dissolution provided in section 14.01 (Section 33-14-101) takes account of the fact that a corporation may
utilizes this section even though it has received capital from the issuance of shares or has incurred liabilities either from the commencement of business without issuing shares or from its organization; hence the articles must state that no debts remain unpaid, and that the net assets of the corporation remaining after winding up have been distributed to the shareholders.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 33-21-10 of the 1981 South Carolina Business Corporation Act provided for dissolution by the incorporators or initial directors if the corporation had neither issued shares nor commenced business. Section 14.01 of the 1984 Model Act authorizes the use of this dissolution procedure if the corporation either has not issued shares or has not commenced business. The new provision adopts the broader Model Act formula.
  Prior South Carolina law specifically required that the amount paid for subscriptions, less any necessary expenses, be refunded to the subscribers. The new provision (and the Model Act section upon which it is based) does not contain this requirement but merely requires that the corporation's debts be paid. This would require that the corporation refund the deposit if it has accepted the subscription. If it has not, then the subscriber's right to a refund is not against the corporation but the promoter who received the deposit, and the making of the refund should not be a condition precedent to dissolution.
  In other respects, the new provision makes no significant changes in prior South Carolina law. The new provision is identical to the Model Act except that it rewords the introductory language to specify that the incorporators only have the power to dissolve
the corporation if the directors have not been named (or have all died or resigned). See new Section 33-1-105 and the South Carolina Reporters' Comments thereto.
DERIVATION: 1984 Model Act Section 14.01.
  Section 33-14-102. Dissolution by board of directors and shareholders.
  (a) A corporation's board of directors may propose dissolution for submission to the shareholders.
  (b) For a board of directors' proposal to dissolve to be adopted:
    (1) the board of directors must recommend dissolution to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders; and
    (2) the shareholders entitled to vote must approve the proposal to dissolve as provided in subsection (f).
  (c) The board of directors may condition the submission of its proposal for dissolution on any basis.
  (d) If the holders of at least ten percent of any class of voting shares of the corporation propose dissolution, the board of directors shall submit the proposal to the shareholders at the next possible special or annual meeting.
  (e) The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with Section 33-7-105. The notice must state that the purpose, or one of the purposes, of the meeting is to consider dissolving the corporation.
  (f) Unless the articles of incorporation require a different vote or the board of directors (acting pursuant to subsection (c))
requires a greater vote or a vote by voting groups, the proposal to dissolve to be adopted must be approved by two-thirds of all the votes entitled to be cast on that proposal.
  (g) The articles of incorporation may require a lower or higher vote for approval than that specified in subsection (f), but the required vote must be at least a majority of all the votes entitled to be cast on the proposal.
CROSS REFERENCES
Director standards of conduct, see Sections
  33-8-300 through 33-8-320.
Dissolution by unanimous consent of
  shareholders, see Section 33-7-104.
Effect of dissolution, see Section 33-14-105.
"Notice" defined, see Section 33-1-410.
Notice of shareholders' meeting, see Section
  33-7-105.
Quorum at shareholder's meeting, see Section
  33-7-250.
Revocation of dissolution, see Section
  33-14-104.
Supermajority quorum and voting requirements,
  see Section 33-7-270.
Voting by voting group, see Sections 33-7-250
  and 33-7-260.
Voting entitlement of shareholders generally,
  see Section 33-7-210.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  A corporation that has issued shares and commenced business may dissolve voluntarily only with the approval of its shareholders. Section 14.02 (Section 33-14-102) requires the board of directors to propose dissolution and then submit the proposal to the shareholders. The board of directors must make a recommendation to the shareholders that the proposal to dissolve be
approved, unless it determines that because of conflict of interest or other special circumstances it should make no recommendation. If the board of directors so determines, it must describe the conflict or circumstances, and communicate the basis for its determination, to the shareholders when presenting the proposal to dissolve to the shareholders.
  Dissolution, to be approved, must receive the vote of a majority of the outstanding votes entitled by the articles of incorporation to vote on the proposal. This is a greater vote than that required for ordinary matters under section 7.25 (Section 33-7-250). Non-voting classes of shares are not given a statutory right to vote on proposals to dissolve (either as separate voting groups or together with voting shares) by the revised Model Act on the theory that, upon dissolution, the rights of all classes or series of shares are fixed by the articles of incorporation. The articles of incorporation, however, may stipulate that specified classes or series of shares are entitled to vote by separate voting groups. Thus, in the absence of specific provision in the articles of incorporation, only the shares of the corporation entitled to vote generally by the articles of incorporation are entitled to vote on dissolution. The articles of incorporation may also specify that a greater percentage of votes is required to approve the proposal than is required by section 14.02 (Section 33-14-102).
  The board of directors may condition its submission of a proposal to the shareholders under subsection (c) on its receiving a specified percentage of the votes of shareholders of one or more classes or series, voting by separate voting groups, or on some other basis. See the discussion of conditional submissions in the Official Comment to section 10.03 (Section 33-10-103).
  Section 14.04 (Section 33-14-104) permits the corporation to revoke the dissolution under the circumstances described.
SOUTH CAROLINA REPORTERS' COMMENTS
  The new provision differs from Section 14.02 of the 1984 Model Act in two major regards: it adds to the Model Act the 1981 South Carolina Business Corporation Act procedure for the holders of ten percent of the shares of a class to propose dissolution, but limits this to voting shares, and it follows the pattern of requiring all fundamental corporate changes to be approved by a two-thirds vote unless the articles of incorporation permit majority approval. See, e.g., new Section 33-10-103 and the South Carolina Reporters' Comments to the section. Prior South Carolina law permitted dissolution to be approved by a simple majority, but this anomaly inadvertently crept into the law during the 1981 drafting process; it was not intended by the General Assembly. See Adams, "The 1981 Revision of the South Carolina Business Corporation Act," 33 S.C.L. REV. 405, 414-15 (1982).
  There is no parallel in the new provisions for Section 33-21-30 of the 1981 South Carolina Business Corporation Act allowing dissolution by written consent of all of the shareholders without board approval, although a similar result can be reached by virtue of the ability of the holders of ten percent of the shares of any voting class to propose dissolution and the use of written consents under new Section 33-7-104.
DERIVATION: 1984 Model Act Section 14.02.
  Section 33-14-103. Articles of dissolution.
  (a) At any time after dissolution is authorized, the corporation may dissolve by
delivering to the Secretary of State for filing articles of dissolution setting forth:
    (1) the name of the corporation;
    (2) the names and addresses of its directors;
    (3) the names and addresses of its officers;
    (4) the date dissolution was authorized;
    (5) if dissolution was approved by the shareholders:
      (i) the number of votes entitled to be cast on the proposal to dissolve; and
    (ii) either the total number of votes cast for and against dissolution or the total number of undisputed votes cast for dissolution and a statement that the number cast for dissolution was sufficient for approval.
    (6) If voting by voting groups was required, the information required by item (5) must be provided separately for each voting group entitled to vote separately on the plan to dissolve.
  (b) A corporation is dissolved upon the effective date of its articles of dissolution.
CROSS REFERENCES
"Deliver" includes mail, see Section 33-1-400.
Dissolution by board of directors and
  shareholders, see Section 33-14-102.
Dissolution by unanimous consent of
  shareholders, see Section 33-7-104.
Effect of dissolution, see Section 33-14-105.
Effective time and date of filing, see Section
  33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Revocation of dissolution, see Section
  33-14-104.
Voting by voting group, see Sections 33-7-250 and
  33-7-260.
"Voting group" defined, see Section 33-1-400.
OFFICIAL COMMENT
  The act of filing the articles of dissolution makes the decision to dissolve a matter of public record and establishes the time when the corporation must being the process of winding up and cease carrying on its business except to the extent necessary for winding-up. The articles of dissolution must describe the manner in which the proposal to dissolve was submitted to the shareholders and describe the vote taken.
  Under the Model Act, articles of dissolution may be filed at the commencement of winding-up or at any time thereafter. This is the only filing required for voluntary dissolution; no filing is required to mark the completion of winding-up since the existence of the corporation continues for certain purposes even after the business is wound up and the assets remaining after satisfaction of all creditors are distributed to the shareholders. No time limit for filing the articles is specified, and it often may be desirable to postpone filing until winding up is far along or even complete.
  A corporation is dissolved on the date the articles of dissolution are effective. After this date, the corporation is referred to as a "dissolved corporation," although its existence continues under section 14.05 (Section 33-14-105) for the purposes of winding up.
SOUTH CAROLINA REPORTERS' COMMENTS
  The new provision follows Section 14.03 of the 1984 Model Act, rather than the 1981 South Carolina Business Corporation Act, pattern of filings with the Secretary of State. Prior law required two filings. The statement of intent to dissolve was filed as soon as the dissolution had been approved by the shareholders; it began the winding up and liquidation period. See Section 33-21-20(a)(5) of the 1981 South
Carolina Business Corporation Act. When winding up and liquidation had been completed, articles of dissolution were filed, ending the legal existence of the corporation. See Section 33-21-100 of the 1981 South Carolina Business Corporation Act. Under the new provision, only one filing is required. Although the document is called "articles of dissolution," it bears a closer resemblance to the old notice of intent to dissolve than to the old articles of dissolution. However, it need not be filed as soon as the dissolution is authorized, but may be filed at any time after authorization; its filing does not begin the winding up and liquidation process. As the Official Comment notes, frequently it will be filed when "winding up is far along or even complete." On the effective date of the articles of dissolution (the filing date or later effective date specified in them) the corporation is dissolved but its legal existence continues. Dissolution, under the new provisions, merely means that the corporation may no longer carry on its business but must wind up and liquidate. See new Section 33-14-105.
  The new provision continues the prior South Carolina requirement, not found in the Official Text of the Model Act, that the names and addresses of the corporation's officers and directors be listed in the articles of dissolution to give creditors public notice of who was in charge of the corporation when it was dissolved. See Section 33-21-20(a)(5)(B) and (C) of the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 14.03.
  Section 33-14-104. Revocation of dissolution.
  (a) A corporation may revoke its dissolution within one hundred twenty days of its effective date.
  (b) Revocation of dissolution must be authorized in the same manner as the dissolution was authorized unless that authorization permitted revocation by action of the board of directors alone, in which event the board of directors may revoke the dissolution without shareholder action.
  (c) After the revocation of dissolution is authorized, the corporation may revoke the dissolution by delivering to the Secretary of State for filing, articles of revocation of dissolution, together with a copy of its articles of dissolution, that set forth:
    (1) the name of the corporation;
    (2) the effective date of the dissolution that was revoked;
    (3) the date that the revocation of dissolution was authorized;
    (4) if the corporation's board of directors (or incorporators) revoked the dissolution, a statement to that effect;
    (5) if the corporation's board of directors revoked a dissolution authorized by the shareholders, a statement that revocation was permitted by action by the board of directors alone pursuant to that authorization; and
    (6) if shareholder action was required to revoke the dissolution:
      (i) the number of votes entitled to be cast on the proposal to revoke the dissolution; and
    (ii) either the total number of votes cast for and against revocation or the total number of undisputed votes cast for revocation and a statement that the number cast for revocation was sufficient for approval.
    (7) If voting by voting groups was required, the information required by item (6) must be separately provided for each voting group entitled to vote separately on the proposal to revoke the dissolution.
  (d) Revocation of dissolution is effective upon the effective date of the articles of revocation of dissolution.
  (e) When the revocation of dissolution is effective, it relates back to and takes effect as of the effective date of the dissolution and the corporation resumes carrying on its business as if dissolution had never occurred.
CROSS REFERENCES
Articles of dissolution, see Section 33-14-103.
"Deliver" includes mail, see Section 33-1-400.
Dissolution by board of directors and
  shareholders, see Section 33-14-102.
  incorporators or initial directors, see
    Section 33-14-101.
  unanimous consent of shareholders, see
    Section 33-7-104.
Effective date of dissolution, see Section
  33-14-103.
Effective time and date of filing, see Section
  33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
OFFICIAL COMMENT
  Voluntary dissolution may be revoked within 120 days of the effective date of the dissolution. Because of the importance and finality of dissolution, the decision to revoke dissolution generally requires shareholder authorization (unless the dissolution was approved solely by the initial directors or incorporators under section 14.01(Section 33-14-101)). Section 14.04(b) (Section 33-14-104(b)), however, contemplates that the board of directors may revoke dissolution if it is granted that authority in advance by the shareholders when approving the dissolution. Such authorization is often included in
proposals to dissolve that are contingent upon the effectuation of another transaction, such as a sale of corporate assets not in the ordinary course of business.
  Certain other action requiring shareholder approval may be revoked by the board of directors without express shareholder approval. (See Section 11.03 and 12.02 (Sections 33-11-103 and 33-12-102). By contrast, dissolution under section 14.04 (Section 33-14-104) may not be revoked by the board of directors without approval of the shareholders.
  Articles of revocation of dissolution must be filed to reflect the decision to resume the business of the corporation. The information required in these articles parallels the
information required in the original articles of dissolution.
  The effect of articles of revocation of dissolution is to eliminate the requirement that the corporation cease to conduct its business except as part of the winding-up process and permit it to resume its business without limitation and as if dissolution had never occurred.
SOUTH CAROLINA REPORTERS' COMMENTS
  The new provision is identical in substance to Section 14.04 of the 1984 Model Act section. The new provision limits revocation to a one hundred twenty-day period after dissolution. This limitation was not contained in the 1981 South Carolina Business Corporation Act but is necessary under the new provisions because only one filing with the Secretary of State is required. The other change in South Carolina law that the new provision makes is to permit the board of directors to revoke dissolution without shareholder approval if permitted by the shareholder resolution authorizing dissolution. Thus, the board, if it had proposed dissolution
under Section 33-14-102(a), could under Section 33-14-102(c) obtain shareholder authorization for it to revoke the dissolution. Dissolution by shareholder proposal under Section 33-14-102(d) could not be revoked in this way.
DERIVATION: 1984 Model Act Section 14.04.
  Section 33-14-105. Effect of dissolution.
