Full Text of SB1872 102nd General Assembly
SB1872eng 102ND GENERAL ASSEMBLY |
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| 1 | | AN ACT concerning business.
| 2 | | Be it enacted by the People of the State of Illinois,
| 3 | | represented in the General Assembly:
| 4 | | Section 5. The Business Corporation Act of 1983 is amended | 5 | | by adding Article 1A as follows: | 6 | | (805 ILCS 5/Art. 1A heading new) | 7 | | ARTICLE 1A. RATIFICATION AND VALIDATION | 8 | | OF DEFECTIVE CORPORATE ACTIONS | 9 | | (805 ILCS 5/1A.05 new) | 10 | | Sec. 1A.05. Definitions. In this Article: | 11 | | "Board" means the board of directors. | 12 | | "Corporate action" means any action taken by: | 13 | | (1) or on behalf of a corporation; | 14 | | (2) the incorporators; | 15 | | (3) the board; | 16 | | (4) a committee of the board; | 17 | | (5) an officer or agent of the corporation; or | 18 | | (6) the shareholders. | 19 | | "Date of the defective corporate action" means the date | 20 | | (or the approximate date, if the exact date is unknown) the | 21 | | potentially defective corporate action was purported to have | 22 | | been taken. |
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| 1 | | "Defective corporate action" means: | 2 | | (1) any corporate action taken or purportedly taken | 3 | | that is, and at the time such corporate action was taken or | 4 | | purportedly taken would have been, within the power of the | 5 | | corporation without regard to the failure of authorization | 6 | | identified in item (3) of subsection (a) of Section 1A.15, | 7 | | but with respect to which proper documentation is not | 8 | | presently available, or that is or may be shown to have | 9 | | been void or voidable due to a failure or possible failure | 10 | | of authorization or of the documentation thereof; or | 11 | | (2) an overissue. | 12 | | "Failure of authorization" means the failure to authorize, | 13 | | approve, or otherwise effect a corporate action in compliance | 14 | | with this Act, the articles of incorporation or by-laws, a | 15 | | corporate resolution or any plan or agreement to which the | 16 | | corporation is a party, or the disclosure set forth in any | 17 | | proxy or consent solicitation statement, if and to the extent | 18 | | such failure would render such corporate action void or | 19 | | voidable. | 20 | | "Overissue" means the purported issuance of: | 21 | | (1) shares of a class or series in excess of the number | 22 | | of shares of a class or series the corporation has the | 23 | | power to issue under Section 6.05 at the time of such | 24 | | issuance; or | 25 | | (2) shares of any class or series that is not then | 26 | | authorized for issuance by the articles of incorporation. |
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| 1 | | "Putative shares" means the shares of any class or series | 2 | | (including shares issued upon exercise of rights, options, | 3 | | warrants, or other securities convertible into shares of the | 4 | | corporation, or interests with respect to such shares) that | 5 | | were created or issued as a result of a defective corporate | 6 | | action that: | 7 | | (1) but for any failure of authorization would | 8 | | constitute valid shares; or | 9 | | (2) cannot be determined by the board to be valid | 10 | | shares. | 11 | | "Valid shares" means the shares of any class or series | 12 | | that have been duly authorized and validly issued in | 13 | | accordance with this Act, including as a result of | 14 | | ratification or validation under this Article. | 15 | | "Validation effective time" with respect to any defective | 16 | | corporate action ratified or validated under this Article | 17 | | means the latest of: | 18 | | (1) the time at which the ratification of the | 19 | | defective corporate action is approved by the shareholders | 20 | | or, if approval of shareholders is not required, the time | 21 | | at which the notice required by Section 1A.25 becomes | 22 | | effective; | 23 | | (2) the time at which any articles of validation filed | 24 | | in accordance with Section 1A.35 become effective; and | 25 | | (3) if the corporation or any successor entity to the | 26 | | corporation brings an application for validation under |
