STATE OF OKLAHOMA

2nd Session of the 54th Legislature (2014)

HOUSE BILL 3377	By:	Shannon

AS INTRODUCED

An Act relating to business entities; creating the Oklahoma Religious-Based Entity Act; construing provisions; defining terms; describing naming of religious-based entities; providing for dual applicability with other business organization acts; clarifying individual compliance with each act; permitting formation for any purpose; listing requirements to organize as a religious-based entity; describing how entity ceases to be a religious-based entity; specifying voting procedures to resolve disputes, amend, merge or eliminate; directing managers to comply with the act; requiring managers give failure-to-qualify notice to owners; exempting entity and manager from certain duty; limiting personal liability of manager; permitting transfer if contrary to purpose; permitting derivative actions in certain cases; directing maintenance and updating of records; amending 18 O.S. 2011, Section 1091, which relates to appraisal rights; granting appraisal rights to entities organized pursuant to the act; providing for codification; and providing an effective date.

BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA:
SECTION 1.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1201 of Title 18, unless there is created a duplication in numbering, reads as follows:
This act shall be known and may be cited as the "Oklahoma Religious-Based Entity Act".
SECTION 2.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1202 of Title 18, unless there is created a duplication in numbering, reads as follows:
The Oklahoma Religious-Based Entity Act shall be construed to effectuate its general purposes to:
1.  Assure that adoption of an entity formed for the conduct of business for a profit does not curtail the right to the free exercise of assembly, association, speech or religion by the owners;
2.  Neither endorse nor establish any particular religion;
3.  Expressly provide for consideration of the religious-based purposes of a religious-based entity by the managers while they discharge their duties as managers; and
4.  Provide a specific framework for entities operated for profit to pursue religious-based purposes, separate from the ability to pursue these purposes under existing state law.
SECTION 3.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1203 of Title 18, unless there is created a duplication in numbering, reads as follows:
As used in the Oklahoma Religious-Based Entity Act:
1.  "Associated act" means the Oklahoma General Corporation Act, for a corporation formed under that act; the Oklahoma Revised Uniform Limited Partnership Act, for a limited partnership formed under or subject to that act; or the Oklahoma Limited Liability Company Act, for a limited liability company formed under that act;
2.  "Closely held" means the interests of the entity and the equity interests of any direct or indirect owner of the entity:
a.	are not traded on a national securities exchange or on the over-the-counter market, and
b.	are not required to be registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to Section 15(d) of the Securities Exchange Act of 1934;
3.  "Entity agreement" means bylaws of a corporation, a limited partnership agreement of a limited partnership, or an operating agreement of a limited liability company;
4.  "Formation instrument" means a certificate of incorporation of a corporation, a certificate of limited partnership of a limited partnership, or articles of organization of a limited liability company;
5.  "Interest" means a share of stock in a corporation, a partnership interest in a limited partnership or a membership interest in a limited liability company;
6.  "Manager" means a director or officer of a corporation; a general partner or any of its managers, directors or officers of a limited partnership; or a manager, director or officer of a limited liability company;
7.  "Owner" means a shareholder of a corporation, a general or limited partner of a limited partnership, or a member of a limited liability company;
8.  "Religious-based entity" means a domestic corporation, limited partnership or limited liability company (including but not limited to a professional entity, business development corporation, or farming or ranching business corporation) that satisfies the requirements set forth in Section 7 of this act; and
9.  "Religious-based purpose" means one or more purposes relating to the exercise of religion.  The term "exercise of religion" means religious exercise and includes any exercise of religion, whether or not compelled by, or central to, a system of religious belief.  The term "religion" includes all aspects of religious observance and practice, as well as belief.
SECTION 4.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1204 of Title 18, unless there is created a duplication in numbering, reads as follows:
The name of a religious-based entity shall end with one or more of the words or abbreviations permitted in the applicable associated acts; provided, that the words or abbreviations shall be modified and preceded by the words "Religious-Based" or the letters "R.B." or "RB" or some abbreviation of the combination, with or without punctuation.  If a religious-based entity is subject to a requirement, whether by another act, rule or regulation, requiring additional words or abbreviations to be reflected in its name then such requirements shall be considered in addition to the requirements of this section.