  (a) A dissolved corporation continues its corporate existence but may not carry on any business except that appropriate to wind up and liquidate its business and affairs, including:
    (1) collecting its assets;
    (2) disposing of its properties that will not be distributed in kind to its shareholders;
    (3) discharging or making provision for discharging its liabilities;
    (4) distributing its remaining property among its shareholders according to their interests; and
    (5) doing every other act necessary to wind up and liquidate its business and affairs.
  (b) A dissolved corporation shall wind up and liquidate its business and affairs as expeditiously as practicable.
  (c) Dissolution of a corporation does not:
    (1) transfer title to the corporation's property;
    (2) prevent transfer of its shares or securities, although the authorization to dissolve may provide for closing the corporation's share transfer records;
    (3) subject its directors or officers to standards of conduct different from those prescribed in Chapter 8;
    (4) change quorum or voting requirements for its board of directors or shareholders, change provisions for selection, resignation, or removal of its directors or officers or both, or change provisions for amending its bylaws;
    (5) prevent commencement of a proceeding by or against the corporation in its corporate name;
    (6) abate or suspend a proceeding pending by or against the corporation on the effective date of dissolution; or
    (7) terminate the authority of the registered agent of the corporation.
CROSS REFERENCES
Administrative dissolution, see Sections
  33-14-200 to 33-14-230.
Amendment of bylaws, see Chapter 10, Article 2.
Claims against dissolved corporation, see
  Sections 33-14-106 and 33-14-107.
Deposit with State Treasurer, see Section
  33-14-330.
Directors:
  election, see Section 33-8-103.
  removal, see Sections 33-8-108 and 33-8-109.
  resignation, see Section 33-8-108.
  standards of conduct, see Sections 33-8-300
    through 33-8-320.
  terms, see Section 33-8-105.
Dissolution by board of directors and
    shareholders, see Section 33-14-102.
  incorporators or initial directors, see
    Section 33-14-101.
Distribution, see Section 33-6-400.
Effective date of dissolution, see Section
  33-14-103.
Judicial dissolution, see Sections 33-14-300
  through 33-14-330.
Officers:
  appointment, see Section 33-8-400.
  removal, see Section 33-8-430.
  resignation, see Section 33-8-430.
  standards of conduct, see Section 33-8-420.
"Proceeding" defined, see Section 33-1-400.
Quorum requirements:
  board of directors, see Section 33-8-240.
  shareholders, see Sections 33-7-250 and
    33-7-260.
Revocation of dissolution, see Section
  33-14-104.
Service of process on registered agent, see
  Section 33-5-104.
Voting requirements:
  directors, see Section 33-8-240.
  shareholders, see Sections 33-7-250 and
    33-7-260.
OFFICIAL COMMENT
  Section 14.05(a) (Section 33-14-105(a)) provides that dissolution does not terminate the corporate existence but simply requires the corporation thereafter to devote itself to winding up its affairs and liquidating its assets; after dissolution, the corporation may not carry on its business except as may be appropriate for winding-up.
  The Model Act uses the term "dissolution" in the specialized sense described above and not to describe the final step in the liquidation of the corporate business. This is made clear by section 14.05(b) (Section 33-14-105(b)), which provides that chapter 14 dissolution does not have any of the characteristics of common law dissolution, which treated corporate dissolution as analogous to the death of a natural person and abated lawsuits, vested equitable title to corporate property in the shareholders, imposed the fiduciary duty of trustees on directors who had custody of corporate assets, and revoked the authority of the registered agent. Section 14.05(b) (Section 33-14-105(b)) expressly reverses all of these common law attributes of dissolution and makes clear that the rights, powers, and duties of shareholders, the directors, and the registered agent are not
affected by dissolution and that suits by or against the corporation are not affected in any way.
SOUTH CAROLINA REPORTERS' COMMENTS
  This provision lists the things a dissolved corporation may do and things that dissolution does not accomplish. The first of these lists is merely a stylistic revision. The second is new, although it chiefly makes explicit what was inherent in prior South Carolina law. One noteworthy change is item (7) of subsection (c), which provides that dissolution does not terminate the authority of the registered agent. New Section 33-14-105(c)(5) provides, as did Sections 33-21-100(c) and 33-21-220(a) of the 1981 South Carolina Business Corporation Act, that dissolution does not prevent commencement of a proceeding against a corporation in its corporate name. Therefore, a suit may be brought against a dissolved corporation by serving its registered agent. If the registered agent cannot be served, new Section 15-9-210(b) allows service by certified or registered mail addressed to the corporate secretary at the principal office listed in the last annual report filed by the corporation. Section 15-9-210(b)(3) provides that this service is effective five days after deposit in the United States mail; this provision requires that the mail be postpaid and correctly addressed but does not require that it be actually delivered or accepted. See the South Carolina Reporters' Comments to Sections 33-5-104 and 15-9-210 and the Official Comment to Sections 33-5-104 and 33-14-105. Rule 4(d)(3) of the South Carolina Rules of Civil Procedure provides another method of service.
  The new provision adds to Section 14.05 of the 1984 Model Act the requirement of prior South Carolina law that the dissolved corporation wind
up and liquidate as expeditiously as practicable,
thus making explicit what is implicit in the Model Act.
DERIVATION: 1984 Model Act Section 14.05.
  Section 33-14-106. Known claims against dissolved corporation.
  (a) A dissolved corporation may dispose of the known claims against it by following the procedure described in this section.
  (b) The dissolved corporation shall notify its known claimants in writing of the dissolution at any time after its effective date. The written notice must:
    (1) describe information that must be included in a claim;
    (2) provide a mailing address where a claim may be sent;
    (3) state the deadline, which may not be fewer than one hundred twenty days from the effective date of the written notice, by which the dissolved corporation must receive the claim; and
    (4) state that the claim will be barred if not received by the deadline.
  (c) A claim against the dissolved corporation is barred:
    (1) if a claimant who was given written notice under subsection (b) does not deliver the claim to the dissolved corporation by the deadline;
    (2) if a claimant whose claim was rejected by the dissolved corporation does not commence a proceeding to enforce the claim within ninety days from the effective date of the rejection notice and the rejection notice stated that proceedings to enforce the claim must be commenced within ninety days.
  (d) For purposes of this section, 'claim' does not include a contingent liability or a claim
based on an event occurring after the effective date of dissolution.
CROSS REFERENCES
Administrative dissolution, see Section
  33-14-210.
"Deliver" includes mail, see Section 33-1-400.
Dissolved corporation, see Section 33-14-103.
Distributions, see Sections 33-6-400 and
  33-8-330.
Effective date of dissolution, see Section
  33-14-103.
Effective date of notice, see Section
  33-14-320.
Judicial dissolution, see Section 33-14-320.
"Notice" defined, see Section 33-1-410.
Notice to the corporation, see Section
  33-1-410.
"Proceeding" defined, see Section 33-1-400.
Unknown claims, see Section 33-14-107.
OFFICIAL COMMENT
  Sections 14.06 and 14.07 (Sections 33-14-106 and 33-14-107) provide a new and simplified system for handling known and unknown claims against a dissolved corporation, including claims based on events that occur after the dissolution of the corporation. Section 14.06 (Section 33-14-106) deals solely with known claims while section 14.07 (Section 33-14-107) deals with unknown or subsequently arising claims. A claim is a "known" claim even if it is unliquidated (see section 14.06(d) (Section 33-14-106(d)); a claim that is contingent or has not matured so that there is no immediate right to bring suit is not a "known" claim.
  Known claims are handled in section 14.06 (Section 33-14-106) through a process of written notice to claimants; the written notice must contain the information described in section
14.06(b) (Section 33-14-106(b)). Section 14.06(c) (Section 33-14-106(c)) then provides fixed deadlines by which claims are barred under various circumstances, as follows:
(1)If a claimant receives written notice satisfying section 14.06(b) (Section 33-14-106(b)) but fails to file the claim by the deadline specified by the corporation, the claim is barred by section 14.06(c)(1) (Section 33-14-106(c)(1)).
(2)If a claimant receives written notice satisfying section 14.06(b) (Section 33-14-106(b)) and files the claim as required:
  (i) but the corporation rejects the claim, the claimant must commence a proceeding to enforce the claim within 90 days of the rejection or the claim is barred by section 14.06(c)(2) (Section 33-14-106(c)(2)); or
  (ii) if the corporation does not act on the claim or fails to notify the claimant of the rejection, the claimant is not barred by section 14.06(c) (Section 33-14-106(c)) until the corporation notifies the claimant.
(3)If the corporation publishes notice under section 14.07 (Section 33-14-107), a claimant who was not notified in writing is barred unless he commences a proceeding within five years after publication of the notice.
(4)If the corporation does not publish notice, a claimant who was not notified in writing is not barred by section 14.06(c) (Section 33-14-106(c)) from pursuing his claim.
  These principles, it should be emphasized, do not lengthen statutes of limitation applicable under general state law. Thus, claims that are not barred under the foregoing rules -- for example, if the corporation does not act on a claim -- will nevertheless be subject to the
general statute of limitations applicable to claims of that type.
  Even though the directors are not trustees of the assets of a dissolved corporation (see section 14.05(b)(3) (Section 33-14-105(b)(3)), they must discharge or make provision for discharging all of the corporation's known liabilities before distributing the remaining assets to the shareholders. See sections 14.05 (a)(3) and (4) (Sections 33-14-105(a)(3) and (4)). See also sections 6.40 and 8.33 (Sections 33-6-400 and 33-8-330).
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 33-21-60(a) of the 1981 South Carolina Business Corporation Act required that the corporation send notice of the filing of its statement of intent to dissolve to each known creditor of the corporation and the Tax Commission. The new provision, which is similar to Section 14.06 of the 1984 Model Act, requires that notice be mailed to all known claimants but does not specifically require that notice be mailed to the Tax Commission. However, since taxing authorities to whom taxes are owed (including the Tax Commission) are known creditors, notice still must be sent to them. See 1980 Op. Att'y. Gen., No. 80-95, p. 150.
  The rest of the new provision is not found in prior South Carolina law. Prior to the 1981 amendment of the South Carolina Business Corporation Act, mailing the notice triggered a two-year limitation period for asserting any claim against the corporation. However, after 1981, the law did not specify the effect of the notice or the failure to send it (except in a liquidation proceeding under former Section 33-21-180); claims survived the dissolution. See Section 33-21-220(a) of the 1981 South Carolina Business Corporation Act. The new provision reinstates the statute of repose. It
requires that the notice be mailed to known claimants and state a deadline, not less than one hundred twenty days, by which the claim must be received. Failure to assert the claim by this deadline bars it. Additionally, if the corporation rejects the claim, the claimant has ninety days to commence proceedings to enforce it.
  The new provision adds to the Model Act section a requirement that the corporation's notice of rejection state that the claim will be barred unless proceedings to enforce the claim are commenced within ninety days.
DERIVATION: 1984 Model Act Section 14.06.
  Section 33-14-107. Unknown claims against dissolved corporation.
  (a) A dissolved corporation may publish notice of its dissolution and request that persons with claims against the corporation present them in accordance with the notice.
  (b) The notice must:
    (1) be published once in a newspaper of general circulation in the county where the dissolved corporation's principal office (or, if none in this State, its registered office) is or was last located;
    (2) describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
    (3) state that a claim against the corporation is barred unless a proceeding to enforce the claim is commenced within five years after the publication of the notice.
  (c) If the dissolved corporation publishes a newspaper notice in accordance with subsection (b), the claim of each of the following claimants is barred unless the claimant commences a proceeding to enforce the claim against the dissolved corporation within five
years after the publication date of the newspaper notice:
    (1) a claimant who did not receive written notice under Section 33-14-106;
    (2) a claimant whose claim was timely sent to the dissolved corporation but not acted on.
  (d) A claim may be enforced under this section:
    (1) against the dissolved corporation to the extent of its undistributed assets; or
    (2) if the assets have been distributed in liquidation, against a shareholder of the dissolved corporation to the extent of his pro rata share of the claim or the corporate assets distributed to him in liquidation, whichever is less, but a shareholder's total liability for all claims under this section may not exceed the total amount of assets distributed to him.
CROSS REFERENCES
Administrative dissolution, see Section
  33-14-210.
"Claim" defined, see Section 33-14-106.
"Deliver" includes mail, see Section 33-1-400.
Distributions, see Sections 33-6-400 and
  33-8-330.
Effective date of dissolution, see Section
  33-14-103.
Effective date of notice, see Section 33-1-410.
Judicial dissolution, see Section 33-14-320.
Known claims, see Section 33-14-106.
"Notice" defined, see Section 33-1-410.
Notice to the corporation, see Section
  33-1-410.
"Principal office":
  defined, see Section 33-1-400.
  designated in annual report, see Section
    33-16-220.
"Proceedings" defined, see Section 33-1-400.
Registered office:
  designated in annual report, see Section
    33-16-220.
  required, see Sections 33-2-102 and 33-5-101.
OFFICIAL COMMENT
  Earlier versions of the Model Act did not recognize the serious problem created by possible
claims that might arise long after the dissolution process was completed and the corporate assets distributed to shareholders. Most of these claims were based on personal injuries occurring after dissolution but caused by allegedly defective products sold before dissolution, but they also involved negligence for which the statute of limitations did not begin to run until the negligence was discovered (e.g., a surgical instrument left inside the patient). The application of the Model Act provision (and of the state dissolution statutes phrased in different terms) to this problem led to confusing and inconsistent results. See generally, Friedlander and Gilbert, "Post Dissolution Liabilities of Shareholders and Directors for Claims Against Dissolved Corporation," 31 VAND L. REV. 1363 (1978). The problems raised by this type of litigation are intractable: on the one hand, the application of a mechanical two-year limitation period to a claim for injury that occurs after the period has expired involves obvious injustice to the plaintiff. On the other hand, to permit these suits generally makes it impossible ever to complete the winding up of the corporation, make suitable provision for creditors, and distribute the balance of the corporate assets to the shareholders.
  In some circumstances a tort law concept of transferee liability, sometimes characterized as "de facto merger," has been applied to allow plaintiffs incurring post-dissolution injuries
to bring suit against the person that acquired the corporate assets. See the Official Comment to section 11.01 (Section 33-11-101). Some courts have refused to apply this doctrine, particularly when the purchaser of the corporate assets has not continued the business of the dissolved corporation. In these cases, the remedy of the plaintiff is limited to claims against the dissolved corporation and its shareholders receiving assets pursuant to the dissolution.
