EXPLANATION: CAPITALS INDICATE MAT TER ADDED TO EXISTIN G LAW.
[Brackets] indicate matter deleted from existing law.
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SENATE BILL 544
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By: Senators Waldstreicher and West
Introduced and read first time: January 25, 2024
Assigned to: Judicial Proceedings
A BILL ENTITLED
AN ACT concerning 1
Corporations and Associations – Ratification of Defective Corporate Acts – 2
Alterations 3
FOR the purpose of altering the process by which a defective corporate act may be ratified; 4
altering rules for certain legal actions by persons claiming to be adversely affected 5
by a ratification; and generally relating to the ratification of defective corporate acts. 6
BY repealing and reenacting, with amendments, 7
Article – Corporations and Associations 8
Section 2–701 through 2–707 9
Annotated Code of Maryland 10
(2014 Replacement Volume and 2023 Supplement) 11
SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND, 12
That the Laws of Maryland read as follows: 13
Article – Corporations and Associations 14
2–701. 15
(a) In this subtitle the following words have the meanings indicated. 16
(b) [“Corporate act” means any act taken by or on behalf of a corporation by the 17
board of directors, a committee of the board of directors, or the stockholders of the 18
corporation. 19
(c)] “Date of the defective corporate act” means: 20
(1) The date and the time a defective corporate act was purportedly taken; 21
or 22 2 SENATE BILL 544
(2) If the exact time is unknown, the date and approximate time a defective 1
corporate act was purportedly taken. 2
[(d)] (C) “Defective corporate act” means: 3
(1) Any corporate act purportedly taken that, at the date of the defective 4
corporate act, would have been within the power of the corporation but is void or voidable 5
due to a failure of authorization; or 6
(2) An overissue. 7
[(e)] (D) “Failure of authorization” means the failure of a corporation to 8
authorize, approve, or otherwise effect a corporate act in compliance with the Maryland 9
General Corporation Law, its charter or bylaws, any action taken by its board of directors, 10
a committee of its board of directors, or its stockholders, or any plan or agreement to which 11
the corporation is a party, if and to the extent that the failure would render the corporate 12
act void or voidable. 13
[(f)] (E) “Overissue” means the purported issuance by a corporation of stock of: 14
(1) A class or series in excess of the number of shares of the class or series 15
that the corporation has the power to issue under § 2–201(a) of this title or the corporation’s 16
charter at the time of THE PURPORTED issuance; or 17
(2) Any class or series that is not authorized for issuance by the 18
corporation’s charter AT THE TIME OF THE P URPORTED ISSUANCE . 19
[(g)] (F) “Putative stock” means [stock]: 20
(1) STOCK, including stock PURPORTEDLY issued upon exercise of rights, 21
options, warrants, or other securities convertible into or exercisable for stock[: 22
(1) Purportedly], PURPORTEDLY created or issued as a result of a 23
defective corporate act, that but for the failure of authorization would constitute valid stock; 24
[and] 25
(2) [That] STOCK PURPORTEDLY ISS UED IN AN OVERISSUE ; AND 26
(3) STOCK THAT cannot be determined by the board of directors to be valid 27
stock. 28
[(h)] (G) “Valid stock” means stock that has been duly authorized and validly 29
issued in accordance with the provisions of this title. 30
2–702. 31 SENATE BILL 544 3
(a) The board of directors of a corporation may ratify a defective corporate act 1
UNDER THIS SUBTITLE by adopting a resolution stating: 2
(1) (i) The defective corporate act to be ratified; and 3
(ii) If the defective corporate act involved the issuance of putative 4
stock, the number of shares and the class or series of putative stock [issued]; 5
(2) The date of the defective corporate act; 6
(3) The nature of the failure of authorization of the defective corporate act; 7
and 8
(4) (i) If [the board of directors could have authorized or approved the 9
defective corporate act without] stockholder [approval at the date of the defective corporate 10
act and stockholder action is not required as of the date of ratification,] ACTION IS NOT 11
REQUIRED UNDER SUBSE CTION (B) OF THIS SECTION , that the board of directors 12
ratifies the defective corporate act; or 13
(ii) If stockholder [approval] ACTION is required [at the time of] 14
UNDER SUBSECTIO N (B) OF THIS SECTION , THAT THE BOARD OF DI RECTORS 15
APPROVES THE ratification [or if the board of directors could not have authorized or 16
approved] OF the defective corporate act [without stockholder approval at the date of the 17
defective corporate act or stockholder action is required as of the date of ratification, that 18
the board of directors] AND directs that the ratification be submitted for consideration at a 19
meeting of the stockholders. 20
(b) (1) [If a ratification is submitted for consideration at a meeting of the 21
stockholders under subsection (a)(4)(ii) of this section, the stockholders may ratify the 22
defective corporate act by adopting a resolution stating:] RATIFICATION OF A DEF ECTIVE 23
CORPORATE ACT APPROV ED IN A RESOLUTION A DOPTED UNDER SUBSECT ION (A) OF 24
THIS SECTION SHALL B E SUBMITTED FOR CONS IDERATION AT A MEETI NG OF THE 25
STOCKHOLDERS IF STOC KHOLDER APPROVAL IS REQUIRED OR WOULD HA VE BEEN 26
REQUIRED ON THE DATE OF THE DEFECTIVE COR PORATE ACT BY ANY PR OVISION 27
OF: 28
(I) THE MARYLAND GENERAL CORPORATION LAW; 29
(II) THE CHARTER O R BYLAWS OF THE CORPOR ATION; 30
(III) ANY ACTION TAKEN BY T HE BOARD OF DIRECTOR S, A 31
COMMITTEE OF THE BOA RD OF DIRECTORS , OR THE STOCKHOLDERS ; OR 32
4 SENATE BILL 544
(IV) ANY PLAN OR AGREEMENT TO WHICH THE CORPORA TION IS 1
A PARTY IN EFFECT AT THE TIME A RESOLUTION WA S ADOPTED UNDER SUBS ECTION 2
(A) OF THIS SECTION. 3
[(1)] (2) TO RATIFY A DEFECTIVE CORPORATE ACT UNDER THIS 4
SUBSECTION, THE STOCKHOLDERS SHA LL ADOPT A RESOLUTIO N STATING: 5
(i) The defective corporate act to be ratified; [and] 6
(ii) If the defective corporate act involved the issuance of putative 7
stock, the number of shares and the class or series of putative stock [issued]; 8
[(2)] (III) The date of the defective corporate act; and 9
[(3)] (IV) That the stockholders ratify the defective corporate act. 10
(c) (1) The quorum and voting requirements applicable to [ratification] 11
ACTION BY THE BOARD OF DIRECTORS OR THE STOCKHOLDERS TO RATI FY A 12
DEFECTIVE CORPORATE ACT under this section shall be the approval standard requiring 13
the [greater] LARGER NUMBER OR portion of votes under: 14
(i) The requirements that would be applicable to the defective 15
corporate act proposed to be ratified at the time of ratification; or 16
(ii) The requirements that would have been applicable to the 17
defective corporate act on the date of the defective corporate act. 18
(2) (i) [Unless otherwise required by the charter or bylaws of a 19
corporation then in effect or in effect at the time of a defective corporate act, if the defective 20
corporate act is] EXCEPT AS PROVIDED IN SUBPARAG RAPH (II) OF THIS PARAGRAPH , 21
APPROVAL BY STOCKHOLD ERS OF THE RATIFICAT ION OF the election of a director[, 22
ratification of the defective corporate act] shall require a majority of the votes cast at a 23
meeting at which a quorum is present. 24
(ii) IF THE CHARTER OR BYL AWS OF THE CORPORATI ON IN 25
EFFECT AT THE TIME O F THE RATIFICATION O F THE DEFECTIVE CORP ORATE ACT OR 26
IN EFFECT AT THE TIM E OF THE DEFECTIVE C ORPORATE ACT REQUIRES OR 27
REQUIRED A LARGER NU MBER OR PORTION OF V OTES CAST BY STOCKHOLDERS , BY 28
HOLDERS OF ANY CLASS OR SERIES O F STOCK, OR BY ANY SPECIFIED 29
STOCKHOLDERS TO ELEC T THE DIRECTOR , THEN THE AFFIRMATIVE VOTE OF THE 30
LARGER NUMBER OR POR TION OF VOTES CAST S HALL BE REQUIRED TO RATIFY 31
ELECTION OF THE DIRE CTOR. 32
SENATE BILL 544 5
(3) The presence or approval of holders of stock of any class or series of 1
which no stock is [then] outstanding AT THE TIME OF RATIF ICATION or of any person 2
that is no longer a stockholder may not be required. 3
[(3)] (4) Holders of putative stock on the record date for determining 4
which stockholders are entitled to vote on a ratification submitted to stockholders under 5
this section shall not be entitled to vote or be counted for quorum purposes in any vote to 6
consider ratification. 7
(d) Ratification of a defective corporate act under this section shall make the 8
ratified defective corporate act binding on the corporation in accordance with § 2–703 of 9
this subtitle. 10
2–703. 11
(a) (1) Except as provided in paragraph (2) of this subsection, ratification of a 12