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| 1 | | subsection (a) of Section 1A.40, the time at which the | 2 | | circuit court determines such validity or at such other | 3 | | time as the circuit court may determine in accordance with | 4 | | subsection (b) of Section 1A.40. | 5 | | The validation effective time shall not be affected by the | 6 | | filing or pendency of a judicial proceeding under Section | 7 | | 1A.40 or otherwise unless the corporation or any successor | 8 | | entity to the corporation initiates the application for | 9 | | validation under subsection (a) of Section 1A.40 or unless | 10 | | otherwise ordered by the circuit court. | 11 | | (805 ILCS 5/1A.10 new) | 12 | | Sec. 1A.10. Defective corporate actions. | 13 | | (a) A defective corporate action shall not be void or | 14 | | voidable if ratified in accordance with Section 1A.15 or | 15 | | validated in accordance with Section 1A.40. | 16 | | (b) Ratification under Section 1A.15 or validation under | 17 | | Section 1A.40 shall not be deemed to be the exclusive means of | 18 | | ratifying or validating any defective corporate action and the | 19 | | absence or failure of ratification or validation in accordance | 20 | | with this Article shall not, of itself, affect the validity or | 21 | | effectiveness of any corporate action that was or may be shown | 22 | | to have been properly taken or ratified under common law or | 23 | | otherwise, nor shall it create a presumption that any such | 24 | | corporate action is or was a defective corporate action or | 25 | | void or voidable. |
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| 1 | | (c) In the case of an overissue, putative shares shall be | 2 | | valid shares effective as of the date originally issued or | 3 | | purportedly issued upon: | 4 | | (1) the effectiveness under this Article 1A and under | 5 | | Article 10 of an amendment to the articles of | 6 | | incorporation authorizing, designating or creating such | 7 | | shares; or | 8 | | (2) the effectiveness of any other corporate action | 9 | | under this Article 1A ratifying or validating the | 10 | | authorization, designation or creation of such shares. | 11 | | (805 ILCS 5/1A.15 new) | 12 | | Sec. 1A.15. Ratification of defective corporate actions. | 13 | | (a) To ratify a defective corporate action under this | 14 | | Section (other than the ratification of an election or | 15 | | designation of the initial directors under subsection (b)), | 16 | | the board shall take action ratifying the action in accordance | 17 | | with Section 1A.20, stating: | 18 | | (1) the defective corporate action to be ratified and, | 19 | | if the defective corporate action involved the issuance of | 20 | | putative shares, the number and type of putative shares | 21 | | purportedly issued; | 22 | | (2) the date of the defective corporate action; | 23 | | (3) the nature of the failure of authorization with | 24 | | respect to the defective corporate action to be ratified, | 25 | | and |
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| 1 | | (4) that the board approves the ratification of the | 2 | | defective corporate action. | 3 | | (b) If a defective corporate action to be ratified relates | 4 | | to the election or designation of the initial directors of the | 5 | | corporation, regardless of whether the initial directors are | 6 | | set forth in the articles of incorporation pursuant to item | 7 | | (1) of subsection (b) of Section 2.10, a majority of the | 8 | | persons who, at the time of the ratification, are exercising | 9 | | the powers of directors may take an action stating: | 10 | | (1) the name of the person or persons who first took | 11 | | action in the name of the corporation as the initial | 12 | | directors of the corporation; | 13 | | (2) the earlier of the date on which such person or | 14 | | persons first took such action or were purported to have | 15 | | been elected or designated as the initial directors; and | 16 | | (3) that the ratification of the election or | 17 | | designation of such person or persons as the initial | 18 | | directors is approved. | 19 | | (c) If: | 20 | | (1) any provision of this Act, the articles of | 21 | | incorporation or by-laws, any corporate resolution or any | 22 | | plan or agreement to which the corporation is a party in | 23 | | effect at the time action under subsection (a) is taken | 24 | | requires shareholder approval or would have required | 25 | | shareholder approval at the date of the occurrence of the | 26 | | defective corporate action or |
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| 1 | | (2) the action under subsection (a) is to ratify a | 2 | | defective corporate action due to a failure to comply with | 3 | | either or both of Sections 7.85 and 11.75, | 4 | | then