  The solution adopted in section 14.07 (Section 33-14-107) is to continue the liability of a dissolved corporation for subsequent claims for a period of five years after it publishes notice of dissolution. It is recognized that a five year cut-off is itself arbitrary, but it is believed that the great bulk of post-dissolution claims will arise during this period. This provision is, therefore, believed to be a reasonable compromise between the competing considerations of providing a remedy to injured plaintiffs and providing a period of repose after which dissolved corporations may distribute remaining assets free of all claims and shareholders may receive them secure in the knowledge that they may not be reclaimed.
  Directors must generally discharge or make provision for discharging all of the corporation's liabilities before distributing the remaining assets to the shareholders. See the Official Comment to section 14.06 (Section 33-14-106). But section 14.07 (Section 33-14-107) does not contemplate that liquidating distributions to shareholders will be deferred until all possible claims are barred under section 14.07 (Section 33-14-107). Many claims covered by this section are of a type for which provision may be made by the purchase of insurance or by the setting aside of a portion of the assets, thereby permitting prompt distributions in the remaining assets of the
dissolved corporation. See section 14.07(d)(1) (Section 33-14-107(d)(1)). Further, where unexpected claims arise after distributions have been made to shareholders in liquidation, section 14.07(d)(2) (Section 33-14-107(d)(2)) authorizes recovery against the shareholders receiving the earlier distributions. The recovery, however, is limited to the smaller of the recipient shareholder's pro rata share of the claim or the total amount of assets received as liquidating distributions by the shareholder from the corporation. The provision ensures that claimants seeking to recover distributions from shareholders will try to recover from the entire class of shareholders rather than concentrating only on the larger shareholders and protects the limited liability of shareholders.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 33-21-60(a) of the 1981 South Carolina Business Corporation Act required that the corporation publish notice of the filing of its statement of intent to dissolve in a newspaper in the county of its registered office. The new provision, like Section 14.07 of the 1984 Model Act, changes this to the county of its principal office if there is one in this State. The rest of this provision is not found in the prior South Carolina law.
  The 1981 South Carolina Business Corporation Act did not specify the effect of this notice or the failure to publish it. Prior to the 1981 Act, publishing the notice triggered a two-year limitation period for asserting any unknown claim against the corporation. The new provision provides that the publication triggers a five-year statute of repose for such claims. However, the new provision does not contain subsection (c)(3) of Model Act Section 14.07 providing that contingent claims and those based
on an event occurring after dissolution are subject to the five-year statute of repose, too.
The statute of repose in the new provision only applies to claims existing at dissolution.
DERIVATION: 1984 Model Act Section 14.07.
Article 2
Administrative Dissolution
Sec.
33-14-200.Grounds for administrative dissolution.
33-14-210.Procedure for and effect of administrative dissolution.
33-14-220.Reinstatement following administrative dissolution.
33-14-230. Appeal from denial of reinstatement.
  Section 33-14-200. Grounds for administrative dissolution.
  The Secretary of State may commence a proceeding under Section 33-14-210 to dissolve a corporation administratively if:
  (1) the corporation does not pay when they are due any franchise taxes, taxes payable under Chapter 7 of Title 12, or penalties imposed by law;
  (2) the corporation does not deliver its annual report to the Tax Commission when it is due;
  (3) the corporation is without a registered agent or registered office in this State;
  (4) the corporation does not notify the Secretary of State that its registered agent or registered office has been changed, that its registered agent has resigned, or that its registered office has been discontinued; or
  (5) the corporation's period of duration stated in its articles of incorporation expires.
CROSS REFERENCES
Annual report, see Section 33-16-220.
Appeal from administrative dissolution, see
  Section 33-14-230.
"Deliver" includes mail, see Section 33-1-400.
Duration of corporation, see Section 33-3-102.
Judicial dissolution, see Sections 33-14-300
  through 33-14-330.
Registered office and agent, see Chapter 5.
Reinstatement following administrative
  dissolution, see Section 33-14-220.
Voluntary dissolution, see Sections 33-14-101 and
  33-14-102.
OFFICIAL COMMENT
  Involuntary dissolution in earlier versions of the Model Act required judicial order upon suit filed by the state attorney general. In the comment to section 95 of the 1969 Model Act, this decision was explained on the basis that the Model Act "provides for judicial review in protection of rights that might otherwise be lost." This position, however, was not generally accepted -- in 1982 on three jurisdictions limited involuntary dissolution to judicial action -- with all other jurisdictions permitting administrative dissolution for a variety of reasons, usually including a failure to pay franchise taxes and often including failure to file annual reports or otherwise comply with similar requirements of the corporation statutes appear in the tax statutes rather than the corporation statutes of the states.
  The experience in most states has been that administrative dissolution, or the threat thereof, is an effective enforcement mechanism for a variety of statutory obligations. Judicial dissolution is inappropriate for many of these violations because of its cost and the
diversion of limited legal resources, particularly since most violations reflect the abandonment of the corporation by its owners.
  The advantages of administrative dissolution in these circumstances are compelling; it not only reduces the number of records maintained by the secretary of state, but also avoids further wasteful attempts to compel compliance by the abandoned corporations and returns the corporate name promptly to the status of available names. Therefore, the revised Model Act includes, in sections 14.20 (Section 33-14-200) through 14.23 (Section 33-14-230), a model provision for the administrative dissolution of corporations in certain limited circumstances. There circumstances are set forth in section 14.20 (Section 33-14-200) and closely parallel provisions found in most state statutes on this subject.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 14.20 of the Model Act has been adopted with several technical changes. First, this provision reflects that the annual report required by Section 33-16-220 is to be filed with the Tax Commission, not the Secretary of State. Second, the sixty-day grace period contained in the Model Act section, is not included here, but is found instead in new Section 12-7-1675 requiring the Tax Commission to give sixty-day notice of failure to file a return before requesting the Secretary of State to administratively dissolve a delinquent corporation. Thus the sixty-day period is only applicable to failure to file tax returns, not failure to file annual reports and failure to maintain a registered agent or office in the State. However, under Section 33-14-210(b) the corporation does have sixty days to correct any such failure after notification by the Secretary of State.
  This section also adds failure to file income tax returns to the Model Act grounds for administrative dissolution. Finally, it adds expiration of the period of duration stated in the corporation's articles to the grounds for administrative dissolution; the special procedures of former Section 33-21-40 for dissolution (and reinstatement) of a corporation whose period of duration has expired are not continued.
DERIVATION: 1984 Model Act Section 14.20.
  Section 33-14-210. Procedure for and effect of administrative dissolution.
  (a) If the Secretary of State determines that grounds exist under Section 33-14-200 for dissolving a corporation, he shall serve the corporation with written notice of his determination under Section 33-5-104.
  (b) If the corporation does not correct each ground for dissolution or demonstrate to the reasonable satisfaction of the Secretary of State that each ground determined by the Secretary of State does not exist within sixty days after service of the notice is perfected under Section 33-5-104, the Secretary of State shall dissolve administratively the corporation by signing a certificate of dissolution that recites the grounds for dissolution and its effective date. The Secretary of State shall file the original of the certificate and serve a copy on the corporation under Section 33-5-104.
  (c) A corporation dissolved administratively continues its corporate existence but may not carry on any business except that necessary to wind up and liquidate its business and affairs under Section 33-14-105 and notify claimants under Sections 33-14-106 and 33-14-107.
  (d) The administrative dissolution of a corporation does not terminate the authority of its registered agent.
CROSS REFERENCES
Appeal from denial of reinstatement, see
  Section 33-14-230.
Claims, see Sections 33-14-106 through
  33-14-107.
Deposit with State Treasurer, see Section
  33-14-330.
Effective date of service, see Section
  33-5-104.
Reinstatement following administrative
  dissolution, see Section 33-14-220.
Winding up, see Section 33-14-105.
OFFICIAL COMMENT
  Many failures to comply with statutory requirements that may give rise to administrative dissolution under section 14.20 occur because of oversight or inadvertence by responsible corporate officers of corporations that are continuing in business. Such failures are usually corrected promptly when brought to the corporation's attention. Sections 14.21(a) and (b) (Section 33-14-210(a) and (b)), therefore, provide a mandatory notice by the secretary of state to each corporation subject to administrative dissolution and a 60-day grace period following the notice before the certificate of administrative dissolution may be filed.
  In most instances, the issue whether the corporation is subject to administrative dissolution will not be controverted. If a corporation is administratively dissolved, it may petition the secretary of state for reinstatement under section 14.22 (Section 33-14-220) and, if this is denied, it may appeal to the courts under section 14.23 (Section 33-14-230).
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 14.21 of the 1984 Model Act has been adopted without change. It reduces the period for the corporation to respond to the Secretary of State's notice of determination that grounds for administrative dissolution exist from ninety to sixty days, but otherwise the procedure is similar to that under the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 14.21.
  Section 33-14-220. Reinstatement following administrative dissolution.
  (a) A corporation dissolved administratively under Section 33-14-210 may apply to the Secretary of State for reinstatement within two years after the effective date of dissolution. The application must:
    (1) recite the name of the corporation and the effective date of its administrative dissolution;
    (2) state that the grounds for dissolution either did not exist or have been eliminated;
    (3) state that the corporation's name satisfies the requirements of Section 33-4-101; and
    (4) contain a certificate from the South Carolina Tax Commission reciting that all taxes owed by the corporation have been paid.
  (b) If the Secretary of State determines that the application contains the information required by subsection (a) and that the information is correct, he shall cancel the certificate of dissolution and prepare a certificate of reinstatement that recites his determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the corporation under Section 33-5-104.
  (c) When the reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative dissolution and the corporation resumes carrying on its business as if the administrative dissolution had never occurred.
CROSS REFERENCES
Appeal from denial of reinstatement, see
  Section 33-14-230.
Corporate name generally, see Chapter 4.
Effective date of administrative dissolution,
  see Section 33-14-210.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Grounds for administrative dissolution, see
  Section 33-14-200.
OFFICIAL COMMENT
  Section 14.22 (Section 33-14-220) provides a two-year period during which a corporation may seek reinstatement following administrative dissolution. This section may apply when a corporation through inadvertence or a failure to maintain a registered agent fails to receive or respond to the pre-dissolution notice of default required by section 14.21 (Section 33-14-210). A corporation that is reinstated pursuant to this section resumes carrying on its business as before dissolution.
  In order to be eligible for reinstatement, a corporation must comply with all statutory requirements at the time it seeks have been paid and that its name is available when it files the application for reinstatement.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 14.22 of the 1984 Model Act has been adopted without change. It reduces the period
for reinstatement from five years to two years and deletes the requirement of the 1981 South Carolina Business Corporation Act that all outstanding judgments against the corporation be paid before reinstatement. Otherwise, the procedure is similar to that under prior South Carolina law.
DERIVATION: 1984 Model Act Section 14.22.
  Section 33-14-230. Appeal from denial of reinstatement.
  (a) If the Secretary of State denies a corporation's application for reinstatement following administrative dissolution, he shall serve the corporation under Section 33-5-104 with a written notice that explains the reasons for denial.
  (b) The corporation may appeal the denial of reinstatement to the circuit court for Richland County within thirty days after service of the notice of denial is perfected. The corporation appeals by petitioning the court to set aside the dissolution and attaching to the petition copies of the Secretary of State's certificate of dissolution, the corporation's application for reinstatement, and the Secretary of State's notice of denial.
  (c) The court summarily may order the Secretary of State to reinstate the dissolved corporation or may take other action the court considers appropriate.
  (d) The court's final decision may be appealed as in other civil proceedings.
CROSS REFERENCES
"Court" described, see Section 33-1-260.
Effective date of service, see Section
  33-5-104.
Grounds for administrative dissolution, see
  Section 33-14-200.
"Notice" defined, see Section 33-1-410.
Reinstatement following administrative
  dissolution, see Section 33-14-220.
OFFICIAL COMMENT
  Section 14.23 (Section 33-14-230) provides for an appeal from a decision by the secretary of state denying a petition for reinstatement. The court with jurisdiction over an appeal should be specified, and states adopting this section of the Model Act should specify who has the burden of proof on appeal and the standard for judicial review. See the Official Comment to section 1.26 (Section 33-1-260).
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 14.23 of the 1984 Model Act has been adopted without change. There was no similar provision in the 1981 South Carolina Business Corporation Act.
DERIVATION: 1984 Model Act Section 14.23.
Article 3
Judicial Dissolution
Sec.
33-14-300. Grounds for judicial dissolution.
33-14-310. Procedure for judicial dissolution.
33-14-320. Receivership or custodianship.
33-14-330. Decree of dissolution.
  Section 33-14-300. Grounds for judicial dissolution.
  The circuit courts may dissolve a corporation:
  (1) in a proceeding by the Attorney General if it is established that the corporation:
    (i) obtained its articles of incorporation through fraud; or
  (ii) has continued to exceed or abuse the authority conferred upon it by law;
  (2) in a proceeding by a shareholder if it is established that:
    (i) the directors or those in control of the corporation are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock;
  (ii) the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, fraudulent, oppressive, or unfairly prejudicial either to the corporation or to any shareholder (whether in his capacity as a shareholder, director, or officer of the corporation);
  (iii) the shareholders are deadlocked in voting power and have failed, for a period that includes at least two consecutive annual meeting dates, to elect successors to directors whose terms have expired;
  (iv) the corporate assets are being misapplied or wasted;
    (v) the corporation has abandoned its business and has failed, within a reasonable time, to dissolve, to liquidate its affairs, or to distribute its remaining property among its shareholders; or
  (vi) the corporation's period of duration stated in its articles of incorporation has expired;
  (3) in a proceeding by a creditor if it is established that:
    (i) the creditor's claim has been reduced to judgment, the execution on the judgment returned
unsatisfied, and the corporation is insolvent; or
  (ii) the corporation has admitted in writing that the creditor's claim is due and owing and the corporation is insolvent; or
  (4) in a proceeding by the corporation to have its voluntary dissolution continued under court supervision.
CROSS REFERENCES
Administrative dissolution, see Sections
  33-14-200 through 33-14-230.