SECTION 5.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1205 of Title 18, unless there is created a duplication in numbering, reads as follows:
The applicable associated act shall apply to each religious-based entity, and each religious-based entity shall enjoy the powers and privileges and be subject to the duties, restrictions and obligations of other similarly situated business entities, except where inconsistent with the Oklahoma Religious-Based Entity Act.  A religious-based entity may be subject simultaneously to the Oklahoma Religious-Based Entity Act and one or more other acts, including but not limited to the applicable associated act or the Professional Entity Act.  Failure to satisfy the requirements of the Oklahoma Religious-Based Entity Act, at any time or from time to time, shall not affect an entity's rights, privileges, immunities, status or good standing under the applicable associated act.
SECTION 6.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1206 of Title 18, unless there is created a duplication in numbering, reads as follows:
A religious-based entity may be formed for any purpose permitted by the associated act.  If a religious-based entity is subject to a requirement, whether by another act, rule or regulation, requiring additional purposes to be stated in its formation instrument then those requirements shall be considered in addition to the requirements of the Oklahoma Religious-Based Entity Act.
SECTION 7.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1207 of Title 18, unless there is created a duplication in numbering, reads as follows:
A.  In order to be a religious-based entity, each of the following requirements shall be satisfied:
1.  The formation instrument states at least one religious-based purpose and each such purpose is expressly identified as a religious-based purpose;
2.  The entity is closely held;
3.  The entity is a domestic corporation other than a nonprofit corporation, a domestic limited partnership or a domestic limited liability company; and
4.  The formation instrument includes statements that:
a.	the entity elects to be subject to the Oklahoma Religious-Based Entity Act,
b.	upon filing the formation instrument, the entity will satisfy the requirements of this subsection, and
c.	the owners of eighty percent (80%) of the interests entitled to vote have approved the religious-based purpose stated in the formation instrument.
B.  Failure by an entity to comply with the requirements set forth in subsection A of this section shall result in the entity ceasing to be a religious-based entity immediately upon the failure, but shall not affect the rights, privileges, immunities, status or good standing of an entity under the applicable associated act or other state law.  Within a reasonable time after an entity ceases to be a religious-based entity, an entity shall amend its formation instrument to eliminate the statements required by subparagraphs a and b of paragraph 4 of subsection A of this section.  In order to again qualify as a religious-based entity after ceasing to qualify, an entity shall satisfy the requirements of subsection A of this section.
C.  Unless otherwise provided in the entity agreement, any disagreement concerning a religious-based purpose shall be determined by the owners of more than fifty percent (50%) of the interests entitled to vote.
SECTION 8.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1208 of Title 18, unless there is created a duplication in numbering, reads as follows:
A.  Notwithstanding any other provisions of the applicable associated act, formation instrument or entity agreement, a domestic corporation (other than a nonprofit corporation), limited partnership or limited liability company that is not a religious-based entity shall not, without the approval of the owners of at least eighty percent (80%) of the interests entitled to vote:
1.  Amend its formation instrument, in accordance with the provisions of the applicable associated act or other laws, to include a statement that the entity is subject to the Oklahoma Religious-Based Entity Act; or
2.  Merge with or into, convert to, consolidate with or agree to any share exchange with another entity if, as a result of the merger, conversion, consolidation or share exchange, the interests in the entity would become, or be converted into or exchanged for the right to receive, interests in a religious-based entity.
B.  Notwithstanding any other provisions of the applicable associated act, formation instrument or entity agreement, and except as required by subsection B of Section 7 of the Oklahoma Religious-Based Entity Act, a religious-based entity shall not, without the approval of the owners of at least eighty percent (80%) of the interests entitled to vote:
1.  Amend or eliminate, in accordance with the provisions of the applicable associated act or other laws, the statements in its formation instrument that are required by subsection A of Section 7 of the Oklahoma Religious-Based Entity Act; or
2.  Merge with or into, convert to, consolidate with or agree to any share exchange with any entity that is not a religious-based entity unless the surviving entity is a religious-based entity.