defective corporate act becomes effective on the date that the board of directors adopts a 13
resolution under § 2–702(a) of this subtitle or, if required by this subtitle, the date that 14
stockholders adopt a resolution under § 2–702(b) of this subtitle. 15
(2) If the defective corporate act would have required a filing with the 16
Department, ratification of the defective corporate act becomes effective on the later of: 17
(i) The [date] TIME that articles of validation filed in accordance 18
with § 2–705 of this subtitle are accepted for record by the Department; or 19
(ii) The [date] TIME established in the articles of validation, not to 20
exceed 30 days after the articles are accepted for record. 21
(b) Beginning at the time ratification is effective and without regard to the 22
120–day period during which a claim may be brought under [§ 2–707(b)] § 2–706(B) of this 23
subtitle: 24
(1) A defective corporate act ratified in accordance with this subtitle is not 25
void or voidable as a result of the failure of authorization identified in a board action under 26
§ 2–702(a) of this subtitle and shall be deemed a valid corporate act effective as of the date 27
of the defective corporate act; 28
(2) [The issuance of putative] PUTATIVE stock purportedly issued 29
pursuant to a defective corporate act identified in a board action under § 2–702(a) of this 30
subtitle is not void or voidable and shall be deemed valid stock as of the time it was 31
purportedly issued; and 32
(3) Any corporate act taken after a defective corporate act ratified in 33
accordance with this subtitle in reliance on the defective corporate act having been validly 34 6 SENATE BILL 544
effected, and any subsequent defective corporate act resulting from the original defective 1
corporate act, shall be valid as of the time the act was taken. 2
2–704. 3
(a) If ratification of a defective corporate act requires approval by stockholders 4
UNDER § 2–702(B) OF THIS SUBTITLE , the secretary of the corporation shall give notice 5
of the proposed ratification to all stockholders entitled to notice of the meeting in 6
accordance with § 2–504 of this title, stockholders as of the date of the defective corporate 7
act, and holders of putative stock. 8
(b) (1) [Except as provided in paragraph (2) of this subsection, if ratification 9
of] IF a defective corporate act [does not require approval] IS RATIFIED BY THE B OARD 10
OF DIRECTORS IN ACCO RDANCE WITH § 2–702(A) OF THIS SUBTITLE WIT HOUT 11
ACTION by stockholders, AND NOTICE IS NOT RE QUIRED UNDER SUBSECT ION (A) OF 12
THIS SECTION, notice of the ratification may be given to stockholders as of the ratification 13
and as of the date of the defective corporate act and holders of putative stock [when the 14
board of directors adopts a resolution in accordance with § 2–702(a) of this subtitle]. 15
(2) In the case of a corporation with a class of equity securities registered 16
under the Securities Exchange Act of 1934, notice of a ratification THAT DOES NOT 17
REQUIRE APPROVAL OF STOCKHOLDERS shall be deemed to be given when the 18
ratification has been PUBLICLY disclosed in a document [publicly] FURNISHED TO OR 19
filed with the Securities and Exchange Commission. 20
(c) (1) Except as provided in paragraph (2) of this subsection, notice given to 21
holders of putative stock in accordance with this section shall be [provided] GIVEN to: 22
(i) Holders of putative stock as of the date of the defective corporate 23
act; 24
(ii) Where notice is required under subsection (a) of this section, 25
holders of putative stock as of the record date of the meeting; and 26
(iii) Where notice is given under subsection (b) of this section, holders 27
of putative stock as of the date on which the board of directors adopted a resolution ratifying 28
the defective corporate act. 29
(2) Notice is not required to be given to holders of putative stock whose 30
identities or addresses cannot be reasonably determined from the records of the 31
corporation. 32
2–705. 33
SENATE BILL 544 7
(a) (1) If a defective corporate act ratified under this subtitle would have 1
required the filing of a charter document with the Department under any provision of this 2
article, the corporation shall file articles of validation in accordance with this section. 3
(2) If a charter document that was required to be filed with respect to the 4