Director action, see Sections 33-8-200 through
  33-8-240.
Election of directors, see Section 33-8-103.
"Proceeding" defined, see Section 33-1-400.
Revocation of articles of incorporation by
  State, see Section 33-2-103.
Shareholder voting, see Sections 33-7-250
  through 33-7-270.
Terms of directors, see Sections 33-8-105
  through 33-8-106.
Ultra vires acts, see Section 33-3-104.
Voluntary dissolution, see Sections 33-14-101
  through 33-14-105.
OFFICIAL COMMENT
  Section 14.30 (Section 33-14-300) provides grounds for the judicial dissolution of corporations at the request of the state, a shareholder, a creditor, or a corporation which has commenced voluntary dissolution. This section states that a court "may" order dissolution if a ground for dissolution exists. Thus, there is discretion on the part of the court as to whether dissolution is appropriate even though grounds exist under the specific circumstances.
1. Involuntary Dissolution by State
  Section 14.30(1) (Section 33-14-300(1)) preserves long standing and traditional provisions authorizing the state to seek to dissolve involuntarily a corporation by judicial decree. While this power has been exercised only rarely in recent years, this right of the state involves a policing action that provides a means by which the state may ensure compliance with, and non-abuse of, the fundamentals of corporate existence. Section 14.30(1) (Section 33-14-300(1)) limits the power of the state in this regard to grounds that are reasonably related to this objective.
  The legality of proposed corporations or of proposed actions has sometimes been tested by the secretary of state's refusal to accept documents for filing. The role of the secretary of state in reviewing documents for filing has been restricted by the Model Act (see section 1.25 (Section 33-1-250) and its Official Comment). It is intended that suits under this article will replace those actions.
2. Involuntary Dissolution by Shareholders
  Section 14.31(2) (Section 33-14-310(2)) provides for involuntary dissolution at the suit of a shareholder under circumstances involving deadlock or significant abuse of power by controlling shareholders or directors.
  a. Deadlock
  Dissolution because of deadlock is available if there is a deadlock at the directors' level but only if (1) the shareholders are unable to break the deadlock and (2) either "irreparable injury" to the corporation is being threatened or suffered or the business and affairs "can no longer by conducted to the advantage of" the
shareholders. This language closely follows the earlier versions of the Model Act except that the requirement of "irreparable injury" has been relaxed to some extent. Dissolution because of deadlock at the directors' level is not dependent on the lapse of time during which the deadlock continues.
  Dissolution is also available because of deadlock at the shareholders' level if the shareholders are unable to elect directors over a two-year period. This remedy is particularly important in small or family-held corporations in which share ownership may be divided on a 50-50 basis or a supermajority provision (including possibly a requirement of unanimity) may under section 14.30(2)(iii) (Section 33-14-300(2)(iii)) is not dependent on irreparable injury or misconduct by the directors then in office; if injury or misconduct is present, a deadlocked shareholder may proceed under another clause of section 14.30(2) (Section 33-14-300(2)).
  b.Abuse of power
  A shareholder may sue for involuntary dissolution upon proof either that those in control of the corporation are acting illegally, oppressively, or fraudulently (section 14.30(2)(ii) (Section 33-14-300(2)(ii)) or that the corporate assets are being misapplied or wasted (section 14.30(2)(iv) (Section 33-14-300(2)(iv)). The application of these grounds for dissolution to specific circumstances obviously involves judicial discretion in the application of a general standard to concrete circumstances. The court should be cautious in the application of these grounds so as to limit them to genuine abuse rather than instances of acceptable tactics in a power struggle for control of a corporation.
3. Dissolution by Creditors
  Creditors may obtain involuntary dissolution only when the corporation is insolvent and only in the limited circumstances set forth in section 14.30(3)(Section 33-14-300(3)). Typically, a proceeding under the federal Bankruptcy Act is an alternative in these situations.
4. Dissolution by Corporation
  A corporation that has commenced voluntary dissolution may petition a court to supervise its dissolution. Such an action may be appropriate to permit the orderly liquidation of the corporate assets and to protect the corporation from a multitude of creditors' suits or suits by dissatisfied shareholders.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 14.30 of the Model Act has been adopted with several changes. Section 33-14-300(2)(i) has been broadened to include a deadlock of those in control of the corporation (see Section 33-8-101(c)), thus producing the same result as under Section 33-21-150(a)(3) of the 1981 South Carolina Business Corporation Act; Section 33-14-300(2)(ii) has been broadened to follow the formula used in Section 33-21-150(a)(4) of the 1981 South Carolina Business Corporation Act defining the circumstances under which a shareholder may bring an involuntary dissolution action; Section 33-14-300(2)(v) has been added to include grounds under the prior South Carolina law; and Section 33-14-300(2)(vi) has been added to permit a shareholder to seek judicial dissolution when the period of duration specified in the articles of incorporation has expired.
  The new provision does not continue the authorization in the 1981 South Carolina Business Corporation Act for a director to bring an action for dissolution on any of the grounds available to shareholders nor does it allow a creditor to seek dissolution because the corporate assets are being misapplied or wasted. Under the new provision shareholders no longer have the right to seek judicial dissolution because the corporation is insolvent or unable to provide security to its creditors. Additionally, the new provision does not continue the former provision for special dissolution provisions in the articles of incorporation (Section 33-21-130 of the 1981 South Carolina Business Corporation Act) and, thus, deletes this as a ground for a shareholder seeking judicial dissolution. A closely-held corporation may have such dissolution provisions under the Statutory Close Corporation Supplement. See Chapter 18.
  The new provision also does not continue the prior law's requirement that the Attorney General bring an action to dissolve a corporation in every case in which security is given to indemnify the State against any costs and expenses of the proceeding even though he has determined that the public interest does not warrant the action, as well as in every case in which he determines that the public interest does warrant it. The latter requirement is meaningless; the former, unwise. The grounds for a dissolution action by the Attorney General are the same under the new provision as under prior South Carolina law.
DERIVATION: 1984 Model Act Section 14.30.
  Section 33-14-310. Procedure for judicial dissolution.
  (a) Venue for a proceeding to dissolve a corporation lies in the county where a
corporation's principal office (or, if none in this State, its registered office) is or was last located.
  (b) It is not necessary to make shareholders parties to a proceeding to dissolve a corporation unless relief is sought against them individually.
  (c) A court in a proceeding brought to dissolve a corporation may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, take other action required to preserve the corporate assets wherever located, and carry on the business of the corporation until a full hearing can be held.
  (d) In any action filed by a shareholder to dissolve the corporation on the grounds enumerated in Section 33-14-300, the court may make such order or grant such relief, other than dissolution, as in its discretion is appropriate, including, without limitation, an order:
    (1) canceling or altering any provision contained in the articles of incorporation, or any amendment to the articles, or in the bylaws of the corporation;
    (2) canceling, altering, or enjoining any act or resolution of the corporation;
    (3) directing or prohibiting any act of the corporation or of shareholders, directors, officers, or other persons party to the action; or
    (4) providing for the purchase at their fair value of shares of any shareholder, either by the corporation or by other shareholders.
  (e) The relief authorized in subsection (d) may be granted as an alternative to a decree of dissolution or may be granted whenever the circumstances of the case are such that the relief, but not dissolution, is appropriate.
CROSS REFERENCES
Custodian, see Section 33-14-330.
"Principal office":
  defined, see Section 33-1-400.
  designated in annual report, see Section
    33-16-220.
"Proceeding" defined, see Section 33-1-400.
Receiver, see Section 33-14-330.
Registered office:
  designated in annual report, see Section
    33-16-220.
  required, see Sections 33-2-102 through
  33-5-101.
OFFICIAL COMMENT
  Section 14.31 (Section 33-14-310) designates the attorney general as the officer to bring suits for involuntary dissolution by the state. The county or counties where these suits must be commences should be specified; it typically is either the state capital or the county in which the corporation's principal office is located. See the Official Comment to section 1.26 (Section 33-1-260). Suits brought for judicial dissolution under other subdivisions of section 14.30 (Section 33-14-300) must be brought where the corporation's principal office is located or, if not located in this state, where its registered office is or was last located.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 14.31 of the 1984 Model Act has been adopted with several changes. Venue is the same for all actions, as under the 1981 South Carolina Business Corporation Act, rather than providing special venue in Richland County as the Model Act suggests. Subsections (d) and (e) have been added to the new provision to continue the explicit statement of the court's inherent
equitable powers found in Section 33-21-155 of the 1981 South Carolina Business Corporation Act. The net effect of these changes is that the new provision is quite similar to prior South Carolina law.
DERIVATION: 1984 Model Act Section 14.31.
  Section 33-14-320. Receivership or custodianship.
  (a) A court in a judicial proceeding brought to dissolve a corporation may appoint receivers to wind up and liquidate, or custodians to manage, the business and affairs of the corporation. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has exclusive jurisdiction over the corporation and all of its property wherever located.
  (b) The court may appoint an individual or a domestic or foreign corporation (authorized to transact business in this State) as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.
  (c) The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended. Among other powers:
    (1) the receiver (i) may dispose of all or any part of the assets of the corporation wherever located, at a public or private sale, if authorized by the court; and (ii) may sue and defend in his own name as receiver of the corporation in all courts of this State;
    (2) the custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the
extent necessary to manage the affairs of the corporations in the best interests of its shareholders and creditors.
  (d) The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the corporation, its shareholders, and creditors.
  (e) The court during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and his counsel from the assets of the corporation or proceeds from the sale of the assets.
CROSS REFERENCES
Custodianship pendente lite, see Section
  33-14-310.
"Notice" defined, see Section 33-1-410.
Receivership pendente lite, see Section
  33-14-310.
OFFICIAL COMMENT
  Section 14.32 (Section 33-14-320) preserves provisions from earlier versions of the Model Act authorizing the appointment of a receiver, and adds authority to appoint a custodian as an alternative, for a corporation in a judicial dissolution proceeding. In many states, general statutes or rules of court regulate the appointment of receivers or custodians and define their duties. Section 14.32 (Section 33-14-320) is designed to supplement these general provisions and grant the court power to take the steps it considers necessary to resolve the internal corporate problem or to effect liquidation of the corporation in an efficient manner.
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 14.32 of the 1984 Model Act has been adopted without change. It adds to the 1981 South Carolina Business Corporation Act's authorization of the appointment of a receiver, the authority to appoint a custodian to manage the business and affairs of the corporation. The new provision does not require, as prior law did, that an individual receiver or custodian be a citizen of the United States.
DERIVATION: 1984 Model Act Section 14.32.
  Section 33-14-330. Decree of dissolution.
  (a) If after a hearing the court determines that grounds for judicial dissolution described in Section 33-14-30 exist, it may enter a decree dissolving the corporation and specifying the effective date of the dissolution, and the clerk of court shall deliver a certified copy of the decree to the Secretary of State, who shall file it without charging any fee.
  (b) After entering the decree of dissolution, the court shall direct the winding up and liquidation of the corporation's business and affairs in accordance with Section 33-14-105 and the notification of claimants in accordance with Sections 33-14-106 and 33-14-107.
CROSS REFERENCES
Claims, see Sections 33-14-106 and 33-14-107.
Custodianship, see Sections 33-14-310 and
  33-14-320.
"Deliver" includes mail, see Section 33-1-400.
Deposit with State Treasurer, see Section 33-14-400.
Dissolution does not terminate authority of
  registered agent, see   Section 33-14-105.
"Proceeding" defined, see Section 33-1-400.
Receivership, see Sections 33-14-310
  through 33-14-320.
Secretary of State's filing duties, see
  Section 33-1-250.
Winding up, see Section 33-14-105.
OFFICIAL COMMENT
  A court decree ordering that a corporation be dissolved involuntarily has the same legal effect as articles of dissolution. Section 14.33 (Section 33-14-330) requires that the secretary of state receive and file a copy of the decree. Thereafter, the corporation's business and affairs are to be wound up as provided in sections 14.05, 14.06, and 14.07 (Sections 33-14-105, 33-14-106 and 33-14-107).
SOUTH CAROLINA REPORTERS' COMMENTS
  Section 14.33 of the 1984 Model Act has been adopted with only one change. The Model Act does not require, as the 1981 South Carolina Business Corporation Act did, that filing of the Decree of Dissolution by the Secretary of State be without fee. The new provision specifies that no fee is to be charged.
  The new provision stipulates that the decree of dissolution is granted after the court determines that grounds exist. Thus, under the new provision, the decree of dissolution does not mark the completion of winding up and liquidation and the termination of the corporation's legal existence as it did under prior South Carolina law. Instead, it has an effect similar to the filing of Articles of Dissolution under Section 33-14-103: the corporation is dissolved and may not carry on its business any longer.
DERIVATION: 1984 Model Act Section 14.33.
Article 4
Miscellaneous
Sec.
33-14-400. Deposit with State Tax Commission.
  Section 33-14-400. Deposit with State Tax Commission.
  Assets of a dissolved corporation that should be transferred to a creditor, claimant, or shareholder of the corporation who cannot be found or who is not competent to receive them, must be reduced to cash and deposited with the Tax Commission or other appropriate state official for safekeeping in accordance with the Uniform Disposition of Unclaimed Property Act. When the creditor, claimant, or shareholder furnishes satisfactory proof of entitlement to the amount deposited, the Tax Commission or other appropriate state official shall pay him or his representative that amount.
CROSS REFERENCES
Administrative dissolution, see Section
  33-14-200.
Claims, see Sections 33-14-106 and 33-14-107.
Judicial dissolution, see Section 33-14-300.
Voluntary dissolution, see Section 33-14-105.
OFFICIAL COMMENT
  Section 14.40 (Section 33-14-400) is a deposit provision, not an escheat provision. It does not provide for ultimate disposition of unclaimed funds. Rather, it permits a corporation that has dissolved to pay over for safekeeping to the state treasurer (or other appropriate state official with statutory
authority to receive such funds) funds belonging to a creditor, claimant, or shareholder who cannot be found.
  The handling and ultimate disposition of unclaimed funds by the state treasurer or other appropriate state official is to be determined by state law other than the Model Act.