the ratification of the defective corporate action | 5 | | approved in the action taken by the board under subsection (a) | 6 | | shall be submitted to the shareholders for approval unless, as | 7 | | of the record date for determining the shareholders entitled | 8 | | to vote on the ratification of such defective corporate | 9 | | action, there are no valid shares outstanding and entitled to | 10 | | vote thereon, regardless of whether there then exist any | 11 | | putative shares. | 12 | | (d) Unless otherwise provided in the action taken by the | 13 | | board under subsection (a), after the action by the board has | 14 | | been taken and, if required, approved by the shareholders, the | 15 | | board may abandon the ratification at any time before the | 16 | | validation effective time without further action of the | 17 | | shareholders. | 18 | | (805 ILCS 5/1A.20 new) | 19 | | Sec. 1A.20. Action on ratification. | 20 | | (a) The quorum and voting requirements applicable to a | 21 | | ratifying action by the board under subsection (a) of Section | 22 | | 1A.15 shall be the quorum and voting requirements applicable | 23 | | to the corporate action proposed to be ratified at the time | 24 | | such ratifying action is taken; provided, however, that if the | 25 | | articles of incorporation or by-laws of the corporation, any |
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| 1 | | plan or agreement to which the corporation was a party, or any | 2 | | provision of this Act, in each case as in effect as of the time | 3 | | of the defective corporate action, would have required a | 4 | | larger number or portion of directors or of specified | 5 | | directors for a quorum to be present or to approve the | 6 | | defective corporate action, such larger number or portion of | 7 | | such directors or such specified directors shall be required | 8 | | for a quorum to be present or to adopt the resolutions to | 9 | | ratify the defective corporate action, as applicable, except | 10 | | that the presence or approval of any director elected, | 11 | | appointed, or nominated by holders of any class or series of | 12 | | which no shares are then outstanding, or by any person who is | 13 | | no longer a shareholder, shall not be required. | 14 | | (b) If the ratification of the defective corporate action | 15 | | requires approval by the shareholders under subsection (c) of | 16 | | Section 1A.15, and if the approval is to be given at a meeting, | 17 | | the corporation shall notify each holder of valid and putative | 18 | | shares, regardless of whether entitled to vote as of: | 19 | | (1) the record date for notice of the meeting and | 20 | | (2) the date of the occurrence of the defective | 21 | | corporate action (or, in the case of any defective | 22 | | corporate action that involved the establishment of a | 23 | | record date for notice of or voting at any meeting of | 24 | | shareholders, for informal action by shareholders in lieu | 25 | | of a meeting, or for any other purpose, the record date for | 26 | | notice of or voting at such meeting, the record date for |
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| 1 | | informal action by written consent, or the record date for | 2 | | such other action, as the case may be), | 3 | | provided that in each case notice shall not be required to be | 4 | | given to holders of valid or putative shares whose identities | 5 | | or addresses for notice cannot be determined from the records | 6 | | of the corporation. The notice must state that the purpose, or | 7 | | one of the purposes, of the meeting, is to consider | 8 | | ratification of a defective corporate action and must be | 9 | | accompanied by: | 10 | | (A) either a copy of the action taken by the board in | 11 | | accordance with subsection (a) of Section 1A.15 or the | 12 | | information required by items (1) through (4) of | 13 | | subsection (a) of Section 1A.15 and | 14 | | (B) a statement that any claim that the ratification | 15 | | of such defective corporate action and any putative shares | 16 | | issued as a result of such defective corporate action | 17 | | should not be effective, or should be effective only on | 18 | | certain conditions, shall be brought within 120 days from | 19 | | the applicable validation effective time. | 20 | | (c) The quorum and voting requirements applicable to the | 21 | | approval by the shareholders required by subsection (c) of | 22 | | Section 1A.15 shall be the quorum and voting requirements | 23 | | applicable to the corporate action proposed to be ratified at | 24 | | the time of such shareholder approval; provided, however, | 25 | | that: | 26 | | (1) If the articles of incorporation or by-laws of the |
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| 1 | | corporation, any plan or agreement to which the | 2 | | corporation was a party, or any provision of this Act in | 3 | | effect as of the time of the defective corporate action | 4 | | would have required a larger number or portion of stock or | 5 | | of any class or series thereof or of specified | 6 | | shareholders for a quorum to be present or to approve the | 7 | | defective corporate action, the presence or approval of | 8 | | such larger number or portion of stock or of such class or | 9 | | series thereof or of such specified shareholders shall be | 10 | | required for a quorum to be present or to approve the | 11 | | ratification of the defective corporate action, as | 12 | | applicable, except that the presence