Virginia Law

Article 1.1. Ratification of Defective Corporate Actions.

As used in this article:

"Corporate action" means any action taken by or on behalf of the corporation, including any action taken by the incorporator, the board of directors, a committee, an officer or agent of the corporation, or the shareholders.

"Date of the defective corporate action" means the date, or the approximate date if the exact date is unknown, the defective corporate action was purported to have been taken.

"Defective corporate action" means (i) any corporate action purportedly taken that is, and at the time such corporate action was purportedly taken would have been, within the power of the corporation, but is void or voidable due to a failure of authorization, or (ii) an over-issuance of shares.

"Failure of authorization" means the failure to authorize, approve, or otherwise effect a corporate action in compliance with the provisions of this chapter, the articles of incorporation or bylaws, a corporate resolution, or any plan or agreement to which the corporation is a party, if and to the extent such failure would render such corporate action voidable.

"Over-issuance of shares" means the purported issuance of:

1. Shares of a class or series in excess of the number of shares of the class or series the corporation had the power to issue under § 13.1-638 at the time of such issuance; or

2. Shares of any class or series that was not then authorized for issuance by the articles of incorporation.

"Putative shares" means the shares of any class or series of the corporation, including shares issued upon exercise of rights, options, warrants, or other securities convertible into shares of the corporation, or interests with respect to such shares, that were created or issued as a result of a defective corporate action, that (i) but for any failure of authorization would constitute valid shares or (ii) cannot be determined by the board of directors to be valid shares.

"Valid shares" means the shares of any class or series of the corporation that have been duly authorized and validly issued in accordance with this chapter, including as a result of ratification or validation under this article.

"Validation effective time" with respect to any defective corporate action ratified under this article means the later of:

1. The time at which the ratification of the defective corporate action is approved by the shareholders or, if approval of shareholders is not required, the time at which the notice required by § 13.1-614.5 becomes effective in accordance with § 13.1-610; and

2. The time at which any document filed in accordance with § 13.1-614.7 becomes effective.

The validation effective time shall not be affected by the filing or pendency of a proceeding under § 13.1-614.8 or otherwise, unless ordered by the Commission.

2019, c. 734; 2020, c. 1226.

A. A defective corporate action shall not be void or voidable if ratified in accordance with § 13.1-614.3 or validated in accordance with § 13.1-614.8.

B. Ratification under § 13.1-614.3 or validation under § 13.1-614.8 shall not be deemed to be the exclusive means of ratifying or validating any defective corporate action, and the absence or failure of ratification in accordance with this article shall not, of itself, affect the validity or effectiveness of any corporate action properly ratified under this chapter, common law, or otherwise, nor shall it create a presumption that any such corporate action is or was a defective corporate action or void or voidable.

C. In the case of an over-issuance of shares, putative shares shall be valid shares effective as of the date originally issued or purportedly issued upon:

1. The effectiveness under this article and under Article 11 (§ 13.1-705 et seq.) of an amendment of the articles of incorporation authorizing, designating, or creating such shares; or

2. The effectiveness of any other corporate action under this article ratifying the authorization, designation, or creation of such shares.

2019, c. 734.

A. To ratify a defective corporate action under this section, other than the ratification of an election of the initial board of directors under subsection B, the board of directors shall adopt resolutions ratifying the action in accordance with § 13.1-614.4, stating:

1. The defective corporate action to be ratified and, if the defective corporate action involved the issuance of putative shares, the number and type of putative shares purportedly issued;

2. The date of the defective corporate action;

3. The nature of the failure of authorization with respect to the defective corporate action to be ratified; and

4. That the board of directors approves the ratification of the defective corporate action.

B. In the event that a defective corporate action to be ratified relates to the election of the initial board of directors of the corporation under subdivision A 2 of § 13.1-623, a majority of the persons who, at the time of the ratification, are exercising the powers of directors may take an action stating:

1. The name of the person or persons who first took action in the name of the corporation as the initial board of directors of the corporation;

2. The earlier of the date on which such persons first took such action or were purported to have been elected as the initial board of directors; and

3. That the ratification of the election of such person or persons as the initial board of directors is approved.

C. If any provision of this chapter, the articles of incorporation or bylaws, any corporate resolution or any plan or agreement to which the corporation is a party in effect at the time action under subsection A is taken requires shareholder approval or would have required shareholder approval at the date of the occurrence of the defective corporate action, the ratification of defective corporate action approved in the action taken by the directors under subsection A shall be submitted to the shareholders for approval in accordance with § 13.1-614.4.