SOUTH CAROLINA REPORTERS' COMMENTS
  The new provision is similar to Section 14.40 of the 1984 Model Act except that it specifies that the deposit is to be made with the Tax Commission, which is the depository under the Uniform Disposition of Unclaimed Property Act, Chapter 17 of Title 27 of the 1976 Code. See Section 27-17-70. The reference in Section 33-21-210 of the 1981 South Carolina Business Corporation Act to the escheat law of the State, Chapter 19 of Title 27 of the 1976 Code, was erroneous and, thus, was not continued.
DERIVATION: 1984 Model Act Section 14.40.
CHAPTER 15
Foreign Corporation
Article 1. Certificate of Authority.
Article 2. Withdrawal.
Article 3.Revocation of Certificate of Authority.
Article 1
Certificate of Authority
Sec.
33-15-101.Authority to transact business required.
33-15-102.Consequences of transacting business without authority.
33-15-103.Application for certificate of authority.
33-15-104. Amended certificate of authority.
33-15-105. Effect of certificate of authority.
33-15-106.Corporate name of foreign corporation.
33-15-107.Registered office and registered agent of foreign corporation.
33-15-108.Change of registered office or registered agent of foreign corporation.
33-15-109.Resignation of registered agent of foreign corporation.
33-15-110. Service on foreign corporation.
  Section 33-15-101. Authority to transact business required.
  (a) A foreign corporation may not transact business in this State until it obtains a certificate of authority from the Secretary of State.
  (b) The following activities, among others, do not constitute transacting business within the meaning of subsection (a):
    (1) maintaining, defending, or settling any proceeding;
    (2) holding meetings of the board of directors or shareholders or carrying on other activities concerning internal corporate affairs;
    (3) maintaining bank accounts;
    (4) maintaining offices or agencies for the transfer, exchange, and registration of the corporation's own securities or maintaining trustees or depositories with respect to those securities;
    (5) selling through independent contractors;
    (6) soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this State before they become contracts;
    (7) creating or acquiring indebtedness, mortgages, and security interests in real or personal property;
    (8) securing or collecting debts or enforcing mortgages, security interests, or any other rights in property securing debts;
    (9) owning, without more, real or personal property;
  (10) conducting an isolated transaction that is completed within thirty days and that is not one in the course of repeated transactions of a like nature;
  (11) transacting business in interstate commerce; or
  (12) owning and controlling a subsidiary corporation incorporated in or transacting business within this State.
  (c) The list of activities in subsection (b) is not exhaustive.
CROSS REFERENCES
Application of act to existing qualified foreign
  corporation, see Section 33-20-102.
Board of directors' meetings, see Section
  33-8-200.
Certificate of authority, see Section 33-15-103.
"Foreign corporation" defined, see Section
  33-1-400.
Penalty for transacting business without
  authority, see Section 33-15-102.
"Proceeding" defined, see Section 33-1-400.
Shareholders' meetings, see Sections 33-7-101
  through 33-7-103.
OFFICIAL COMMENT
  A state may prescribe the terms and conditions upon which a foreign corporation is permitted to transact business within the state, subject, of course, to the restrictions of the United States Constitution. Chapter 15 requires that a
foreign corporation seeking to transact business within the state must (1) obtain a certificate of authority from the secretary of state and (2) maintain a registered office and appoint a registered agent within the state.
  Section 15.01(a) (Section 33-15-101(a)) states the basic requirement that a foreign corporation must obtain a certificate of authority before it transacts business within the state. Section 15.05 (Section 33-15-105) describes the scope of the privilege obtained by a certificate of authority while Section 15.02 (Section 33-15-102) describes the consequences of transacting business in the state without first obtaining the certificate of authority.
  The Model Act does not attempt to formulate an inclusive definition of what constitutes the transaction of business. Rather, the concept is defined in a negative fashion by section 15.01(b) (Section 33-15-101(b)), which states that certain activities do not constitute the transaction of business. In general terms, any conduct more regular, systematic, or extensive than that described in section 15.01(b) (Section 33-15-101(b)) constitutes the transaction of business and requires the corporation to obtain a certificate of authority. Typical conduct requiring a certificate of authority includes maintaining an office to conduct local intrastate business, selling personal property not in interstate commerce, entering into contracts relating to the local business or sales, and owning or using real estate for general corporate purposes. But the passive owning of real estate for investment purposes does not constitute transacting business. See section 15.01(b)(9) (Section 33-15-101(b)(9)).
  The test of "transacting business" defined in a negative way in section 15.01(b) (Section 33-15-101(b)) applies only to the question whether the corporation's contacts with the state are such that it must obtain a certificate
of authority. It is not applicable to other questions such as whether the corporation is amenable to service of process under state "long-arm" statutes or liable for state or local taxes. A corporation that has obtained (or is required to obtain) a certificate of authority to transact business under chapter 15 will generally be subject to suit and state taxation in the state, while a corporation that is subject to service of process or state taxation in a state will not necessarily be required to obtain a certificate of authority under chapter 15.
  The list of activities set forth in section 15.01(b) (Section 33-15-101(b)) is not exhaustive. See section 15.01(c) (Section 33-15-101(c)). The list excludes several different types of activities from the definition of "transacting business," which are discussed below.
1. ENGAGING IN LITIGATION
  Section 15.01(b)(1) (Section 33-15-101(b)(1)) excludes "maintaining, defending or settling any proceeding." The word "proceeding" is defined in section 1.40 (Section 33-1-400) to include all civil, criminal, administrative, or investigative suits or actions. Thus, a corporation is not "transacting business" solely because it resorts to the courts of the state to recover an indebtedness, enforce an obligation, recover possession of personal property, obtain the appointment of a receiver, intervene in a pending proceeding, bring a petition to compel arbitration, file an appeal bond, or pursue appellate remedies. Similarly, a foreign corporation is not required to obtain a certificate of authority merely because it files a complaint with the state securities commission or other governmental agency or participates in an administrative proceeding within the state.
2. INTERNAL AFFAIRS OF THE CORPORATION
  A corporation does not "transact business" within a state under section 15.01 (Section 33-15-101) merely because some of its internal affairs occur within a state. Thus, a corporation may hold meetings of its board of directors or shareholders within a state without first obtaining a certificate of authority (section 15.01(b)(2)). It also may maintain offices or agencies within a state relating solely to the transfer, registration, or exchange of its shares without obtaining a certificate of authority (section 15.01(b)(4)). Other activities relating to the internal affairs of the corporation that do not constitute the transaction of business under section 15.01(b) (Section 33-15-101(b)) include having officers or representatives of a corporation who reside within or are physically present in the state; while there, the officers or representatives may make executive decisions relating to the affairs of the corporation without imposing on the corporation the requirement that it obtain a certificate of authority in the state, provided these activities are not so regular and systematic as to cause the residence to be viewed as a business office.
3. MAINTAINING BANK ACCOUNTS
  A foreign corporation may maintain a bank account with a bank within the state, make deposits and write checks on the account without obtaining a certificate of authority (section 15.01(b)(3)) (Section 33-15-101(b)(3)).
4. INTERSTATE TRANSACTIONS
  A corporation is not "transacting business" within the meaning of section 15.01(a) (Section
33-15-101(a)) if it is transacting business in interstate commerce (section 15.01(b)(10) (Section 33-15-101(b)(10)) or soliciting or obtaining orders that must be accepted outside the state before they become contracts (section 15.01(b)(6)) (Section 33-15-101(b)(6)). These limitations reflect the provisions of the United States Constitution that grant to the United States Congress exclusive power over interstate commerce, and preclude states from imposing restrictions or conditions upon this commerce. These sections should be construed in a manner consistent with judicial decisions under the United States Constitution. Under these decisions, a foreign corporation is not required to obtain a certificate of authority even though it sells goods within the state if they are shipped to the purchasers in interstate commerce. A corporation need not obtain a certificate of authority even if it also does work and performs acts within the state incidental to the interstate business, e.g., if it takes or enforces a security interest incidental to these transactions. Nor is it required to obtain a certificate of authority merely because it sends traveling salesmen or solicitors into a state so long as contracts are not made within the state. Similarly, an office may be maintained by a corporation in a state without obtaining a certificate of authority if the office's functions relate solely to interstate commerce.
  Purchases of goods may of course be in interstate commerce as readily as sales. Thus, the purchase of personal property by a foreign corporation for shipment in interstate commerce out of the state does not require the corporation to obtain a certificate of authority.
5. SALES THROUGH INDEPENDENT CONTRACTORS
  A foreign corporation does not need to obtain a certificate of authority if it sells goods in the state through independent contractors (section 15.01(b)(5)) (Section 33-15-101(b)(5)). These transactions are viewed as transactions by the independent contractors, not by the corporation itself, even though the corporation sets some limits or ground rules for its contractors. If these controls are sufficiently pervasive, however, the corporation may be deemed to be selling for itself in intrastate commerce, and not through the independent contractors, and therefore engaged in the transaction of business in the state.
6. CREATING, ACQUIRING, OR COLLECTING DEBTS
  The mere act of making a loan by a foreign corporation that is not in the business of making loans does not constitute transacting business in the state in which the loan is made. On the same theory a foreign corporation may obtain security for the repayment of a loan, and foreclose or enforce the lien or security interest to collect the loan, without being deemed to be transacting business. See sections 15.01(b)(7) and (8) (Section 33-15-101(b)(7) and (8)). Similarly, a refunding or "roll over" of a loan or its adjustment or compromise does not involve the transaction of business.
7. ISOLATED TRANSACTIONS
  The concept of "transacting business" involves regular, repeated, and continuing business contacts of a local nature. A single agreement or isolated transaction within a state does not constitute the transaction of business if there is no intention to repeat the transaction or engage in similar transactions. Since the
question is entirely one of fact, section 15.01(b)(10) (Section 33-15-101(b)(10)) retains the partially objective test from earlier versions of the Model Act that a transaction completed within 30 days does not constitute "transacting business" if it is not one in the course of "repeated transactions of a like nature." A continuing transaction that is not completed within 30 days will likely require obtaining a certificate of authority, whether or not it is one of a number of repeated transactions, but that issue is not addressed by the Model Act. The 30-day provision is, in other words, a "safe harbor" for not requiring a certificate of authority.
8. OTHER TRANSACTIONS
  Section 15.01(c) (Section 33-15-101(c)) makes clear that the list of transactions in section 15.01(b) (Section 33-15-101(b)) is not exhaustive. Among the large number of other transactions which do not give rise to the requirement that a certificate of authority be obtained are the ownership of all the shares of stock in a corporation that is engaged in local business within the state or as a limited partner in a limited partnership engaged in local business, or taking ministerial actions such as filing financing statements or registering trademarks.
SOUTH CAROLINA REPORTERS' COMMENTS
1. Overview
  This section makes few changes. The 1981 South Carolina Business Corporation Act, as does this provision, states that a foreign corporation may not do business in South Carolina until authorized. Note that pursuant to Section 33-20-103, a foreign nonprofit corporation can qualify to transact business in
South Carolina pursuant to this chapter. The Model Act Official Text only contemplates for-profit corporations being covered. See the South Carolina Reporters' Comments to Section 33-20-103 for a discussion of the rationale for this variation from the Model Act.
  The fact that the foreign corporation is subject to regulation by some other agency of the State of South Carolina does not mean that it is exempt therefore from also qualifying with the Secretary of State, cf. State v. National Postal Transport Association, 234 S.C. 260, 107 S.E.2d 763 (1959), Equitable Surety Co. v. Illinois Surety Co. 108 S.C. 364, 94 S.E. 882 (1918). Likewise, the fact that a company may not be required to qualify with the Secretary of State does not mean that the company is exempt from South Carolina taxes, workers' compensation laws, etc.
  The Attorney General has stated that the mere fact that a corporation is required to qualify to do business, may not automatically mean that it is required to pay South Carolina income taxes, see 1966 Op. S.C. Att'y Gen. 37 (#1984), interpreting an earlier version of Section 33-15-101.
  Although there are constitutional limits on the ability of South Carolina to regulate foreign corporations and require them to qualify before conducting business (see the South Carolina Reporters' Comments to Section 33-15-105), the State has fairly broad authority to regulate. See British-American Mortgage Co. v. Jones 76 S.C. 218, 56 S.E. 983 (1907) rehearing, 77 S.C. 443, 58 S.E. 417 (1907).
  The prior analogous section, Section 33-23-10 of the 1981 South Carolina Business Corporation Act specifically provided that a corporation could not be denied permission to do business simply because the laws where incorporated differ from the laws of South Carolina. Although this phrase has been deleted, the same
prohibition is inferred from new Sections 33-1-200 and 33-1-250 which require the Secretary of State to file a document if the specific provisions of this act are met.
  The provision which grants a foreign corporation the same rights as a South Carolina corporation is now contained in Section 33-15-105. The prior subsection which prohibited South Carolina from regulating the internal affairs of a foreign corporation is discussed in detail at Section 33-15-105.
2. Definition: Transacting Business
  The new law, like the prior provision, contains a "laundry list" of activities that do not constitute transacting business.
  The 1981 South Carolina Business Corporation Act specifically said that this listing was not a "standard" for determining whether a corporation was subject to service of process ("long arm" jurisdiction). The new law indicates the same thing by limiting the application of the list to the purpose of the subsection, i.e., defining what is meant by transacting business for registration purposes. See the Official Comment to this section. A corporation can be qualified to do business in South Carolina and have appointed an agent for service of process but still not be conducting sufficient activities in South Carolina to be subject to suit here. See Ratliff v. Cooper Laboratories, Inc. 444 F.2d 745 (4th Cir. 1971). For a discussion of the long arm jurisdiction of South Carolina courts over foreign corporations see, e.g., Yarborough and Company v. Schoolfield Furniture Ind., Inc. 275 S.C. 151, 268 S.E.2d 42 (1980), and State v. Ford, 208 S.C. 379, 38 S.E.2d 242 (1942) discussing the differences between qualification to do business and amenability to long arm jurisdiction.
  The new law adds more emphasis to the fact that the list is not to be taken as an exhaustive list of "exempt" activities (subsection (c)). The new law both adds and deletes activities that are not to be deemed transacting business. Many of the items are identical to the old law, including item (3) bank accounts, (5) independent contractors, and (6) acceptance outside of State.
