WES MOORE, Governor Ch. 605
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Chapter 605
(House Bill 888)
AN ACT concerning
Corporations and Associations – Ratification of Defective Corporate Acts –
Alterations
FOR the purpose of altering the process by which a defective corporate act may be ratified;
altering rules for certain legal actions by persons claiming to be adversely affected
by a ratification; and generally relating to the ratification of defective corporate acts.
BY repealing and reenacting, with amendments,
Article – Corporations and Associations
Section 2–701 through 2–707
Annotated Code of Maryland
(2014 Replacement Volume and 2023 Supplement)
SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND,
That the Laws of Maryland read as follows:
Article – Corporations and Associations
2–701.
(a) In this subtitle the following words have the meanings indicated.
(b) [“Corporate act” means any act taken by or on behalf of a corporation by the
board of directors, a committee of the board of directors, or the stockholders of the
corporation.
(c)] “Date of the defective corporate act” means:
(1) The date and the time a defective corporate act was purportedly taken;
or
(2) If the exact time is unknown, the date and approximate time a defective
corporate act was purportedly taken.
[(d)] (C) “Defective corporate act” means:
(1) Any corporate act purportedly taken that, at the date of the defective
corporate act, would have been within the power of the corporation but is void or voidable
due to a failure of authorization; or
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(2) An overissue.
[(e)] (D) “Failure of authorization” means the failure of a corporation to
authorize, approve, or otherwise effect a corporate act in compliance with the Maryland
General Corporation Law, its charter or bylaws, any action taken by its board of directors,
a committee of its board of directors, or its stockholders, or any plan or agreement to which
the corporation is a party, if and to the extent that the failure would render the corporate
act void or voidable.
[(f)] (E) “Overissue” means the purported issuance by a corporation of stock of:
(1) A class or series in excess of the number of shares of the class or series
that the corporation has the power to issue under § 2–201(a) of this title or the corporation’s
charter at the time of THE PURPORTED issuance; or
(2) Any class or series that is not authorized for issuance by the
corporation’s charter AT THE TIME OF THE P URPORTED IS SUANCE.
[(g)] (F) “Putative stock” means [stock]:
(1) STOCK, including stock PURPORTEDLY issued upon exercise of rights,
options, warrants, or other securities convertible into or exercisable for stock[:
(1) Purportedly], PURPORTEDLY created or issued as a result of a
defective corporate act, that but for the failure of authorization would constitute valid stock;
[and]
(2) STOCK PURPORTEDLY ISS UED IN AN OVERISSUE ; AND
(3) [That] STOCK THAT cannot be determined by the board of directors to
be valid stock.
[(h)] (G) “Valid stock” means stock that has been duly authorized and validly
issued in accordance with the provisions of this title.
2–702.
(a) The board of directors of a corporation may ratify a defective corporate act
UNDER THIS SUBTI TLE by adopting a resolution stating:
(1) (i) The defective corporate act to be ratified; and
(ii) If the defective corporate act involved the issuance of putative
stock, the number of shares and the class or series of putative stock [issued];
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(2) The date of the defective corporate act;
(3) The nature of the failure of authorization of the defective corporate act;
and
(4) (i) If [the board of directors could have authorized or approved the
defective corporate act without] stockholder [approval at the date of the defective corporate
act and stockholder action is not required as of the date of ratification,] ACTION IS NOT
REQUIRED UNDER SUBSE CTION (B) OF THIS SECTION , that the board of directors
ratifies the defective corporate act; or
(ii) If stockholder [approval] ACTION is required [at the time of]
UNDER SUBSECTION (B) OF THIS SECTION , THAT THE BOARD OF DI RECTORS
APPROVES THE ratification [or if the board of directors could not have authorized or
approved] OF the defective corporate act [without stockholder approval at the date of the
defective corporate act or stockholder action is required as of the date of ratification, that
the board of directors] AND directs that the ratification be submitted for consideration at a
meeting of the stockholders.