defective corporate act was not filed, the articles of validation required by this section shall 5
be filed in lieu of the charter document that was not filed. 6
(b) [The articles] ARTICLES of validation required by this section shall include: 7
(1) The title and date of filing of any charter document previously filed with 8
respect to the defective corporate act and any charter document that amended, 9
supplemented, or corrected that charter document; 10
(2) A statement describing the defective corporate act; 11
(3) The date of the defective corporate act; 12
(4) A statement that the defective corporate act was ratified in accordance 13
with this subtitle and a description of the MANNER OF ratification; AND 14
(5) [The time that the ratification is to become effective; and 15
(6)] (i) [A statement that] IF a charter document was previously filed 16
with respect to the defective corporate act[,] and no change to the charter document is 17
required TO RATIFY THE DEFECT IVE CORPORATE ACT UN DER § 2–702 OF THIS 18
SUBTITLE, A STATEMENT THAT NO CHANGE IS MADE TO THE CHARTER DOCUMENT ; 19
(ii) [1. A statement that] IF a charter document was previously 20
filed with respect to the defective corporate act AND A CHANGE TO THE CHARTER 21
DOCUMENT IS REQUIRED TO RATIFY THE DEFECT IVE CORPORATE ACT UN DER § 22
2–702 OF THIS SUBTITLE , A STATEMENT DESCRIBING THE CHANG E AND ALL 23
INFORMATION REQUIRED TO BE INCLUDED UNDER THIS TITLE; OR 24
[2. A statement describing the changes being made to the 25
charter document; and 26
3. Any other information required by this article; or] 27
(iii) [1. A statement that] IF a charter document was not 28
previously filed with respect to the defective corporate act and [that a] THE DEFECTIVE 29
CORPORATE ACT RATIFI ED UNDER § 2–702 OF THIS SUBTITLE WOU LD HAVE 30
REQUIRED A CHARTER D OCUMENT TO BE FILED UNDER THIS TITLE , A STATEMENT 31
OF THE SECTION OF THIS TITLE UNDER WHICH TH E charter document was required to 32 8 SENATE BILL 544
be filed[;] AND ANY INFORMATION REQUIRED TO BE INCLU DED IN THE CHARTER 1
DOCUMENT UNDER THAT SECTION. 2
[2. A citation to the provision of this article under which the 3
charter document was required to be filed; and 4
3. Any other information required by this article.] 5
2–706. 6
(a) Upon application by the corporation, any successor entity to the corporation, 7
any director of the corporation, any record or beneficial holder of valid stock or putative 8
stock, any record or beneficial holder of putative stock as of the date of the defective 9
corporate act, any holder of a voting trust certificate, any holder of a voting trust certificate 10
as of the date of the defective corporate act, or any other person claiming to be substantially 11
and adversely affected by a ratification under this subtitle, a court OF THE STATE OR A 12
FEDERAL COURT SITTIN G IN THE STATE may: 13
(1) Determine the validity of any ratification under this subtitle; [or] AND 14
(2) Modify or waive any of the procedures required by this subtitle to ratify 15
a defective corporate act. 16
(b) An action under this section shall be brought within 120 days after: 17
(1) If the ratification was approved by stockholders, AND THE NOTICE 18
REQUIRED BY § 2–704(A) OF THIS SUBTITLE WAS GIVEN PRIOR TO T HE 19
STOCKHOLDER ACTION , the date on which ratification [occurred] BECAME EFFECTIVE ; 20
or 21
(2) If notice was given or deemed given within 60 days after the 22
ratification, the date on which notice was given or deemed given to stockholders and any 23
holders of putative stock in accordance with § 2–704(B) OF this subtitle. 24
2–707. 25
(a) Nothing in this subtitle may be construed to require that ratification of a 26
defective corporate act under this subtitle be the exclusive means of ratifying or validating 27
a defective corporate act or to limit the [ability] RIGHT of a corporation to file certificates 28
or charter documents in accordance with any other provision of this article. 29
(b) The absence or failure of ratification in accordance with this subtitle shall not, 30
of itself, affect the validity or effectiveness of any corporate act otherwise lawfully ratified, 31
nor may it create a presumption that any corporate act is or was a defective corporate act 32
or void or voidable. 33
SENATE BILL 544 9
SECTION 2. AND BE IT FURTHER ENACTED, That this Act shall take effect 1
October 1, 2024. 2