  Agency principles may determine whether a company is transacting business. For example, the court found that an out-of-state distributor of medicines and notions (which were sold in South Carolina through dealers who bought their inventory F.O.B. Virginia) was not doing business. See State of South Carolina v. W.T. Rawleigh Co., 172 S.C. 415, 174 S.E. 385 (1932). Even though the distributor suggested territories, required weekly reports of dealers, required a bond for credit purchases, provided for a return of unsold products, encouraged South Carolina dealers to recruit other dealers, provided advertising and sales material, and furnished a sales manual, the court concluded that the dealers were not agents and the out-of-state distributor was not doing business in South Carolina. The case mentions that what constitutes doing business must be determined on the circumstances of each case.
3. New Provisions
  The most significant new provision is that the mere ownership of real or personal property is not transacting business (item (9)). The Official Comment explains the purpose of this section in the introductory paragraphs. However, no attempt is made to define the difference between passive investment and active management. For example, the ownership of timberland may be permitted without qualification but, if there are any forestry
activities, this could require qualification. Similarly, a passive investment in a warehouse might be exempt but, if the corporation directly or indirectly were involved also in the management, this could require qualification.
  It should be noted that merely because a corporation which owns property in South Carolina may be exempt from qualifying to do business it does not mean that the property is exempt from attachment. See, for example, Williamson v. Eastern Building and Loan Association 54 S.C. 582, 598-599, 32 S.E. 765, 770-771 (1898), cf. Tillinghast v. Boston and Port Royal Lumber Companies 39 S.C. 484, 496-497, 18 S.E. 120, 124 (1893). See also, Wilson v. Keels 54 S.C. 545, 32 S.E. 702 (1899); Guimarin v. Southern Life and Trust Company, 100 S.C. 12, 84 S.E. 298 (1915); and LaVarre v. International Paper Company, 37 F.2d 141 (E.D.S.C. 1929).
  The old law exempted holding of directors and shareholders meetings (Section 33-23-10(2)). This provision has been specifically expanded to exempt "other activities concerning internal corporate affairs."
4. Non-Model Act Provisions
  Since 1962, a foreign parent has not been required to qualify merely because it owned a South Carolina subsidiary. The Official Comments to the Model Act suggest that this activity should be exempt. Therefore, for clarification, the prior South Carolina provision has been retained as new subsection (b)(12). This provision was originally derived from the provisions of Cal. Corporate Code Section 6301. See LaVarre v. International Paper Company 37 F.2d 141 (E.D.S.C. 1929).
  Likewise, the mere leasing of South Carolina real property from a nonqualified corporation to its South Carolina subsidiary does not require
the parent to qualify to do business in South Carolina since the general rule is that the mere holding and leasing of property by a foreign corporation is an isolated incident and not the conduct of business, unless the corporation is in the business generally of buying and leasing real property. Further, the parent and subsidiary are treated as separate entities unless it would appear proper to "pierce the corporate veil". 1977 Op. S.C. Att'y Gen., 233, (#77-305).
  Subsection (8) of the Official Text of Model Act Section 15.01 dealing with enforcing mortgages and loans has been slightly broadened in keeping with prior South Carolina law (Section 33-23-10(b)(6) of the 1981 South Carolina Business Corporation Act). Subsection (8) permits out-of-state lenders to enforce not only mortgages and security interests but also "any rights" in the property. Although the commentary to the 1962 version of this provision suggested that the analogous provisions of new items (7) and (8) might exempt "certain" foreign mortgage companies, the Official Comment to this act clarifies that these provisions are not intended to do that. See also, British-American Mortgage Co. v. Jones, 76 S.C. 218, 56 S.E. 983 (1907) rehearing, 77 S.C. 443, 58 S.E. 417 (1907) discussing that lending mortgage money in South Carolina is the transaction of business here.
  It is doubtful that the broad language of 1966 Op. S.C. Att'y Gen. 27 (#1977), which infers that an out-of-state lender making real estate loans in South Carolina need not qualify to do business in South Carolina, is an accurate interpretation of the current law.
  However, the purchase of mortgage notes and mortgages by an out-of-state bank or mortgage pool has historically not been viewed as the transaction of business in South Carolina. This is true even though the out-of-state mortgage
buyer might be required to pursue foreclosure actions and might be required to take possession of the properties and rent them pending their sale in foreclosure. See 1964 Op. S.C. Att'y Gen. 119 (#1674).
5. Deletions and Changes
  Under the 1962 version of the Corporate Code, isolated transactions which occurred within thirty days were exempt. The time period was extended to one hundred eighty days in the 1981 South Carolina Business Corporation Act but has now been returned to the original thirty-day period. See subsection (b)(10). Although the thirty-day period may be too short to accomplish certain transactions that might legitimately otherwise seem exempt, i.e., merger activities that only tangentially touch South Carolina, the reduction was deemed necessary because of abuses of the one hundred eighty-day period. For example, various contractors have come into South Carolina and within six months have built significant projects. Although there was no intention under the prior law to exempt such undertakings, the wording of the one hundred eighty-day period clause could have been construed improperly as authorizing this construction as being an exempt activity. Like other provisions which are listed below, the wording of this subsection differs from the language in the 1981 South Carolina Business Corporation Act. The old law lumped together any transactions that were in a series or were repeated in determining if, in fact, there was only an "isolated" transaction. The new law is more liberal and only lumps together multiple transactions which are of a "like nature".
  The isolated transaction exemption was recognized in an older case, Kirven v. Virginia Carolina Chemical Co. 145 F. 288, 293-294
(1908), and in an older Attorney General Opinion, 1948-1949 Op. S.C. Att'y Gen. 126-128.
  In spite of the exemption for isolated transactions and independent contractors, in Thiel v. Electric Sales and Supply Co. 187 F. Supp. 640 (W.D.S.C. 1960), Judge Wyche held that a contract of purchase signed in South Carolina caused the foreign seller to be doing business in South Carolina even though the sale was negotiated by a third corporation which was incorporated in North Carolina and acted as sales agent for the seller in South Carolina.
  However, the Thiel case may not reflect how these sections are interpreted today. It seems very unlikely that any company whose only contacts with South Carolina are sales by out-of-state agents will be required to qualify to do business. Its transactions would be either "too few" and thus exempt under subsection (b)(10) or "purely interstate" and thus exempt under subsection (b)(11). In regard to the interstate commerce exception, the primary older South Carolina authority is State v. Ford Motor Co. 208 S.C. 379, 38 S.E.2d 242 (1946), but the court has more recently stated:
"[R]espondent, a North Carolina corporation, employed a salesman during 1973 and 1974 to solicit sales from businesses throughout South Carolina. Respondent also admitted that its salesman called on at least five firms and that his solicitation resulted in sales requiring at least 100 separate shipments during this period. While admitting to the aforementioned business activity within South Carolina, respondent made it clear that its salesman was not "located" in the State, but only travelled into South Carolina from his base in North Carolina . . ..
  It is uniformly held that domestication statutes have no application if the foreign corporation's contacts within a state are
confined to the purpose of soliciting business and facilitating the sale and delivery of merchandise flowing within interstate commerce.
  In our leading case on domestication, Ford, supra, this Court recognized that where a foreign corporation's contacts involve only soliciting, cultivating, and supervising its interstate business, such corporation is not subject to domestication requirements. There is no evidence that respondent has an office, warehouse, or telephone listing in South Carolina. The respondent merely ships merchandise into the state from North Carolina to fill orders solicited by its sales representative."
Carolina Components v. Brown Wholesale Co. 272 SC 220,221-223, 250 S.E.2d 332, 333-334 (1978).
  These and other subsections of this new definition of "transacting business" employ slightly different wording than their predecessor sections. Subsections with new phraseology include:
  Topic               New Law   1981 S.C.
                                Business
                                Corp. Act
Participation in       (b)(1)     (b)(1)
  law suits, etc.
Employing stock       (b)(4)     (b)(4)
  transfer agents,
    etc.
Mortgages and         (b)(7)     (b)(5)
  security
    interests
Collecting, debts
  and                 (b)(8)     (b)(6)
  enforcing
    mortgages
Interstate Commerce   (b)(11)     (b)(7)
None of the language changes in these similar provisions appear to be significant, particularly since many of the new subsections use terms which are defined in other sections and thus effectively are identical to the prior law. For example, the new provision does not specifically mention participation in an arbitration or administration action as being exempt. However, it does exempt participating in a "proceeding" which is a defined term and includes administrative actions and arbitrations. See Section 33-1-400(18).
DERIVATION: 1984 Model Act Section 15.01.
  Section 33-15-102. Consequences of transacting business without authority.
  (a) A foreign corporation transacting business in this State without a certificate of authority may not maintain a proceeding in any court in this State until it obtains a certificate of authority.
  (b) The successor to a foreign corporation that transacted business in this State without a certificate of authority and the assignee of a cause of action arising out of that business may not maintain a proceeding based on that cause of action in any court in this State until the foreign corporation or its successor obtains a certificate of authority.
  (c) A court may stay a proceeding commenced by a foreign corporation, its successor, or assignee until it determines whether the foreign corporation or its successor requires a certificate of authority. If it so determines,
the court may further stay the proceeding until the foreign corporation or its successor obtains the certificate.
  (d) A foreign corporation is liable for a civil penalty of ten dollars for each day but not to exceed a total of one thousand dollars for each year it transacts business in this State without a certificate of authority. The Attorney General may collect all penalties due under this subsection.
  (e) Notwithstanding subsections (a) and (b), the failure of a foreign corporation to obtain a certificate of authority does not impair the validity of its corporate acts or prevent it from defending any proceeding in this State.
CROSS REFERENCES
Certificate of authority, see Section 33-15-103.
"Foreign corporation" defined, see Section
  33-1-400.
"Proceeding" defined, see Section 33-1-400.
Transacting business, see Section 33-15-101.
OFFICIAL COMMENT
  The purpose of section 15.02 (Section 33-15-102) is to induce corporations that are required to obtain a certificate of authority but have not to qualify promptly, without imposing harsh or erratic sanctions. The Model Act rejects the provisions adopted in a few states that make unenforceable intrastate transactions by unqualified corporations or that impose punitive sanctions or forfeitures on nonqualifying corporations. Often the failure to qualify is a result of inadvertence or bona fide disagreement as to the scope of the provisions of section 15.01 (Section 33-15-101), which are necessarily imprecise; the imposition of harsh sanctions in these situations is inappropriate. Further, as a matter of state
policy it is generally preferable to encourage qualification in case of doubt rather than to impose severe sanctions that may cause corporations to resist obtaining a certificate of authority in doubtful situations.
  Section 15.02 (Section 33-15-102) closes the courts of the state to suits maintained by corporations which should have but which have not obtained a certificate of authority. However, this sanction is not a punitive one: section 15.02(e) (Section 33-15-102(e)) states that the failure of the corporation to qualify does not affect the validity of corporate acts, including contracts. Thus, a contract made by a nonqualified corporation may be enforced by the corporation simply by obtaining a certificate. Further, section 15.02(c) (Section 33-15-102(c)) authorizes a court to stay a proceeding to determine whether a corporation should have qualified to transact business and, if it concludes that qualification is necessary, it may grant a further stay to permit the corporation to do so. Thus, the corporation will not be compelled to refile a suit if the corporation qualifies to transact business within a reasonable period. The purpose of these provisions is to encourage corporations to obtain certificates of authority and to eliminate the temptation to raise section 15.02 (Section 33-15-102) defenses only after applicable statutes of limitation have run.
  Section 15.02(e) (Section 33-15-102(e)) does not prevent a foreign corporation that has failed to obtain a certificate of authority from "defending any proceeding." The distinction between "maintaining" a proceeding under section 15.02(a) (Section 33-15-102(a)) and "defending any proceeding" under section 15.02(e) (Section 33-15-102(e)) is determined on the basis of whether affirmative relief is sought. A nonqualified corporation may interpose any defense or permissive or mandatory counterclaim
to defeat a claimed recovery, but may not obtain an affirmative judgment or decree based on the counterclaim unless it has obtained a certificate of authority.
  In addition to closing the courts of the state to a nonqualified foreign corporation, many states impose a penalty equal to all fees and franchise taxes that the foreign corporation would have been liable for if it had qualified to transact business when it was first required to do so. This penalty is usually defined to equal the sum of fees and franchise taxes for each year or part thereof the corporation transacted business in the state without a certificate of authority. Similar provisions appeared in earlier versions of the Model Act, but were modified in the present revision in favor of a specific dollar amount (which each state adopting the revised Model Act should insert in section 15.02(d)) (Section 33-15-102(d)) for each day and year the foreign corporation fails to qualify. The revised Model Act does not treat liability for taxes.
  Section 15.02(b) (Section 33-15-102(b)) prevents evasion of section 15.02(a) (Section 33-15-102(a)) by an assignment of a claim on which the foreign corporation is barred from bringing suit under section 15.02(a) (Section 33-15-102(a)). If the successor has acquired all or substantially all of the assets of the foreign corporation, the successor may maintain suit after it has qualified. In the case of all other assignments, the foreign corporation itself must obtain a certificate of authority before the assignee may maintain suit on the claim. The phrase "all or substantially all" has the meaning set forth in the Official Comment to section 12.01 (Section 33-12-101).
SOUTH CAROLINA REPORTERS' COMMENTS
  Subsection (a) is essentially similar to parts of Section 33-23-140(A) and (B) of the 1981 South Carolina Business Corporation Act. The company cannot sue until qualified. The prior requirement that the company which failed to qualify when it was required to had to pay all "fees, penalties, and franchise taxes" has been dropped in favor of requiring the payment of a penalty. The penalty is ten dollars a day, one thousand dollars a year maximum. Likewise, requalification after a disqualification only requires the payment of the penalty, not any additional taxes.
  An earlier version of this section granted a sixty-day grace period before filing was due. The Supreme Court, interpreting the prior language, concluded that, this being a narrowly construed penalty section, the penalty should be computed excluding the grace period days. State v. Guy Mobile Home Corp. 248 S.C. 386, 149 S.E.2d 913 (1966). Under the new language, the penalty will run from the first day the company actually is transacting business in South Carolina.