SECTION 9.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1209 of Title 18, unless there is created a duplication in numbering, reads as follows:
A.  Subject to subsection C of this section, in discharging the duties imposed under the associated act, the formation instrument or the entity agreement:
1.  Each manager shall take into account the religious-based purpose of the entity, as well as other purposes for which the entity may be formed pursuant to the associated act; and
2.  Each manager shall take reasonable steps to cause the religious-based entity to comply with the requirements of Section 7 of the Oklahoma Religious-Based Entity Act.
Consideration and pursuit by any manager of the religious-based purpose of the entity, even if inconsistent with any other stated purposes of the entity or detrimental to the maximization of monetary profits by the entity, shall not constitute a violation of any duty otherwise owed by the manager under applicable law.  Within a reasonable time after a religious-based entity ceases to qualify as a religious-based entity, the managers shall notify all owners of the failure to qualify.
B.  No religious-based entity and no manager or owner of a religious-based entity shall have any duty to a person:
1.  On account of any interest of the person in any public benefit that may be created or enhanced in connection with the religious-based purpose; or
2.  On account of any interest materially affected by the conduct of the religious-based entity in the person's capacity as a beneficiary or potential beneficiary of the religious-based purpose.
C.  Unless otherwise provided in the entity agreement, no manager shall be personally liable for monetary damages for failure of the religious-based entity to pursue its religious-based purpose or any act or omission in the course of performing the duties under subsection A of this section, except to the extent such act or omission constitutes:
1.  A breach of the manager's duty of loyalty;
2.  An act or omission not in good faith or which involves intentional misconduct or a knowing violation of law; or
3.  A transaction from which the manager derived an improper personal benefit.
SECTION 10.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1210 of Title 18, unless there is created a duplication in numbering, reads as follows:
No act of a religious-based entity and no conveyance or transfer of real or personal property to or by a religious-based entity shall be invalid by reason of the fact that the act or conveyance or transfer by the religious-based entity was contrary to any religious-based purpose of the entity.
SECTION 11.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1211 of Title 18, unless there is created a duplication in numbering, reads as follows:
Notwithstanding any other provisions of the applicable associated act, and subject to compliance with subsection C of Section 7 of the Oklahoma Religious-Based Entity Act, a derivative action on behalf of a religious-based entity that attempts to enforce, or that challenges or alleges noncompliance with, a religious-based purpose of the entity may be commenced or maintained only by the owners of at least five percent (5%) of the interests entitled to vote at the time of the challenged act or omission.
SECTION 12.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 1212 of Title 18, unless there is created a duplication in numbering, reads as follows:
Unless otherwise provided in the entity agreement, the records of a religious-based entity shall include reasonably detailed information regarding the religious-based entity's pursuit of its religious-based purpose, updated on an annual basis.  Failure of a religious-based entity to maintain the records required by this section shall not be grounds for imposing liability on any person for the debts and obligations of the entity.
SECTION 13.     AMENDATORY     18 O.S. 2011, Section 1091, is amended to read as follows:
Section 1091.
APPRAISAL RIGHTS
A.  Any shareholder of a corporation of this state who holds shares of stock on the date of the making of a demand pursuant to the provisions of subsection D of this section with respect to the shares, who continuously holds the shares through the effective date of the merger or consolidation, who has otherwise complied with the provisions of subsection D of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to the provisions of Section 1073 of this title shall be entitled to an appraisal by the district court of the fair value of the shares of stock under the circumstances described in subsections B and C of this section.  As used in this section, the word "shareholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and "depository receipt" means an instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.  The provisions of this subsection shall be effective only with respect to mergers or consolidations consummated pursuant to an agreement of merger or consolidation entered into after November 1, 1988.
B.  1.  Except as otherwise provided for in this subsection, appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation, or of the acquired corporation in a share acquisition, to be effected pursuant to the provisions of Section 1081, other than a merger effected pursuant to subsection G of Section 1081, and Section 1082, 1086, 1087, 1090.1 or 1090.2 of this title.
2.	a.	No appraisal rights under this section shall be available for the shares of any class or series of stock which stock, or depository receipts in respect thereof, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting of shareholders to act upon the agreement of merger or consolidation, were either:
(1)	listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.;, or
(2)	held of record by more than two thousand holders.
No appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the shareholders of the surviving corporation as provided in subsection G of Section 1081 of this title.
b.	In addition, no appraisal rights shall be available for any shares of stock, or depository receipts in respect thereof, of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the shareholders of the surviving corporation as provided for in subsection F of Section 1081 of this title.
3.  Notwithstanding the provisions of paragraph 2 of this subsection, appraisal rights provided for in this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to the provisions of Section 1081, 1082, 1086, 1087, 1090.1 or 1090.2 of this title to accept for the stock anything except:
a.	shares of stock of the corporation surviving or resulting from the merger or consolidation or depository receipts thereof, or
b.	shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than two thousand holders, or
c.	cash in lieu of fractional shares or fractional depository receipts described in subparagraphs a and b of this paragraph, or
d.	any combination of the shares of stock, depository receipts, and cash in lieu of the fractional shares or depository receipts described in subparagraphs a, b, and c of this paragraph.
4.  In the event all of the stock of a subsidiary Oklahoma corporation party to a merger effected pursuant to the provisions of Section 1083 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Oklahoma corporation.
5.  Appraisal rights shall be available for the shares of any class or series of stock of a corporation in any amendment, conversion, merger, consolidation or share exchange described in Section 8 of this act.  The procedures set forth in subsections D and E of this section shall apply as nearly as practicable.
C.  Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation.  If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections D and E of this section, shall apply as nearly as is practicable.
D.  Appraisal rights shall be perfected as follows:
1.  If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of shareholders, the corporation, not less than twenty (20) days prior to the meeting, shall notify each of its shareholders entitled to appraisal rights that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in the notice a copy of this section.  Each shareholder electing to demand the appraisal of the shares of the shareholder shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of the shares of the shareholder.  The demand will be sufficient if it reasonably informs the corporation of the identity of the shareholder and that the shareholder intends thereby to demand the appraisal of the shares of the shareholder.  A proxy or vote against the merger or consolidation shall not constitute such a demand.  A shareholder electing to take such action must do so by a separate written demand as herein provided.  Within ten (10) days after the effective date of the merger or consolidation, the surviving or resulting corporation shall notify each shareholder of each constituent corporation who has complied with the provisions of this subsection and has not voted in favor of or consented to the merger or consolidation as of the date that the merger or consolidation has become effective; or
2.  If the merger or consolidation is approved pursuant to the provisions of Section 1073 or 1083 of this title, either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within ten (10) days thereafter shall notify each of the holders of any class or series of stock of the constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of the constituent corporation, and shall include in the notice a copy of this section.  The notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify the shareholders of the effective date of the merger or consolidation.  Any shareholder entitled to appraisal rights may, within twenty (20) days after the date of mailing of the notice, demand in writing from the surviving or resulting corporation the appraisal of the holder's shares.  The demand will be sufficient if it reasonably informs the corporation of the identity of the shareholder and that the shareholder intends to demand the appraisal of the holder's shares.  If the notice does not notify shareholders of the effective date of the merger or consolidation either:
a.	each constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of the constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation, or
b.	the surviving or resulting corporation shall send a second notice to all holders on or within ten (10) days after the effective date of the merger or consolidation; provided, however, that if the second notice is sent more than twenty (20) days following the mailing of the first notice, the second notice need only be sent to each shareholder who is entitled to appraisal rights and who has demanded appraisal of the holder's shares in accordance with this subsection.  An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.  For purposes of determining the shareholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than ten (10) days prior to the date the notice is given; provided, if the notice is given on or after the effective date of the merger or consolidation, the record date shall be the effective date.  If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.
E.  Within one hundred twenty (120) days after the effective date of the merger or consolidation, the surviving or resulting corporation or any shareholder who has complied with the provisions of subsections A and D of this section and who is otherwise entitled to appraisal rights, may file a petition in district court demanding a determination of the value of the stock of all such shareholders; provided, however, at any time within sixty (60) days after the effective date of the merger or consolidation, any shareholder shall have the right to withdraw the demand of the shareholder for appraisal and to accept the terms offered upon the merger or consolidation.  Within one hundred twenty (120) days after the effective date of the merger or consolidation, any shareholder who has complied with the requirements of subsections A and D of this section, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of the shares.  The written statement shall be mailed to the shareholder within ten (10) days after the shareholder's written request for a statement is received by the surviving or resulting corporation or within ten (10) days after expiration of the period for delivery of demands for appraisal pursuant to the provisions of subsection D of this section, whichever is later.
F.  Upon the filing of any such petition by a shareholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which, within twenty (20) days after service, shall file, in the office of the court clerk of the district court in which the petition was filed, a duly verified list containing the names and addresses of all shareholders who have demanded payment for their shares and with whom agreements regarding the value of their shares have not been reached by the surviving or resulting corporation.  If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such duly verified list.  The court clerk, if so ordered by the court, shall give notice of the time and place fixed for the hearing on the petition by registered or certified mail to the surviving or resulting corporation and to the shareholders shown on the list at the addresses therein stated.  Notice shall also be given by one or more publications at least one (1) week before the day of the hearing, in a newspaper of general circulation published in the City of Oklahoma City, Oklahoma, or other publication as the court deems advisable.  The forms of the notices by mail and by publication shall be approved by the court, and the costs thereof shall be borne by the surviving or resulting corporation.
G.  At the hearing on the petition, the court shall determine the shareholders who have complied with the provisions of this section and who have become entitled to appraisal rights.  The court may require the shareholders who have demanded an appraisal of their shares and who hold stock represented by certificates to submit their certificates of stock to the court clerk for notation thereon of the pendency of the appraisal proceedings; and if any shareholder fails to comply with this direction, the court may dismiss the proceedings as to that shareholder.
H.  After determining the shareholders entitled to an appraisal, the court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value.  In determining the fair value, the court shall take into account all relevant factors.  In determining the fair rate of interest, the court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have to pay to borrow money during the pendency of the proceeding.  Upon application by the surviving or resulting corporation or by any shareholder entitled to participate in the appraisal proceeding, the court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the shareholder entitled to an appraisal.  Any shareholder whose name appears on the list filed by the surviving or resulting corporation pursuant to the provisions of subsection F of this section and who has submitted the certificates of stock of the shareholder to the court clerk, if required, may participate fully in all proceedings until it is finally determined that the shareholder is not entitled to appraisal rights pursuant to the provisions of this section.
I.  The court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the shareholders entitled thereto.  Interest may be simple or compound, as the court may direct.  Payment shall be made to each shareholder, in the case of holders of uncertificated stock immediately, and in the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing the stock.  The court's decree may be enforced as other decrees in the district court may be enforced, whether the surviving or resulting corporation be a corporation of this state or of any other state.
J.  The costs of the proceeding may be determined by the court and taxed upon the parties as the court deems equitable in the circumstances.  Upon application of a shareholder, the court may order all or a portion of the expenses incurred by any shareholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's attorney fees and the fees and expenses of experts, to be charged pro rata against the value of all of the shares entitled to an appraisal.
K.  From and after the effective date of the merger or consolidation, no shareholder who has demanded appraisal rights as provided for in subsection D of this section shall be entitled to vote the stock for any purpose or to receive payment of dividends or other distributions on the stock, except dividends or other distributions payable to shareholders of record at a date which is prior to the effective date of the merger or consolidation; provided, however, that if no petition for an appraisal shall be filed within the time provided for in subsection E of this section, or if the shareholder shall deliver to the surviving or resulting corporation a written withdrawal of the shareholder's demand for an appraisal and an acceptance of the merger or consolidation, either within sixty (60) days after the effective date of the merger or consolidation as provided for in subsection E of this section or thereafter with the written approval of the corporation, then the right of the shareholder to an appraisal shall cease; provided further, no appraisal proceeding in the district court shall be dismissed as to any shareholder without the approval of the court, and approval may be conditioned upon terms as the court deems just.
L.  The shares of the surviving or resulting corporation into which the shares of any objecting shareholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
SECTION 14.  This act shall become effective November 1, 2014.

54-2-9404	EK	01/15/14