Model Business Corporation Act: Everything You Need to Know
Model Business Corporation Act, or MBCA, is a body of laws designed to regulate corporate affairs uniformly across different states.3 min read
2. The Model Business Corporations Act History
3. The Model Business Corporations Act Purpose
4. The Model Business Corporations Act Content and Enactment
5. Revision of the Model Business Corporation Act
6. The Model Business Corporation Act (2006)
Model Business Corporation Act, or MBCA, is a body of laws designed to regulate corporate affairs uniformly across different states.
The Model Business Corporations Act Overview
- The American Bar Association (ABA) introduced the Model Business Corporations Act for the purpose of governing corporate affairs.
- In order to be legally enforceable, the MBCA needs to be adopted by a state legislature.
- Every state in the U.S. has adopted at least some portion of the MBCA.
The Model Business Corporations Act History
The American Bar Association drafted the MBCA for the first time in 1950. It was done to provide an alternative piece of legislation to the Uniform Business Corporation Act, which was quite unpopular and was enacted by only three states.
The ABA has been continuously revising the MBCA in order to retain its relevance to the changing times and increase its popularity with the legislatures of different states. The MBCA was thoroughly revised in 1984. There have been a number of minor revisions thereafter.
By the year 2008, 24 states had fully and 26 states had partially enacted the MBCA. The District of Columbia had adopted it partially too.
The Model Business Corporations Act Purpose
Every state in the U.S. can have its own corporate law. This results in legal complications for corporations operating in several different states.
The MBCA offers an opportunity for states to bring about uniformity in the corporate laws so that it becomes easier for corporations to operate in multiple states.
In addition to legal uniformity, it promotes the use of identical terminology in different state laws, making it easier to interpret. A court in one state can use rulings given in other states while interpreting identical terms.
The Model Business Corporations Act Content and Enactment
The MBCA contains comprehensive laws on doing business as a corporation. It covers a number of topics, like the steps involved in forming a corporation, limited liability and its effects, exceptions to the concept of limited liability, corporate management structure, and voting and shareholders' rights.
Some of the laws in the MBCA are default provisions, which would apply if a corporation doesn't have its own bylaws on a particular issue — for example, the number of shareholders required to form a quorum in a meeting.
Since it's voluntary for the states to enact the MBCA, states usually enact modified versions of the Act to suit local concerns. Some states choose to enact the MBCA only partially and complete the statute by including their own state-level laws or those borrowed from neighboring states.
In terms of popularity, the Delaware General Corporation Law gives tough competition to the MBCA.
Revision of the Model Business Corporation Act
The MBCA, after being developed in 1946, was published in 1950.
Unlike most of the Uniform Acts that are promulgated by the Uniform Law Commission, the MBCA was created by a committee of the American Bar Association. However, it is drafted in a format similar to that of the Uniform Acts, making it easy for the states to either adopt it in its entirety or use it as a basis for enacting their own legislation.
The Committee on Corporate Laws that drafted the MBCA keeps updating the Act on a continual basis, so it's ever-evolving. In 1984, the committee carried out a complete revision of the Act.
The Model Business Corporation Act (2006)
Subchapter A of the MBCA (2006) contains provisions about the board of directors.
Board of Directors:
- Except in some specified cases, every corporation must have a board of directors.
- The board of directors shall exercise the corporate powers and manage the business affairs within the limits imposed by the Articles of Incorporation.
- In the case of a corporation with 50 or fewer shareholders, the corporation may limit the board of directors' authority through its articles of incorporation and assign someone else to perform the duties of the board.
Qualifications of Directors:
- A board of directors must have one or more individuals, according to the Articles of Incorporation.
- A corporation may change the number of directors by amending the articles of incorporation or through the procedure provided therein.
- Directors must be elected in the first annual meeting of shareholders and thereafter in each annual meeting.
Election of Directors by Shareholders of Certain Class:
If a corporation has issued different classes of shares, its Articles of Incorporation may authorize the election of all or a certain number of directors by the holders of a specified class of shares.
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