  Subsection (c) authorizes the court to determine if a company should be qualified.
  The 1981 South Carolina Business Corporation Act allowed a receiver, trustee, or representative of creditors of a nonqualified company to sue. Likewise, prior law allowed an assignee for value without knowledge of a right from a nonqualified corporation to sue. In the new subsection (b), all successors and assignees from a nonqualified company are barred from suing. There are no exemptions.
  Subsection (d) continues the long-existing precedent that failure to qualify does not affect the validity of any contract executed by the nonqualified corporation. See Gallentley v. Strickland, 74 S.C. 394, 54 S.E. 756 (1906), and
1971 Op. S.C. Att'y Gen. 292 (#3008). Although the prior act specified that neither corporate acts nor contracts were invalidated by failure to qualify, no change is intended even though "contract" is not specifically mentioned in the new wording.
  Lastly, the new provision continues prior South Carolina law that a nonqualified corporation can defend a suit brought in South Carolina.
DERIVATION: 1984 Model Act Section 15.02.
  Section 33-15-103. Application for certificate of authority.
  (a) A foreign corporation may apply for a certificate of authority to transact business in this State by delivering an application to the Secretary of State for filing. The application must set forth:
    (1) the name of the foreign corporation or, if its name is unavailable for use in this State, a corporation name that satisfies the requirements of Section 33-15-106;
    (2) the name of the state or country under whose law it is incorporated;
    (3) its date of incorporation and period of duration;
    (4) the street address of its principal office;
    (5) the address of its proposed registered office in this State and the name of its proposed registered agent at that office;
    (6) the names and usual business addresses of its current directors and principal officers;
    (7) a statement of the aggregate number of shares which the corporation has authority to issue, itemized by classes and series, if any, within a class; and
    (8) a certificate, signed by an attorney licensed to practice in this State, that all of the requirements of this chapter relating to the
authorization of foreign corporations to do business in this State have been complied with.
  (b) The foreign corporation shall deliver with the completed application a certificate of existence (or a document of similar import) duly authenticated by the Secretary of State or other official having custody or corporate records in the state or country under whose law it is incorporated.
  (c) The foreign corporation shall deliver with the completed application the initial annual report of the corporation as specified in Section 12-19-20.
CROSS REFERENCES
Amended certificate of authority, see
  Section 33-15-104.
Application of act to existing qualified foreign
  corporation, see Section 33-20-102.
Certificate of existence, see Section 33-1-280.
Corporate name, see Section 33-15-106 and
  Chapter 4.
Corporate purposes, see Section 33-3-101.
"Deliver" includes mail, see Section 33-1-400.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Forms, see Section 33-1-210.
"Principal office":
  defined, see Section 33-1-400.
  designated in annual report, see Sections
    33-16-220 and 12-19-20.
Registered office and agent, see Sections
  33-2-102, 33-5-101, and 33-15-107.
Report to Secretary of State, see Section
  33-16-220.
OFFICIAL COMMENT
1. DISCLOSURE REQUIREMENTS IN GENERAL
  Section 15.03 (Section 33-15-103) provides that a foreign corporation seeking a certificate of authority to transact business in the state must file an application that contains the information set forth in this section. These disclosure requirements are supplemented by the requirements of other sections in this chapter -- Sections 15.04, 15.06, and 15.07 (Sections 33-15-104, 33-15-106, 33-15-107) -- which require amended or supplemental filings in certain circumstances, and by section 16.22 (Section 33-16-220 and Section 12-19-20), which requires every qualified foreign corporation to file annual reports containing specified information. Generally, the revised Model Act eliminates repetitious filings, so that information need be submitted to the secretary of state in only one document.
  The purposes of these disclosure requirements are: (1) to ensure that citizens of the state have adequate information about foreign corporations in their transactions with them; (2) to put them in a status of equality with domestic corporations with respect to information required to be furnished; (3) to facilitate their subjection to the jurisdiction of the state's courts, thereby removing any disadvantage citizens of the state may have when dealing with them; and (4) to provide readily accessible evidence of their existence. Other statutes relating to franchise taxes and regulatory matters may require a qualified foreign corporation to provide additional information.
2.THE APPLICATION FOR A CERTIFICATE OF AUTHORITY
  The information required to be included in the application for a certificate of authority by section 15.03 (Section 33-15-103) is the minimum needed to administer the filing requirements of the Model Act. The application must also be accompanied by a certificate of existence and the filing fee required by section 1.22 (Section 33-1-220). A corporation that qualifies to transact business in a state must comply with the requirements of other statutes, including franchise tax and similar statutes. See section 15.05 (33-15-105).
SOUTH CAROLINA REPORTERS' COMMENTS
1. Must Be Lawful Purpose
  If a similar South Carolina corporation could not conduct business in this State, neither can an out-of-state corporation. For example, a Georgia corporation (not a professional association) which practices medicine will not be allowed to qualify to do business in South Carolina since in South Carolina a corporation cannot practice medicine. The proper procedure is for the Georgia doctors to form a South Carolina professional association pursuant to Chapter 19 of this title. See Section 33-19-101, et seq., 1977 Op. S.C. Att'y Gen. 298 (#77-374).
2. Deletions
  The application for a certificate or authority no longer will require that the foreign corporation list:
  a. a specific purpose (Section 33-23-20(a)(4) of the 1981 South Carolina Business Corporation Act) since this is not required of domestic companies;
  b. a description of its capital structure since this information is primarily only of interest for tax purposes -- the new law requires this disclosure to be in the annual report. See Section 33-16-220; or,
  c. copies of the corporate articles (Section 33-23-20(b)(1) of the 1981 South Carolina Business Corporation Act).
3. New Provisions
  a. Foreign companies requesting authority to do business have filed on a standard form. The new law (Section 33-1-210(c)) allows, and the Secretary of State has adopted, a mandatory application form.
  b. The application now must contain the names and business addresses of the foreign corporation's directors and principal officers.
  c. The applicant may (where necessary, see Section 33-15-106) use a fictitious name that distinguishes the foreign corporation from another domestic or qualified corporation.

4. Similar Provisions
  Different from the Model Act, but in keeping with existing South Carolina practice, the application must be accompanied by an attorney's certificate that the filing is proper. (This continues Section 33-23-20(b)(3) of the 1981 South Carolina Business Corporation Act.) As was true under prior provisions, the filing of the application must comply with the general provisions governing all filings (Section 33-1-200) and be accompanied by the ten dollar fee and one hundred dollar filing tax (Section 33-1-220). The application must be accompanied by an initial annual report to the Tax Commission as required by Section 12-19-20 of the 1976 Code along with the minimum license fee of twenty-five dollars.
  The application can have a delayed effective date (Section 33-1-230) and can be corrected (Section 33-1-240).
  Section 33-1-250 is important particularly since it provides that, upon delivery of the application to the Secretary of State, the application (like all documents) must be filed by him. The stamped returned copy of the application constitutes the Certificate of Authority. No formal separate document is required (but, of course, can be issued if desired). The general provisions of Chapter 1 defining the Secretary of State's duties as ministerial are applicable to the issuance of this certificate. If the Secretary of State refuses to file, he has a duty of notification and the company has the right of appeal (Sections 33-1-250 and 33-1-260).
  Subsection (b), which requires the filing of an authenticated certificate of existence from the domiciliary state, has the same substantive effect as Section 33-28-200(b)(2) of the 1981 South Carolina Business Corporation Act which required filing a "good standing" certificate. All other provisions of the new law are either the same or essentially no different from the prior law (see Section 33-23-20 of the 1981 South Carolina Business Corporation Act).
DERIVATION: 1984 Model Act Section 15.03.
  Section 33-15-104. Amended certificate of authority.
  (a) A foreign corporation authorized to transact business in this State must obtain an amended certificate of authority from the Secretary of State if it changes:
    (1) its corporate name;
    (2) the period of its duration; or
    (3) the state or country of its incorporation.
  (b) The requirements of Section 33-15-103 for obtaining an original certificate of authority apply to obtaining an amended certificate under this section.
CROSS REFERENCES
Annual report, see Sections 33-16-220 and
  12-19-20.
Certificate of authority, see Section 33-15-103.
Change of registered office or agent, see
  Section 33-15-108.
Corporate name, see Section 33-15-106 and
  Chapter 4.
Duration, see Section 33-3-102.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-200.
Forms, see Section 33-1-210.
Resignation of registered agent, see Section
  33-15-109.
OFFICIAL COMMENT
  Section 15.04 (Section 33-15-104) requires a foreign corporation to obtain an amended certificate of authority if it changes its corporate name, its duration, or the state or country of its incorporation. An amendment is not necessary to reflect changes in its principal office address or in its current officers of directors since that information is supplied in the annual report. In addition, section 15.07 (Section 33-15-107) requires an immediate filing if the foreign corporation changes its registered office or registered agent within the state.
  Other fundamental changes by a foreign corporation do not require amendments to the certificate of authority. The secretary of state will be advised of most of these changes through the annual report. See section 16.22 (Section 33-16-220 and Section 12-19-20). Thus,
a person seeking to obtain current information about a foreign corporation should examine the annual reports of the corporation as well as the application for certificate of authority and amendments to it. This procedure of requiring most changes to be reported in the annual reports rather than as amendments to the certificate of authority should eliminate many unnecessary filings with the secretary of state without reducing the information available through the secretary of state's office.
SOUTH CAROLINA REPORTERS' COMMENTS
1. Changes No Longer Requiring Amendment
  Certain events no longer require the foreign corporation to amend its South Carolina qualification:
  (a) Since no specific purpose must be listed, if the major purpose of the company does change, this is no longer cause to amend the filing.
  (b) Since articles are not filed with the application, any change in them likewise does not have to be filed (this deletes Section 33-23-60 of the 1981 South Carolina Business Corporation Act).
2. New Items Requiring Amendment
  (a) Section 33-15-103(a)(3) requires an amended certificate if the company changes its state or country of incorporation.
  (b) If the duration changes, this requires an amendment.
3. Similar Items
  Both the new and old law require an amendment if there is a name change. The prior provisions which only required the amendment if the name change had been effected under the laws of its jurisdiction of incorporation (Section 33-23-80(a)(1) of the 1981 South Carolina Business Corporation Act) probably was a
meaningless qualification, since a "name change" could be official only if authorized within the domicile state.
4. Filing Procedure
  Section 33-23-80(b) of the 1981 South Carolina Business Corporation Act spelled out in some detail the application process for an amendment. The contents varied somewhat from that required for an original application. The new provision merely provides that the amendment must meet the requirements for an original application. By making this change, certain technical amendments have been made to Section 33-23-80(b) of the 1981 South Carolina Business Corporation Act, but none have any practical or substantive effect. For example, the prior law required that the amendment list the date of original qualification. This is no longer required, but its omission is hardly significant.
DERIVATION: 1984 Model Act Section 15.04.
  Section 33-15-105. Effect of certificate of authority.
  (a) A certificate of authority authorizes the foreign corporation to which it is issued to transact business in this State subject, however, to the right of the State to revoke the certificate as provided in this act.
  (b) A foreign corporation with a valid certificate of authority has the same but no greater rights and has the same but no greater privileges as, and except as otherwise provided by this act is subject to the same duties, restrictions, penalties, and liabilities now or later imposed on, a domestic corporation of like character.
  (c) This act does not authorize this State to regulate the organization or internal affairs of a foreign corporation authorized to transact business in this State.
CROSS REFERENCES
Corporate powers, see Section 33-3-102.
Corporate purposes, see Section 33-3-101.
Revocation of certificate of authority, see
  Sections 33-15-300 through 33-15-320.
Withdrawal of foreign corporations, see
  Section 33-15-200.
OFFICIAL COMMENT
  A certificate of authority authorizes a foreign corporation to transact business in the state subject to the right of the state to revoke the certificate. The privileges of this status are defined in section 15.05(b) (Section 33-15-105(b)): a qualified foreign corporation has the same (but no greater) privileges as a domestic corporation.
  Section 15.05(b) (Section 33-15-105(b)), by granting to qualified foreign corporations all of the rights and privileges enjoyed by a domestic corporation, avoids discrimination that might otherwise be subject to constitutional challenge. On the other hand, section 15.05(b) (Section 33-15-105(b)) also contains a restriction or limitation: a qualified foreign corporation is subject to the same restrictions as a domestic corporation, including the same duties, penalties, and liabilities. This latter aspect of section 15.05(b) (Section 33-15-105(b)) has declined in importance as states have eliminated unnecessary or outdated restrictions on domestic corporations and, as a consequence of section 15.05(b) (Section 33-15-105(b)), on qualified foreign corporations as well. In particular, section 15.05(b) (Section 33-15-105(b)) makes section 3.01 (Section 33-3-101) (corporate purposes) applicable to a qualified foreign corporation, and grants substantially the same powers to it as are possessed by a domestic corporation.
  Section 15.05(c) (Section 33-15-105(c)) preserves the judicially developed doctrine that internal corporate affairs are governed by the state of incorporation even when the corporation's business and assets are located primarily in other states.
SOUTH CAROLINA REPORTERS' COMMENTS
1. Overview
  As noted in the South Carolina Reporter's Comments to Section 33-15-103, an application stamped filed by the Secretary of State is the only document required to evidence that the foreign company has been authorized to do business in South Carolina.
  Under Section 33-23-30 of 1981 South Carolina Business Corporation Act, the statute provided that the certificate authorized the company to transact any business (as set forth in its application) so long as the corporation retained its authority where incorporated, had not surrendered its South Carolina authority, or the authority had not been suspended or revoked. The new provision simplifies this somewhat in stating that the authority is subject always to being revoked. Implied within subsection (a) and the next subsection (b), which refers to a "valid certificate", is the obvious provision that the foreign corporation has no power if it surrenders its certificate or if it is no longer a valid corporation in its state of incorporation.
  Likewise, new subsection (b) is identical effectively to Section 33-23-40 of the 1981 South Carolina Business Corporation Act. See Thompson v. Ford Motor Co. 200 S.C. 393, 420, 428, 21 S.E.2d, 34, 45, 49 (1941) pointing out that the authority granted foreign corporations to do business in South Carolina does not give immunities and rights superior to those of domestic corporations. The qualified foreign
corporation has the same, but no greater, rights and privileges as a domestic company and is generally subject to the same liabilities.