D. Unless otherwise provided in the action taken by the board of directors under subsection A, after the action by the board of directors has been taken and, if required, approved by the shareholders, the board of directors may abandon the ratification at any time before the validation effective time without further action of the shareholders.

2019, c. 734.

A. The quorum and voting requirements applicable to a ratifying action by the board of directors under subsection A of § 13.1-614.3 shall be the quorum and voting requirements applicable to the corporate action proposed to be ratified at the time such ratifying action is taken.

B. If the ratification of the defective corporate action requires approval by the shareholders under subsection C of § 13.1-614.3, and if the approval is to be given at a meeting, the corporation shall notify each holder of valid and putative shares, regardless of whether entitled to vote, as of the record date for notice of the meeting and as of the date of the occurrence of defective corporate action, provided that notice shall not be required to be given to holders of valid or putative shares whose identities or addresses for notice cannot be determined from the records of the corporation. The notice shall state that the purpose, or one of the purposes, of the meeting, is to consider ratification of a defective corporate action and shall be accompanied by (i) either a copy of the action taken by the board of directors in accordance with subsection A of § 13.1-614.3 or the information required by subdivisions A 1 through A 4 of § 13.1-614.3 and (ii) a statement that any claim that the ratification of such defective corporate action and any putative shares issued as a result of such defective corporate action should not be effective, or should be effective only on certain conditions, shall be brought within 120 days from the applicable validation effective time.

C. Except as provided in subsection D with respect to the voting requirements to ratify the election of a director, the quorum and voting requirements applicable to the approval by the shareholders required by subsection C of § 13.1-614.3 shall be the quorum and voting requirements applicable to the corporate action proposed to be ratified at the time of such shareholder approval.

D. The approval by shareholders to ratify the election of a director requires that the votes cast within the voting group favoring such ratification exceed the votes cast opposing such ratification of the election at a meeting at which a quorum is present.

E. Putative shares on the record date for determining the shareholders entitled to vote on any matter submitted to shareholders under subsection C of § 13.1-614.3, and without giving effect to any ratification of putative shares that becomes effective as a result of such vote, shall neither be entitled to vote nor counted for quorum purposes in any vote to approve the ratification of any defective corporate action.

F. If the approval under this section of putative shares would result in an over-issuance of shares, in addition to the approval required by § 13.1-614.3, the corporation shall approve an amendment of the articles of incorporation under Article 11 (§ 13.1-705 et seq.) to increase the number of shares of an authorized class or series or to authorize the creation of a class or series of shares so there is no over-issuance of shares.

2019, c. 734.

A. Unless shareholder approval is required under subsection C of § 13.1-614.3, prompt notice of an action taken under § 13.1-614.3 shall be given to each holder of valid and putative shares, regardless of whether entitled to vote, as of (i) the date of such action by the board of directors and (ii) the date of the defective corporate action ratified, provided that notice shall not be required to be given to holders of valid and putative shares whose identities or addresses for notice cannot be determined from the records of the corporation.

B. The notice shall contain (i) either a copy of the action taken by the board of directors in accordance with subsection A or B of § 13.1-614.3 or the information required by subdivisions A 1 through 4 or B 1, 2, and 3 of § 13.1-614.3, as applicable, and (ii) a statement that any claim that the ratification of the defective corporate action and any putative shares issued as a result of such defective corporate action should not be effective, or should be effective only on certain conditions, shall be brought within 120 days from the applicable validation effective time.

C. No notice under this section is required with respect to any action required to be submitted to shareholders for approval under subsection C of § 13.1-614.3 if notice is given in accordance with § 13.1-614.4.

D. A notice required by this section may be given in any manner permitted by § 13.1-610 and for any public corporation may be given by means of a filing or furnishing of such notice with the U.S. Securities and Exchange Commission.

2019, c. 734.

From and after the validation effective time, and without regard to the 120-day period during which a claim may be brought under § 13.1-614.8:

1. Each defective corporate action ratified in accordance with § 13.1-614.3 shall not be void or voidable as a result of the failure of authorization identified in the action taken under subsection A or B of § 13.1-614.3 and shall be deemed a valid corporate action effective as of the date of the defective corporate action;

2. The issuance of each putative share or fraction of a putative share purportedly issued pursuant to a defective corporate action identified in the action taken under § 13.1-614.3 shall not be void or voidable, and each such putative share or fraction of a putative share shall be deemed to be an identical share or fraction of a valid share as of the time it was purportedly issued; and

3. Any corporate action taken subsequent to the defective corporate action ratified in accordance with this article in reliance on such defective corporate action having been validly effected and any subsequent defective corporate action resulting directly or indirectly from such original defective corporate action shall be valid as of the time taken.