(b) (1) [If a ratification is submitted for consideration at a meeting of the
stockholders under subsection (a)(4)(ii) of this section, the stockholders may ratify the
defective corporate act by adopting a resolution stating:] RATIFICATION OF A DEFECTIVE
CORPORATE ACT APPROV ED IN A RESOLUTION A DOPTED UNDER SUBSECT ION (A) OF
THIS SECTION SHALL B E SUBMITTED FOR CONS IDERATION AT A MEETI NG OF THE
STOCKHOLDERS IF STOC KHOLDER APPROVAL IS REQUIRED OR WOULD HA VE BEEN
REQUIRED ON THE DATE OF THE DEFEC TIVE CORPORATE ACT B Y ANY PROVISION
OF:
(I) THE MARYLAND GENERAL CORPORATION LAW;
(II) THE CHARTER OR BYLAWS OF THE CORPORATION ;
(III) ANY ACTION TAKEN BY T HE BOARD OF DIRECTOR S, A
COMMITTEE OF THE BOA RD OF DIRECTORS , OR THE STOCKHOLDERS ; OR
(IV) ANY PLAN OR AGREEMENT TO WHICH THE CORPORA TION IS
A PARTY IN EFFECT AT THE TIME A RESOLUTIO N WAS ADOPTED UNDER SUBSECTION
(A) OF THIS SECTION.
[(1)] (2) TO RATIFY A DEFECTIVE CORPORATE ACT UNDER THIS
SUBSECTION, THE STOCKHOLDERS SHA LL ADOPT A RES OLUTION STATING :
(i) The defective corporate act to be ratified; [and]
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(ii) If the defective corporate act involved the issuance of putative
stock, the number of shares and the class or series of putative stock [issued];
[(2)] (III) The date of the defective corporate act; and
[(3)] (IV) That the stockholders ratify the defective corporate act.
(c) (1) The quorum and voting requirements applicable to [ratification]
ACTION BY THE BOARD OF DIRECTORS OR THE STOCKHOLDERS TO RATI FY A
DEFECTIVE CORPORATE ACT under this section shall be the approval standard requiring
the [greater] LARGER NUMBER OR portion of votes under:
(i) The requirements that would be applicable to the defective
corporate act proposed to be ratified at the time of ratification; or
(ii) The requirements that would have been applicable to the
defective corporate act on the date of the defective corporate act.
(2) (i) [Unless otherwise required by the charter or bylaws of a
corporation then in effect or in effect at the time of a defective corporate act, if the defective
corporate act is] EXCEPT AS PROVIDED IN SUBPARAGRAPH (II) OF THIS PARAGRAPH ,
APPROVAL BY STOCKHOL DERS OF THE RATIFICA TION OF the election of a director[,
ratification of the defective corporate act] shall require a majority of the votes cast at a
meeting at which a quorum is present.
(ii) IF THE CHARTER OR BYL AWS OF THE CORPORATI ON IN
EFFECT AT THE TIME O F THE RATIFICATION O F THE DEFECTIVE CORP ORATE ACT OR
IN EFFECT AT THE TIM E OF THE DEFECTIVE C ORPORATE ACT REQUIRES OR
REQUIRED A LARGER NU MBER OR PORTION OF V OTES CAST BY STOCKHO LDERS, BY
HOLDERS OF ANY CLASS OR SERIES OF STOCK , OR BY ANY SPECIFIED
STOCKHOLDERS TO ELEC T THE DIRECTOR, THEN THE AFFIRMATIVE VOTE OF THE
LARGER NUMBER OR POR TION OF VOTES CAST S HALL BE REQUIRED TO RATIFY
ELECTION OF THE DIRE CTOR.
(3) The presence or approval of holders of stock of any class or series of
which no stock is [then] outstanding AT THE TIME OF RATIFICATION or of any person
that is no longer a stockholder may not be required.
[(3)] (4) Holders of putative stock on the record date for determining
which stockholders are entitled to vote on a ratification submitted to stockholders under
this section shall not be entitled to vote or be counted for quorum purposes in any vote to
consider ratification.