  At one point, certain foreign corporations were not permitted to do business in South Carolina unless they reincorporated in this State. See, e.g., Lyles v. McCown, 82 S.C. 127, 63 S.E. 355 (1909). This is obviously no longer the case.
  For an older discussion of the differences between being a domestic corporation as compared to a qualified foreign corporation, particularly in regard to amenability to suit, see Blue Ridge Power Co. v. Southern Railway Co. 122 S.C. 222, 115 S.E. 306 (1920). The fact that a foreign insurance corporation is qualified to do business in South Carolina does not mean that the statutes of South Carolina governing the contents of insurance policies will be applied to a foreign corporation's policies purchased out of state by a policyholder who later moves to South Carolina, Jones v. Prudential Insurance Co., 210 S.C. 264, 42 S.E.2d 331 (1947). See, also, Livingston v. Atlantic Coast Line Railway Co. 176 S.C. 385, 180 S.E. 343 (1935). Cf. Owen v. Bankers Life Insurance Co. 84 S.C. 253, 66 S.E. 290 (1909).
  Like domestic companies, the foreign corporation does not have to designate a specified purpose and thus can conduct any business not otherwise restricted by other statutes.
2. Scope of Regulation of Foreign Corporations
  Both this section and Section 33-23-10(a) of the 1981 South Carolina Business Corporation Act prohibit South Carolina from regulating the organization or internal affairs of a foreign corporation.
  In 1962, it was then the opinion of the draftsman that a provision prohibiting South
Carolina from regulating the internal affairs of a foreign corporation should not be adopted:
  "It may very well be that a corporation, incorporated elsewhere, consists exclusively or primarily of South Carolina shareholders, and that such corporation proposes an internal change which is contrary to South Carolina law, is injurious to South Carolina shareholders, but which is yet lawful under the law of the state in which the corporation is formally organized. Several cases have indicated, and there is reason to expect the trend to establish, that the South Carolina courts would, in such a situation, have jurisdiction to regulate the internal affairs of the corporation so as to protect South Carolina interests which predominate in this instance. See Western Air Lines, Inc. v. Sobieski, 12 Cal. Rep. 719 (D.Ct. App. 1961), [Comment, 15 S.C. L. Rev. (1963)], where the court sustained the California Corporations Commissioner in forbidding amendment of the articles of incorporation of a Delaware corporation which operates primarily in California and a large percentage of whose shareholders are Californians. New York has recently made statutory provision for "domiciled foreign corporations", which, in rough terms, are New York enterprises which run away to a loose jurisdiction to escape corporate law requirements which New York thinks essential to protect New York shareholders and other local interests. New York Bus. Corp. Act Sections 1317-1319. Although we do not now need such a provision [as in New York], we should not hamstring our own courts in meeting a situation which might later justify intervention of South Carolina courts into the affairs of a South Carolina enterprise for the benefit of South Carolina shareholders, just because the corporation has chosen to incorporate elsewhere under looser standards. In short, there is no
reason to cut off a beneficent jurisdiction of our courts should it be necessary to invoke that jurisdiction. See Reese and Kaufman, The Law Governing Corporate Affairs, 58 Columbia L. Rev. 1118 (1958). [For a survey of the general law, see Latty, Pseudo-Foreign Corporation, 65 Yale L. J. 137 (1955).]"
E. Folk, Reporters Notes, in South Carolina Business Corporation Act, Annotated Edition at p. 190 (1964).
  Since 1962, there have been additional cases from other jurisdictions where states have attempted to control what might be viewed as the internal affairs of a foreign company. See, e.g., Valtz v. Penta Investment Corp., 139 Cal. App. 3d 803, 188 Cal. Rptr. 922 (Cal. Ct. App. 4th Dist., 1983), and Wilson v. Louisiana-Pacific
Resources Inc. 138 Cal. App. 3d 216, 187 Cal. Rptr. 852 (Ct. App. lst Dist., 1983). In some of
these cases, the regulating state has attempted to protect the interests of shareholders (see e.g. Gries Sports Enterprises, Inc. v. Model, 15 Ohio St. 3d 284, 473 N.E.2d 807 (1984)). See generally, D. DeMott, Perspectives on Choice of Law For Corporate Internal Affairs, 48 LAW AND CONTEMPORARY PROBLEMS 161 (1985) and J. Kozyris Corporate Wars and Choice of Law, 1985 DUKE L.J 1 (1985).
  However, there has been significant recent litigation regarding a state's right to impose local requirements in regard to mergers and takeovers. See Edgar v. MITE Corp. 457 U.S. 624 (1982), CTS Corp. v. Dynamics Corp. of America, 107 S. Ct. 1637 (1987). These cases generally have been decided on constitutional principles.
  Even though South Carolina has been a leader in
imposing internal controls on corporations to protect the rights of its shareholders (see, e.g., Jacobson v. Yashick, 249 S.C. 580, 155 S.E.2d 601 (1967) which protections might arguably be appropriately extended to South
Carolina shareholders of foreign corporations, subsection (c), which prohibits South Carolina from regulating the internal affairs of a foreign
corporation has been retained. It was felt that many South Carolina businesses elect to incorporate in Delaware and other states or are incorporated in another state and conduct a substantial amount of business in South Carolina,
as well as in other states, and there needs to be
certainty as to whose law applies. There is the obvious advantage that as more states adopt similar legislation there will be much more certainty throughout the country which, in the long run, will be advantageous to all corporations and their advisors.
DERIVATION: 1984 Model Act Section 15.05.
  Section 33-15-106. Corporate name of foreign corporation.
  (a) Except as authorized by subsection (f), if the corporate name of a foreign corporation does not satisfy the requirements of Section 33-4-101,
the foreign corporation to obtain or maintain a certificate of authority to transact business in this State may:
    (1) add 'corporation', 'incorporated', 'company', or 'limited' or the abbreviation 'corp.', 'inc.', 'co.', or 'ltd.' to its corporate name for use in this State; or
    (2) use a fictitious name in this State if its real name is unavailable and it delivers to the Secretary of State for filing a copy of the resolution of its board of directors, certified by its secretary, adopting the fictitious name which includes one or more of the words or abbreviations in item (1) of this subsection.
  (b) Except as authorized by subsections (c) and (d), the corporate name (including a fictitious name) of a foreign corporation must be distinguishable upon the records of the Secretary of State from:
    (1) the corporate name of a corporation incorporated or authorized to transact business in this State;
    (2) a corporate name reserved or registered under Section 33-4-102 or 33-4-103;
    (3) the fictitious name of another foreign corporation authorized to transact business in this State; and
    (4) the corporate name of a not-for-profit corporation incorporated or authorized to transact business in this State.
  (c) A foreign corporation may apply to the Secretary of State for authorization to use in this State the name of another corporation incorporated or authorized to transact business in this State that is not distinguishable upon his records from the name applied for. The Secretary of State shall authorize use of the name applied for if:
    (1) the other corporation consents to the use in writing and submits an undertaking in form satisfactory to the Secretary of State to change its name to a name that is distinguishable upon the records of the Secretary of State from the name of the applying corporation; or
    (2) the applicant delivers to the Secretary of State a certified copy of a final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this State.
  (d) A foreign corporation may use in this State the name (including the fictitious name) of another domestic or foreign corporation that is used in this State if the other corporation is incorporated or authorized to transact business in this State and the foreign corporation has:
    (1) merged with the other corporation;
    (2) been formed by reorganization of the other corporation; or
    (3) acquired all or substantially all of the assets, including the corporate name, of the other corporation.
  (e) If a foreign corporation authorized to transact business in this State changes its corporate name to one that does not satisfy the requirements of Section 33-4-101, it may not transact business in this State under the changed name until it adopts a name satisfying the requirements of Section 33-4-101 and obtains an amended certificate of authority under Section 33-15-104.
  (f) If any foreign corporation authorized to transact business in South Carolina had filed, prior to the effective date of this act, a certificate with the Secretary of State adopting an assumed name pursuant to Section 33-5-350 in Section 2 of Act 146 of 1981 which does not meet the requirements of either Section 33-4-101(a) and (b) or Section 33-15-106(a) through (e) of this act, it may continue to use the assumed name as its name until December 31, 1994, at which time the name of the corporation must meet the requirements of this act and, if necessary to meet them, must be adopted by an amended certificate of authority under Section 33-15-104. If any filed assumed name does not meet the requirements of Section 33-4-101(a) and (b), but does meet the requirements of this section, the corporation may continue to use the name in this State as its name and is not required to file the certificate mentioned in item (2) of subsection (a) of this section.
CROSS REFERENCES
Amended certificate of authority, see
  Section 33-15-104.
Corporate names generally, see Chapter 4.
"Deliver" includes mail, see Section 33-1-400.
Effective time and date of filing, see
  Section 33-1-230.
Filing fees, see Section 33-1-220.
Filing requirements, see Section 33-1-230.
Registered name, see Section 33-4-103.
Reserved name, see Section 33-4-102.
OFFICIAL COMMENT
  The purpose of section 15.06 (Section 33-15-106), like that of section 4.01 (Section 33-4-101) relating to the name of a domestic corporation, is to ensure that names are distinguishable from one another upon the records of the secretary of state. Like section 4.01 (Section 33-4-101), it does not impose upon the secretary of state the responsibility of deciding issues of unfair competition or commercial similarity of names.
  A foreign corporation applying for a certificate of authority must apply under its true corporate name if that name qualifies under section 15.06(a) or (c) (Section 33-15-106(a) or (c)). If the true corporate name qualifies except that it does not contain one of the words of corporateness set forth in section 15.06(a) (Section 33-15-106(a)), the corporation may simply add one of those words to its true corporate name and apply under that name as modified. Section 15.06(a)(1) (Section 33-15-106(a)(1)). If the true corporate name is unavailable because it is indistinguishable upon the records of the secretary of state from a name already in use or reserved, the corporation may use a fictitious name (if available) under section 15.06(a)(2) (Section 33-15-106(a)(2)) simply by delivering to the secretary of state for filing, together with its application for a certificate of authority, a certified copy of a resolution of its board of directors authorizing the use of the fictitious name in the state. Finally, the otherwise unavailable name of a foreign corporation may be augmented by the name of the state of its incorporation so as to make
it distinguishable upon the records of the secretary of state. For example, a Delaware corporation, "Utopian Products, Inc." which finds that a domestic corporation is using that name, may qualify under the name "Utopian Products, Inc. (Delaware)."
  A corporation that qualifies to transact business in the state may do business under an assumed name to the same extent as a domestic corporation. The name requirements of section 15.06 (Section 33-15-106), including the fictitious name of a corporation whose real name is unavailable, are designed to ensure that each corporation qualified to transact business in this state has a unique official name. For a fuller description of the policies underlying section 15.06 (Section 33-15-106), see the Official Comment to section 4.01 (Section 33-4-101).
  If a foreign corporation changes it name it may (1) file an amended certificate of authority under its new name or, if the new name is not available, (2) continue to conduct business under its former name as an assumed name, or (3) adopt a new assumed name, by filing a certified resolution of its board of directors authorizing it to do so.
SOUTH CAROLINA REPORTERS' COMMENTS
1. New Provisions
  A substantial portion of this section is entirely new. Subsections (b), (c), and (d) adopt the same provisions for foreign corporation names as is applied to domestic corporations and as such is discussed in the Official and South Carolina Reporters Comments to Section 33-4-101. New subsection (d) is comparable to Section 33-23-70 of the 1981 South Carolina Business Corporation Act. The old section was narrower in applying only to mergers
(not reorganizations) and required a filing of authenticated articles of merger.
  In keeping with the new philosophy that corporate names, for corporate law purposes, only need be grammatically distinguishable from each other (see the Official Comment to Section 33-4-101), the most important change is that a foreign corporation can adopt a fictitious South Carolina name if its actual name does not meet South Carolina requirements.
  This may entail merely adding "Inc.", "Corp.", etc., if such is not required where incorporated, or it may require adopting an official "fictitious" name. See the Official Comment for an explanation of this process. Although not required specifically by the statute, the Secretary of State will index the company on his records under both the "fictitious" South Carolina name and its name as listed on its charter.
  In addition to new subsection (d) mentioned above, subsection (e) and the first sentence of subsection (a) have the same operative effect as Section 33-23-50 of the 1981 South Carolina Business Corporation Act in prohibiting a corporation from transacting business without an approved name and requiring an amendment to its filings if it changes to a nonqualified name. Although the new law does not require that any new name be filed within thirty days as was true under the prior law, this does not seem significant. The Official Comment suggests that a corporation which changes its name would be permitted to continue operating under its old name as an assumed name.
2. Non-Model Act Provisions
  Subsection (a)(2) has been clarified. As revised, subsection (a)(2) specifies that for those foreign corporations whose actual names are unavailable for use in South Carolina and who will have to apply under a fictitious name
that, in addition to any other requirements such as provided in subsections (b) and (d), the fictitious name must include one or more terms indicating that it is an incorporated business, e.g., the term "corporation" or "corp.". This is primarily a matter of parity since corporations incorporated in South Carolina are not permitted to file without such a designation. It should be noted that nothing in this section (or elsewhere in this act) controls whether a foreign corporation which is qualified under a fictitious name may do business under that name, any derivation of the name, or any other trade name or service mark. The language of subsection (a)(2) has been clarified so that no inference can be drawn that the foreign corporation would be limited to using only the exact fictitious name even though it has a registered service mark or other name under which it might elect to do business. See the South Carolina Reporters' Comments to Section 33-4-101 as to some of the matters which should be considered before doing business other than in the formally filed name.
3. Assumed Name
  Some foreign corporations in the past have been authorized to transact business under an "assumed name" pursuant to Section 33-5-35 of the 1981 South Carolina Business Corporation Act. This section, by cross-referencing Section 33-4-101, incorporates the limitations of the use of an assumed name by a foreign corporation. A foreign company will be required to obtain, prior to December 31, 1994, an amended certificate of authority if its assumed name does not meet the requirements of this section. However, if the assumed name meets the requirements of this section, namely subsection (a), then the corporation is not required to refile its name, and the previously filed certificate is sufficient complia