COMMENT

Source: Former § 14-2-235, See the general comment which follows Section14-2-1110. Bylaws adopted pursuant to this act at any time prior to adoption of this Code are not affected in any way, but remain valid and in force unless and until repealed or amended as provided in this article.

This section contains two significant departures from prior statutes (see Comment following Section 14-2-1110). First, subsection (a) provides that the application of these sections to a particular corporation is optional at the election of the corporation as provided in subsections (a) and (b). Second, under subsection (c), the provisions of this part are never applicable to an interested shareholder who has continuously remained an interested shareholder for a three-year period and has not increased his stock ownership during such period beyond minimal purchases.

Subsection (a) provides that this part shall only be applicable to business combinations of corporations which have adopted a bylaw provision stating that such provisions are applicable to it. Such a bylaw may be adopted by the same procedure as any other bylaw of the corporation, but may only be revoked in accordance with subsection (b) of this section.

Subsection (b) imposes a supermajority voting requirement in order for a corporation to repeal its bylaw election subject to this part. This voting requirement is identical to the minimum vote required by Section 14-2-1111(2) in order to approve a business combination; therefore, an interested shareholder may not obtain the necessary votes to repeal the bylaw when he would not otherwise have the votes required to approve the proposed business combination under Section 14-2-1111. The last sentence of subsection (b) prevents a corporation from using this part for purely defensive purposes by continually adopting, repealing and readopting a bylaw providing for the applicability of these sections whenever a takeover is threatened.

Subsection (c) reflects the intent of this part to protect minority shareholders from the inequities of two-tiered transactions instigated by recent purchasers of large blocks of the corporation's stock. These sections are not intended to interfere with proposed transactions involving significant shareholders whose ownership position in the corporation has remained relatively stable over an extended period of time. Therefore, any person can acquire a 10% or higher stake in a corporation, wait three years during which period he does not significantly increase his ownership of the corporation, and then proceed with any transaction without regard for this part.

Subsection (d) provides that nothing in this part precludes any other corporate action regarding approval of business combinations. Thus, articles of incorporation or a bylaw adopted pursuant to Code Section 14-2-1021 may provide similar protections, whether or not a bylaw has been adopted pursuant to this section. And adoption of a bylaw electing the coverage of the fair price provisions should not be interpreted as repeal of any provisions of articles or bylaws setting higher voting or quorum requirements for business combinations. Further, a corporation may adopt a bylaw electing coverage under Article 11A of this Code.

Cross-References Articles of incorporation, amendment, see § 14-2-1001 et et seq. Bylaws, amendment by board of directors or shareholders, see § 14-2-1020. Bylaws increasing quorum or voting requirements for directors, see § 14-2-1022. Bylaws increasing quorum or voting requirements for shareholders generally, see § 14-2-1021. Greater quorum and voting requirements for shareholders, see § 14-2-727. Quorum and voting requirements for directors, see § 14-2-824. Quorum and voting requirements for voting groups, see § 14-2-725.

PART 3 B USINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS