§ 7-103-106 — Ratification of defective corporate actions - definitions

Colorado § 7-103-106

• Jurisdiction: Colorado
• Title 07: Corporations
• Art.: Purposes and Powers

Text

(1) Defective corporate actions. (a) A defective corporate action is not void or voidable
if ratified in accordance with subsection (2) of this section or validated in
accordance with subsection (7) of this section.

(b) Ratification under subsection (2) of this section or validation under
subsection (7) of this section is not the exclusive means of ratifying or validating
any defective corporate action, and the absence or failure of ratification or
validation in accordance with this section does not, of itself, affect the validity or
effectiveness of any corporate action properly ratified under common law or
otherwise, nor does 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 overissue, putative shares are valid shares effective as
of the date originally issued or purportedly issued upon:

(I) The effectiveness under this section and under article 110 of this title 7 of
an amendment to the articles of incorporation authorizing, designating, or creating
the shares; or

(II) The effectiveness of any other corporate action under this section
ratifying the authorization, designation, or creation of the shares.

(2) Ratification of defective corporate actions. (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 (2)(b) of this section, the board of
directors must take action ratifying the action in accordance with subsection (3) of
this section, stating:

(I) 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;

(II) The date of the defective corporate action;

(III) The nature of the failure of authorization with respect to the defective
corporate action to be ratified; and

(IV) That the board of directors approves the ratification of the defective
corporate action.

(b) If a defective corporate action to be ratified relates to the election of the
initial board of directors under section 7-102-105 (1)(a), a majority of the persons
who, at the time of the ratification, are exercising the powers of directors may take
an action stating:

(I) The name of the person or persons who first took action in the name of the
corporation as the initial board of directors;

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

(III) That the ratification of the election of the person or persons as the initial
board of directors is approved.

(c) If any provision of articles 101 to 117 of this title 7, the articles of
incorporation or bylaws, or a corporate resolution or any plan or agreement to
which the corporation is a party in effect at the time action under subsection (2)(a)
of this section 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 the defective corporate action approved in the action
taken by the board of directors under subsection (2)(a) of this section must be
submitted to the shareholders for approval in accordance with subsection (3) of this
section.

(d) Unless otherwise provided in the action taken by the board of directors
under subsection (2)(a) of this section, 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.

(3) Action on ratification. (a) The quorum and voting requirements
applicable to a ratifying action by the board of directors under subsection (2) of this
section are 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 (2)(c) of this section 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. The notice must state that the purpose, or one of the purposes, of the
meeting is to consider ratification of a defective corporate action and must be
accompanied by:

(I) Either a copy of the written action taken by the board of directors in
accordance with subsection (2)(a) of this section or the information required by
subsections (2)(a)(I) to (2)(a)(IV) of this section; and

(II) A statement that any claim that the ratification of the defective corporate
action and any putative shares issued as a result of the defective corporate action
should not be effective, or should be effective only on certain conditions, must be
brought within one hundred twenty days after the applicable validation effective
time.

(c) Except as provided in subsection (3)(d) of this section 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
(2)(c) of this section are the quorum and voting requirements applicable to the
corporate action proposed to be ratified at the time of the shareholder approval, not
the requirements for shareholder approval existing at the time that the defective
corporate action requiring the ratification was originally taken.

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

(e) Holders of putative shares on the record date for determining the
shareholders entitled to vote on any matter submitted to shareholders under
subsection (2)(c) of this section, and without giving effect to any ratification of
putative shares that becomes effective as a result of such vote, are not entitled to
vote and shall not be 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
overissue, in addition to the approval required by subsection (2) of this section,
approval of an amendment to the articles of incorporation under article 110 of this
title 7 to increase the number of shares of an authorized class or series or to
authorize the creation of a class or series of shares as necessary to preclude an
overissue is also required.

(4) Notice requirements. (a) (I) Except as set forth in subsection (4)(a)(II) of
this section and unless shareholder approval is required under subsection (2)(c) of
this section, prompt notice of an action taken under subsection (2) of this section
shall be given to each holder of valid and putative shares, regardless of whether
entitled to vote, as of:

(A) The date of the action by the board of directors; and

(B) The date of the defective corporate action ratified.