2019, c. 734.

A. After a defective corporate action is ratified under this article for a document required by this chapter to be filed with the Commission, the corporation shall deliver to the Commission for filing:

1. If a filing with the Commission was previously made with respect to such defective corporate action and the Commission issued with respect thereto a certificate, the articles of ratification, which may serve to amend or substitute for the filing previously made; or

2. If no filing with the Commission was previously made with respect to such defective corporate action, the articles required by this chapter.

B. The document required by subsection A shall set forth:

1. The defective corporate action that is the subject of the document, including, in the case of any defective corporate action involving the issuance of putative shares, the number and type of putative shares issued and the date or dates upon which such putative shares were purported to have been issued;

2. The date of the defective corporate action;

3. The nature of the failure of authorization in respect of the defective corporate action;

4. A statement that the defective corporate action was ratified in accordance with § 13.1-614.3, including the date on which the board of directors ratified such defective corporate action and the date, if any, on which the shareholders approved the ratification of such defective corporate action; and

5. The information required by subsection C.

C. The document required by subsection A shall also contain the following information:

1. If a filing with the Commission was previously made in respect of the defective corporate action and no changes to such filing are required to give effect to the ratification of such defective corporate action in accordance with § 13.1-614.3, the filed document shall set forth (i) the name, title and filing date of the filing previously made and any articles of correction to that filing and (ii) a statement that a copy of the filing previously made, together with any articles of correction to that filing, is attached as an exhibit;

2. If a filing with the Commission was previously made in respect of the defective corporate action and such filing requires any change to give effect to the ratification of such defective corporate action in accordance with § 13.1-614.3, the document shall set forth (i) the name, title, and filing date of the filing previously made and any articles of correction to that filing, (ii) a statement that a filing containing all of the information required to be included under the applicable section or sections of this chapter to give effect to such defective corporate action is attached as an exhibit, and (iii) the date and time that the document is deemed to have become effective; or

3. If a filing with the Commission was not previously made in respect of the defective corporate action and the defective corporate action ratified under § 13.1-614.3 would have required a filing under any other section of this chapter, the document shall set forth (i) all of the information required to be included under the applicable section or sections of this chapter to give effect to such defective corporate action and (ii) the date and time that the document is deemed to have become effective.

D. If the Commission finds that the document required by subsection A complies with the requirements of law and that all required fees have been paid, it shall issue a certificate of ratification of defective corporate action or the certificate required by this chapter for the articles that were filed.

2019, c. 734; 2020, c. 1226.

A. Upon application by the corporation, any successor entity to the corporation, a director of the corporation, any shareholder, beneficial shareholder, or unrestricted voting trust beneficial owner of the corporation, including any such shareholder, beneficial shareholder, or unrestricted voting trust beneficial owner as of the date of the defective corporate action ratified under § 13.1-614.3, or any other person claiming to be substantially and adversely affected by a ratification under § 13.1-614.3, the Commission may:

1. Determine the validity and effectiveness of any corporate action or defective corporate action;

2. Determine the validity and effectiveness of any ratification under § 13.1-614.3;

3. Determine the validity of any putative shares; and

4. Modify or waive any of the procedures specified in § 13.1-614.3 or 13.1-614.4 to ratify a defective corporate action.

B. In connection with an action under this section, the Commission may make such findings or orders and take into account any factors or considerations regarding such matters as it deems proper under the circumstances.

C. Service of process of the application under subsection A on the corporation may be made in any manner provided by statutes of the Commonwealth or by rule of the Commission for service on the corporation, and no other party need be joined in order for the Commission to adjudicate the matter. In an action filed by the corporation, the Commission may require notice of the action be provided to other persons specified by the Commission and permit such other persons to intervene in the action.

D. Notwithstanding any other provision of this section or otherwise under applicable law, any action asserting that the ratification of any defective corporate action and any putative shares issued as a result of such defective corporate action should not be effective, or should be effective only on certain conditions, shall be brought in a petition filed within 120 days of the validation effective time.

2019, c. 734.