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(d) Ratification of a defective corporate act under this section shall make the
ratified defective corporate act binding on the corporation in accordance with § 2–703 of
this subtitle.
2–703.
(a) (1) Except as provided in paragraph (2) of this subsection, ratification of a
defective corporate act becomes effective on the date that the board of directors adopts a
resolution under § 2–702(a) of this subtitle or, if required by this subtitle, the date that
stockholders adopt a resolution under § 2–702(b) of this subtitle.
(2) If the defective corporate act would have required a filing with the
Department, ratification of the defective corporate act becomes effective on the later of:
(i) The [date] TIME that articles of validation filed in accordance
with § 2–705 of this subtitle are accepted for record by the Department; or
(ii) The [date] TIME established in the articles of validation, not to
exceed 30 days after the articles are accepted for record.
(b) Beginning at the time ratification is effective and without regard to the
120–day period during which a claim may be brought under [§ 2–707(b)] § 2–706(B) of this
subtitle:
(1) A defective corporate act ratified in accordance with this subtitle is not
void or voidable as a result of the failure of authorization identified in a board action under
§ 2–702(a) of this subtitle and shall be deemed a valid corporate act effective as of the date
of the defective corporate act;
(2) [The issuance of putative] PUTATIVE stock purportedly issued
pursuant to a defective corporate act identified in a board action under § 2–702(a) of this
subtitle is not void or voidable and shall be deemed valid stock as of the time it was
purportedly issued; and
(3) Any corporate act taken after a defective corporate act ratified in
accordance with this subtitle in reliance on the defective corporate act having been validly
effected, and any subsequent defective corporate act resulting from the original defective
corporate act, shall be valid as of the time the act was taken.
2–704.
(a) If ratification of a defective corporate act requires approval by stockholders
UNDER § 2–702(B) OF THIS SUBTITLE , the secretary of the corporation shall give notice
of the proposed ratification to all stockholders entitled to notice of the meeting in
accordance with § 2–504 of this title, stockholders as of the date of the defective corporate
act, and holders of putative stock. Ch. 605 2024 LAWS OF MARYLAND
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(b) (1) [Except as provided in paragraph (2) of this subsection, if ratification
of] IF a defective corporate act [does not require approval] IS RATIFIED BY THE B OARD
OF DIRECTORS IN ACCO RDANCE WITH § 2–702(A) OF THIS SUBTITLE WIT HOUT
ACTION by stockholders, AND NOTICE IS NOT RE QUIRED UNDER SUBSECT ION (A) OF
THIS SECTION, notice of the ratification may be given to stockholders as of the ratification
and as of the date of the defective corporate act and holders of putative stock [when the
board of directors adopts a resolution in accordance with § 2–702(a) of this subtitle].
(2) In the case of a corporation with a class of equity securities registered
under the Securities Exchange Act of 1934, notice of a ratification THAT DOES NOT
REQUIRE APPROVAL OF STOCKHOLDERS shall be deemed to be given when the
ratification has been PUBLICLY disclosed in a document [publicly] FURNISHED TO OR
filed with the Securities and Exchange Commission.
(c) (1) Except as provided in paragraph (2) of this subsection, notice given to
holders of putative stock in accordance with this section shall be [provided] GIVEN to:
(i) Holders of putative stock as of the date of the defective corporate
act;
(ii) Where notice is required under subsection (a) of this section,
holders of putative stock as of the record date of the meeting; and
(iii) Where notice is given under subsection (b) of this section, holders
of putative stock as of the date on which the board of directors adopted a resolution ratifying
the defective corporate act.
(2) Notice is not required to be given to holders of putative stock whose
identities or addresses cannot be reasonably determined from the records of the
corporation.
2–705.
(a) (1) If a defective corporate act ratified under this subtitle would have
required the filing of a charter document with the Department under any provision of this
article, the corporation shall file articles of validation in accordance with this section.
(2) If a charter document that was required to be filed with respect to the
defective corporate act was not filed, the articles of validation required by this section shall
be filed in lieu of the charter document that was not filed.
(b) [The articles] ARTICLES of validation required by this section shall include:
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(1) The title and date of filing of any charter document previously filed with
respect to the defective corporate act and any charter document that amended,
supplemented, or corrected that charter document;
(2) A statement describing the defective corporate act;
(3) The date of the defective corporate act;
(4) A statement that the defective corporate act was ratified in accordance
with this subtitle and a description of the MANNER OF ratification; AND
(5) [The time that the ratification is to become effective; and
(6)] (i) [A statement that] IF a charter document was previously filed
with respect to the defective corporate act[,] and no change to the charter document is
required TO RATIFY THE DEFECT IVE CORPORATE ACT UN DER § 2–702 OF THIS
SUBTITLE, A STATEMENT THAT NO CHANGE IS MADE TO TH E CHARTER DOCUMENT ;
(ii) [1. A statement that] IF a charter document was previously
filed with respect to the defective corporate act AND A CHANGE TO THE CHARTER
DOCUMENT IS REQUIRED TO RATIFY THE DEFECT IVE CORPORATE ACT UN DER §
2–702 OF THIS SUBTITLE , A STATEMENT DESCRIBI NG THE CHANGE AND ALL
INFORMATION REQUIRED TO BE INCLUDED UNDER THIS TITLE; OR
[2. A statement describing the changes being made to the
charter document; and
3. Any other information required by this article; or]
(iii) [1. A statement that] IF a charter document was not
previously filed with respect to the defective corporate act and [that a] THE DEFECTIVE
CORPORATE ACT RATIFI ED UNDER § 2–702 OF THIS SUBTITLE WOU LD HAVE
REQUIRED A CHARTER D OCUMENT TO BE FILED UNDER THIS TITLE , A STATEMENT
OF THE SECTION OF THIS TI TLE UNDER WHICH THE charter document was required to
be filed[;] AND ANY INFORMATION REQUIRED TO BE INCLU DED IN THE CHARTER
DOCUMENT UNDER THAT SECTION.
[2. A citation to the provision of this article under which the
charter document was required to be filed; and
3. Any other information required by this article.]
2–706.
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(a) Upon application by the corporation, any successor entity to the corporation,
any director of the corporation, any record or beneficial holder of valid stock or putative
stock, any record or beneficial holder of putative stock as of the date of the defective
corporate act, any holder of a voting trust certificate, any holder of a voting trust certificate
as of the date of the defective corporate act, or any other person claiming to be substantially
and adversely affected by a ratification under this subtitle, a court OF THE STATE OR A
FEDERAL COURT SITTIN G IN THE STATE may:
(1) Determine the validity of any ratification under this subtitle; [or] AND
(2) Modify or waive any of the procedures required by this subtitle to ratify
a defective corporate act.
(b) An action under this section shall be brought within 120 days after:
(1) If the ratification was approved by stockholders, AND THE NOT ICE
REQUIRED BY § 2–704(A) OF THIS SUBTITLE WAS GIVEN PRIOR TO THE
STOCKHOLDER ACTION , the date on which ratification [occurred] BECAME EFFECTIVE ;
or
(2) If notice was given or deemed given within 60 days after the
ratification, the date on which notice was given or deemed given to stockholders and any
holders of putative stock in accordance with § 2–704(B) OF this subtitle.
2–707.
(a) Nothing in this subtitle may be construed to require that ratification of a
defective corporate act under this subtitle be the exclusive means of ratifying or validating
a defective corporate act or to limit the [ability] RIGHT of a corporation to file certificates
or charter documents in accordance with any other provision of this article.
(b) The absence or failure of ratification in accordance with this subtitle shall not,
of itself, affect the validity or effectiveness of any corporate act otherwise lawfully ratified,
nor may it create a presumption that any corporate act is or was a defective corporate act
or void or voidable.
SECTION 2. AND BE IT FURTHER ENACTED, That this Act shall take effect
October 1, 2024.
Approved by the Governor, May 9, 2024.