or approval of shares | 13 | | of any class or series of which no shares are then | 14 | | outstanding, or of any person that is no longer a | 15 | | shareholder, shall not be required. | 16 | | (2) The approval by shareholders to ratify the | 17 | | election of a director requires the affirmative vote of | 18 | | the majority of the votes of the shares which are | 19 | | represented at a meeting at which a quorum is present and | 20 | | entitled to vote on the matter, except that if the | 21 | | articles of incorporation or by-laws of the corporation | 22 | | then in effect or in effect at the time of the defective | 23 | | election require or required a larger number or portion of | 24 | | stock or of any class or series thereof or of specified | 25 | | shareholders to elect such director, the affirmative vote | 26 | | of such larger number or portion of stock or of any class |
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| 1 | | or series thereof or of such specified shareholders shall | 2 | | be required to ratify the election of such director, | 3 | | except that the presence or approval of shares of any | 4 | | class or series of which no shares are then outstanding, | 5 | | or of any person that is no longer a shareholder, shall not | 6 | | be required. | 7 | | (3) In the event of a failure of authorization | 8 | | resulting from a failure to comply with the provisions of | 9 | | Section 7.85, the ratification of the defective corporate | 10 | | action shall require the vote of shareholders set forth in | 11 | | subsection B of Section 7.85, regardless of whether such | 12 | | vote would have otherwise been required. In the event of a | 13 | | failure of authorization resulting from a failure to | 14 | | comply with Section 11.75, the ratification of the | 15 | | defective corporate action shall require the vote of | 16 | | shareholders set forth in clause (3) of subsection (a) of | 17 | | Section 11.75, regardless of whether such vote would have | 18 | | otherwise been required. | 19 | | (d) Putative shares on the record date for determining the | 20 | | shareholders entitled to vote on any matter submitted to | 21 | | shareholders under subsection (c) of Section 1A.15 (and | 22 | | without giving effect to any ratification of putative shares | 23 | | that becomes effective as a result of such vote) shall neither | 24 | | be entitled to vote nor counted for quorum purposes in any vote | 25 | | to approve the ratification of any defective corporate action. | 26 | | (e) If the approval under this Section of putative shares |
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| 1 | | would result in an overissue, in addition to the approval | 2 | | required by Section 1A.15, approval of an amendment to the | 3 | | articles of incorporation under Article 10 to increase the | 4 | | number of shares of an authorized class or series or to | 5 | | authorize the creation of a class or series of shares so there | 6 | | would be no overissue shall also be required. | 7 | | (805 ILCS 5/1A.25 new) | 8 | | Sec. 1A.25. Notice requirements. | 9 | | (a) Unless (1) shareholder approval is required under | 10 | | subsection (c) of Section 1A.15 and (2) shareholder approval | 11 | | is to be given at a meeting of shareholders in accordance with | 12 | | subsection (b) of Section 1A.20, rather than by informal | 13 | | action of shareholders pursuant to Section 7.10, prompt notice | 14 | | of an action taken under Section 1A.15 shall be given to each | 15 | | holder of valid and putative shares, regardless of whether | 16 | | entitled to vote, as of: | 17 | | (A) the date of such action by the board; and | 18 | | (B) the date of the defective corporate action | 19 | | ratified (or, in the case of any defective corporate | 20 | | action that involved the establishment of a record date | 21 | | for notice of or voting at any meeting of shareholders, | 22 | | for informal action by shareholders in lieu of a meeting, | 23 | | or for any other purpose, the record date for notice of or | 24 | | voting at such meeting, the record date for informal | 25 | | action by written consent, or the record date for such |
