Banking Notes Volume 2016, Number 1
The Mississippi legislature has created a new mechanism for Mississippi corporations to require that derivative and other shareholder claims be brought in the county of the corporation’s principal office instead of some other court. The new law becomes effective on July 1, 2016, and a corporation would need to amend its articles of incorporation to opt in. The law applies to banks, bank holding companies, and other corporations organized under Mississippi law.
Under the new law, a Mississippi corporation may include in its articles of incorporation a provision that would require shareholder derivative claims “or any other internal corporate claim that is based upon a current or former director’s or officer’s violation of a duty” be brought in court in the county where the corporation’s principal office is located.
Each of the following Mississippi corporations may be particularly interested in considering this new law:
- Public companies;
- Privately held companies with large numbers of shareholders;
- Businesses with principal offices in counties that may be more favorable venues to defend claims of this sort; and
- Corporations that may be subject to jurisdiction outside of Mississippi.
A Mississippi corporation would need to amend its articles of incorporation either (1) to state that venue for shareholder litigation would be in the county of the business’s principal office or (2) to refer to a comparable provision in the corporation’s bylaws. Amendments to articles of incorporation usually require shareholder approval at an annual or special shareholders’ meeting, while bylaws can usually be amended by the board of directors without shareholder approval.
Other states, including corporate friendly Delaware, have adopted similar statutes in recent years, and nearly all reported cases in those jurisdictions have upheld those statutes. Mississippi courts have not yet had occasion to consider the new statute’s enforceability.
This new law may provide some Mississippi corporations an opportunity to mitigate risk and reduce defense costs if a shareholder claim is made down the road.
Banking Notes is a newsletter created by Butler Snow’s banking team to address legal issues of interest to bank management and directors. For more information, do not hesitate to contact us.