(II) Notice is not 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 must contain:

(I) Either a copy of the written action taken by the board of directors in
accordance with subsection (2)(a) or (2)(b) of this section or the information
required by subsections (2)(a)(I) to (2)(a)(IV) or (2)(b)(I) to (2)(b)(III) of this section, 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 the defective corporate action
should not be effective, or should be effective only on certain conditions, must be
brought within one hundred twenty days after the applicable validation effective
time.

(c) Notice under this section is not required with respect to any action
required to be submitted to shareholders for approval under subsection (2)(c) of
this section if notice is given in accordance with subsection (4)(b) of this section.

(d) A notice required by this section may be given in any manner permitted
by section 7-90-105 and, for any corporation subject to the reporting requirements
of section 13 or 15 (d) of the federal Securities Exchange Act of 1934, as
amended, 15 U.S.C. sec. 78m and 15 U.S.C. sec. 78m (d), may be given by means of a
filing or furnishing of the notice with the United States securities and exchange
commission.

(e) The failure to give the notice does not invalidate the ratification of the
defective corporate action.

(5) Effect of ratification. From and after the validation effective time, and
without regard to the one-hundred-twenty-day period during which a claim may be
brought under subsection (7) of this section:

(a) Each defective corporate action ratified in accordance with subsection (2)
of this section is not void or voidable as a result of the failure of authorization
identified in the action taken under subsection (2)(a) or (2)(b) of this section and
shall be deemed a valid corporate action effective as of the date of the defective
corporate action;

(b) 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 subsection (2) of this section is not 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

(c) Any corporate action taken after the defective corporate action ratified in
accordance with this section in reliance on the defective corporate action having
been validly effected and any subsequent defective corporate action resulting
directly or indirectly from the original defective corporate action is valid as of the
time taken.

(6) Filings. (a) If the defective corporate action ratified under this section
would have required under any other section of articles 101 to 117 of this title 7 a
filing in accordance with articles 101 to 117 of this title 7, then, regardless of
whether a filing was previously made with respect to the defective corporate action
and in lieu of a filing otherwise required by articles 101 to 117 of this title 7, the
corporation shall file articles of amendment in accordance with this section, and the
articles of amendment amend or substitute for any other filing with respect to the
defective corporate action required by articles 101 to 117 of this title 7.

(b) The articles of amendment must set forth in an attachment to the
articles:

(I) The defective corporate action that is the subject of the articles of
amendment 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 the putative shares were purported to have been issued;

(II) The date of the defective corporate action;

(III) The nature of the failure of authorization with respect to the defective
corporate action;

(IV) A statement that the defective corporate action was ratified in
accordance with subsection (2) of this section, including the date on which the
board of directors ratified the defective corporate action and the date, if any, on
which the shareholders approved the ratification of the defective corporate action;
and

(V) The information required by subsection (6)(c) of this section.

(c) The articles of amendment must also contain the following information in
an attachment to the articles:

(I) If a filing was previously made with respect to the defective corporate
action and no changes to the filing are required to give effect to the ratification of
the defective corporate action in accordance with subsection (2) of this section, the
articles of amendment must set forth:

(A) The name, title, and filing date of the filing previously made and any
articles of correction to that filing; and

(B) A statement that a copy of the filing previously made, together with any
articles of correction to that filing, is attached as an exhibit to the articles of
amendment;

(II) If a filing was previously made with respect to the defective corporate
action and the filing requires any change to give effect to the ratification of the
defective corporate action in accordance with this subsection (6)(c), the articles of
amendment must set forth:

(A) The name, title, document number, and filing date of the filing previously
made and any articles of correction to that filing;

(B) A statement that a filing containing all of the information required to be
included under the applicable section or sections of articles 101 to 117 of this title 7
to give effect to the defective corporate action is attached as an exhibit to the
articles of amendment; and

(C) The date and time that the filing is deemed to have become effective; or

(III) If a filing was not previously made with respect to the defective
corporate action and the defective corporate action ratified under subsection (2) of
this section would have required a filing under any other section of articles 101 to
117 of this title 7, the articles of amendment must set forth:

(A) A statement that a filing containing all of the information required to be
included under the applicable section or sections of articles 101 to 117 of this title 7
to give effect to the defective corporate action is attached as an exhibit to the
articles of amendment; and

(B) The date and time that the filing is deemed to have become effective.

(7) Judicial proceedings regarding validity of corporate actions. (a) Upon
application by the corporation, any successor entity to the corporation, a director of
the corporation, any beneficial owner of the corporation, including any such
beneficial owner as of the date of the defective corporate action ratified under
subsection (2) of this section, or any other person claiming to be substantially and
adversely affected by a ratification under subsection (2) of this section, the court
authorized to act under section 7-107-103 may:

(I) Determine the validity and effectiveness of any corporate action or
defective corporate action;

(II) Determine the validity and effectiveness of any ratification under
subsection (2) of this section;

(III) Determine the validity of any putative shares; and

(IV) Modify or waive any of the procedures specified in subsection (2) or (3)
of this section to ratify a defective corporate action.

(b) In connection with an action under this section, the court 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 (7)(a) of this
section on the corporation may be made in any manner provided by statute of this
state or by rule of the applicable court for service on the corporation, and no other
party need be joined in order for the court to adjudicate the matter. In an action
filed by the corporation, the court may require notice of the action be provided to
other persons specified by the court 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 a defective corporate
action and any putative shares issued as a result of the defective corporate action
should not be effective, or should be effective only on certain conditions, must be
brought within one hundred twenty days after the validation effective time.

(8) Definitions. As used in this section:

(a) 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 of the board of directors, an officer or agent of the corporation, or the
shareholders.

(b) Date of the defective corporate action means the date, or the
approximate date if the exact date is unknown, on which the defective corporate
action was purported to have been taken.

(c) Defective corporate action means:

(I) Any corporate action purportedly taken that is, and at the time the
corporate action was purportedly taken would have been, within the power of the
corporation, without regard to the failure of authorization identified in subsection
(2)(a) of this section, but is void or voidable due to a failure of authorization; and

(II) An overissue.

(d) Failure of authorization means the failure to authorize, approve, or
otherwise effect a corporate action in compliance with any of the following, if and
to the extent the failure would render the corporate action void or voidable:

(I) Articles 101 to 117 of this title 7;

(II) The articles of incorporation or bylaws;

(III) A corporate resolution or any plan or agreement to which the corporation
is a party; or

(IV) The disclosure set forth in any proxy or consent solicitation statement.

(e) Overissue means the purported issuance of:

(I) Shares of a class or series in excess of the number of shares of a class or
series the corporation has the power to issue under section 7-106-101 at the time of
the issuance; or

(II) Shares of any class or series that are not then authorized for issuance by
the articles of incorporation.

(f) Putative shares means the shares of any class or series, including
shares issued upon the exercise of rights, options, warrants, or other securities
convertible into shares of the corporation, or interests with respect to the 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.

(g) (I) Validation effective time, with respect to any defective corporate
action ratified under this section, means the later of:

(A) 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 subsection (4) of this section takes effect in
accordance with section 7-90-105; and

(B) The time at which any articles of amendment filed in accordance with
subsection (6) of this section become effective.

(II) The validation effective time is not affected by the filing or pendency of a
judicial proceeding under subsection (7) of this section or otherwise, unless
otherwise ordered by the court.

(h) Valid shares means the shares of any class or series that have been
duly authorized and validly issued in accordance with articles 101 to 117 of this title
7, including as a result of ratification or validation under this section.

Legislative History

Source: L. 2020: Entire section added, (HB 20-1013), ch. 39, p. 126, � 1, effective September 14. L. 2021: (4)(d) and (8)(g)(I)(A) amended, (HB 21-1124), ch. 41, p. 164, � 8, effective April 19. L. 2022: (4)(a) amended, (HB 22-1250), ch. 80, p. 398, � 9, effective August 10.