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| 1 | | other action, as the case may be); | 2 | | provided that in each case notice shall not be required to be | 3 | | given to holders of valid and putative shares whose identities | 4 | | or addresses for notice cannot be determined from the records | 5 | | of the corporation. | 6 | | (b) The notice must contain: | 7 | | (1) either a copy of the action taken by the board in | 8 | | accordance with subsection (a) or (b) of Section 1A.15 or | 9 | | the information required by items (1) through (4) of | 10 | | subsection (a) or items (1) through (3) of subsection (b) | 11 | | of Section 1A.15, as applicable, and | 12 | | (2) a statement that any claim that the ratification | 13 | | of the defective corporate action and any putative shares | 14 | | issued as a result of such defective corporate action | 15 | | should not be effective, or should be effective only on | 16 | | certain conditions, shall be brought within 120 days from | 17 | | the applicable validation effective time. | 18 | | (c) No notice under this Section is required with respect | 19 | | to any action required to be submitted to shareholders for | 20 | | approval under subsection (c) of Section 1A.15 if notice is | 21 | | given in accordance with subsection (b) of Section 1A.20. | 22 | | (d) A notice required by this Section may be given in any | 23 | | manner permitted by the by-laws of the corporation or, if the | 24 | | by-laws are silent, this Act. In addition, for any corporation | 25 | | subject to the reporting requirements of Section 13 or Section | 26 | | 15(d) of the Securities Exchange Act of 1934, or the |
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| 1 | | corresponding provisions of any subsequent federal securities | 2 | | laws, rules, or regulations, a notice required by this Section | 3 | | or by subsection (b) of Section 1A.20 may be given by means of | 4 | | a filing or furnishing of such notice with the United States | 5 | | Securities and Exchange Commission. | 6 | | (805 ILCS 5/1A.30 new) | 7 | | Sec. 1A.30. Effect of ratification and validation. From | 8 | | and after the validation effective time, and without regard to | 9 | | the 120-day period during which a claim may be brought under | 10 | | Section 1A.40: | 11 | | (1) each defective corporate action ratified in | 12 | | accordance with Section 1A.15 shall not be void or | 13 | | voidable as a result of the failure of authorization | 14 | | identified in the action taken under subsection (a) or (b) | 15 | | of Section 1A.15 and shall be deemed a valid corporate | 16 | | action effective as of the date of the defective corporate | 17 | | action; | 18 | | (2) the issuance of each putative share or fraction of | 19 | | a putative share purportedly issued pursuant to a | 20 | | defective corporate action identified in the action taken | 21 | | under Section 1A.15 shall not be void or voidable and each | 22 | | such putative share or fraction of a putative share shall | 23 | | be deemed to be an identical share or fraction of a share | 24 | | that was duly authorized and validly issued as of the time | 25 | | it was purportedly issued; and |
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| 1 | | (3) any corporate action taken subsequent to and in | 2 | | direct or indirect reliance on any defective corporate | 3 | | action that is ratified or validated in accordance with | 4 | | this Article and all corporate actions, including any | 5 | | subsequent defective corporate action, resulting directly | 6 | | or indirectly therefrom shall be valid as of the time | 7 | | taken. | 8 | | (805 ILCS 5/1A.35 new) | 9 | | Sec. 1A.35. Filings. | 10 | | (a) If the defective corporate action ratified under this | 11 | | Article would have required under any other Section of this | 12 | | Act a filing in accordance with this Act, then, regardless of | 13 | | whether a filing was previously made in respect of such | 14 | | defective corporate action and in lieu of a filing otherwise | 15 | | required by this Act, the corporation shall file articles of | 16 | | validation in accordance with this Section, and such articles | 17 | | of validation shall serve to amend or substitute for any other | 18 | | filing with respect to such defective corporate action | 19 | | required by this Act. | 20 | | (b) The articles of validation must set forth: | 21 | | (1) the defective corporate action that is the subject | 22 | | of the articles of validation (including, in the case of | 23 | | any defective corporate action involving the issuance of | 24 | | putative shares, the number and type of putative shares | 25 | | issued and the date or dates upon which such putative |
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| 1 | | shares were purported to have been issued); | 2 | | (2) the date of the defective corporate action; | 3 | | (3) the nature of the failure of authorization in | 4 | | respect of the defective corporate action; | 5 | | (4) a statement that the defective corporate action | 6 | | was ratified in accordance with Section 1A.15, including | 7 | | the date on which the board ratified such defective | 8 | | corporate action and the date, if any, on which the | 9 | | shareholders approved the ratification of such defective | 10 | | corporate action; and | 11 | | (5) the information required by subsection (c). | 12 | | (c) The articles of validation must also contain the | 13 | | following information: | 14 | | (1) if a filing was previously made in respect of the | 15 | | defective corporate action and no changes to such filing | 16 | | are required to give effect to the ratification of such | 17 | | defective corporate action in accordance with Section | 18 | | 1A.15, the articles of validation must set forth (i) the | 19 | | name, title, and filing date of the filing previously made | 20 | | and any statement of correction to that filing and (ii) a | 21 | | statement that a copy of the filing previously made, | 22 | | together with any statement of correction to that filing, | 23 | | is attached as an exhibit to the articles of validation; | 24 | | (2) if a filing was previously made in respect of the | 25 | | defective corporate action and such filing requires any | 26 | | change to give effect to the ratification of such |
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| 1 | | defective corporate action in accordance with Section | 2 | | 1A.15, the articles of validation must set forth (i) the | 3 | | name, title and filing date of the filing previously made | 4 | | and any statement of correction to that filing, (ii) a | 5 | | statement that a filing containing all of the information | 6 | | required to be included under the applicable Section or | 7 | | Sections of this Act to give effect to such defective | 8 | | corporate action is attached as an exhibit to the articles | 9 | | of validation, and (iii) the date and time that such | 10 | | filing is deemed to have become effective; or | 11 | | (3) if a filing was not previously made in respect of | 12 | | the defective corporate action and the defective corporate | 13 | | action ratified under Section 1A.15 would have required a | 14 | | filing under any other Section of this Act, the articles | 15 | | of validation must set forth (i) a statement that a filing | 16 | | containing all of the information required to be included | 17 | | under the applicable Section or Sections of this Act to | 18 | | give effect to such defective corporate action is attached | 19 | | as an exhibit to the articles of validation, and (ii) the | 20 | | date and time that such filing is deemed to have become | 21 | | effective. | 22 | | (805 ILCS 5/1A.40 new) | 23 | | Sec. 1A.40. Judicial proceedings regarding validity of | 24 | | corporate actions. | 25 | | (a) Upon application to the circuit court of the county in |
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| 1 | | which either the registered office or principal office of the | 2 | | corporation is located by the corporation, any successor | 3 | | entity to the corporation, a director of the corporation, any | 4 | | shareholder, beneficial shareholder or unrestricted voting | 5 | | trust beneficial owner of the corporation, including any such | 6 | | shareholder, beneficial shareholder or unrestricted voting | 7 | | trust beneficial owner as of the date of the defective | 8 | | corporate action ratified under Section 1A.15, or any other | 9 | | person claiming to be substantially and adversely affected by | 10 | | a ratification under Section 1A.15, the circuit court may: | 11 | | (1) determine the validity and effectiveness of any | 12 | | corporate action or defective corporate action; | 13 | | (2) determine the validity and effectiveness of any | 14 | | ratification under Section 1A.15; | 15 | | (3) determine the validity of any putative shares; and | 16 | | (4) modify or waive any of the procedures specified in | 17 | | Section 1A.15 or Section 1A.20 to ratify a defective | 18 | | corporate action. | 19 | | (b) In connection with an action under this Section, the | 20 | | circuit court may make such findings or orders, and take into | 21 | | account any factors or considerations, regarding such matters | 22 | | as it deems proper under the circumstances. | 23 | | (c) Service of process of the application under subsection | 24 | | (a) on the corporation may be made in any manner provided by | 25 | | statute of this State or by rule of the applicable court for | 26 | | service on the corporation, and no other party need be joined |
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| 1 | | in order for the court to adjudicate the matter. In an action | 2 | | filed by the corporation, the court may require notice of the | 3 | | action be provided to other persons specified by the court and | 4 | | permit such other persons to intervene in the action. | 5 | | (d) Notwithstanding any other provision of this Section or | 6 | | otherwise under applicable law, any action asserting that the | 7 | | ratification of any defective corporate action, including any | 8 | | putative shares issued as a result of such defective corporate | 9 | | action, should not be effective, or should be effective only | 10 | | on certain conditions, shall be brought within 120 days of the | 11 | | validation effective time.
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