Current Law

I.       Business/Corporate/Banking/Commercial/Bankruptcy Law

House Bill 134     Corporation law
A product of the OSBA Corporation Law Committee
Portions effective October 18, 2007; portions effective on January 1, 2008

House Bill 134 is a package of OSBA corporation law proposals intended to make Ohio a more attractive place for businesses to incorporate.  The act: 

  • modifies corporation law relating to the election of directors to allow elections by a majority of votes.  Former Ohio law stated that the election of directors of a company must receive only a plurality of votes, which meant that a director can be elected in an uncontested election with a single vote.  Several Ohio corporations received shareholder proposals demanding that the company re-incorporate outside Ohio because current Ohio law is interpreted to prohibit majority election standards.  House Bill 134 gives companies the option to change their incorporating documents to provide for majority election of directors. All other major states of incorporation (including California, Delaware, Florida, Illinois, and Michigan) allow majority voting.   

  • conforms Sections 1701.782 and 1701.792 of the Revised Code with parallel provisions in Chapters 1705, 1775, and 1782, which deal with converting a domestic or foreign entity into a domestic corporation, and vice versa.  This language makes no change in substantive law; it corrects language of House Bill 301 of the 126th General Assembly, the most recent OSBA corporation law bill. 

  • responds to the Holdeman v. Epperson, (2006) 111 Ohio St.3d 551, decision in Section 1705.21 of the Revised Code by clarifying that the members of an LLC may agree in advance to procedures to be used if an individual member dies or is adjudged incompetent.  This section clarifies the rights of the administrator of an estate vis-a-vis the business entity and its remaining members.   

  • clarifies in Section 1775.14 of the Revised Code that partners in a limited liability partnership will be liable only for their partnership share of the contract debts of the partnership.  

House Bill 332     Ohio Partnership Act
A product of the OSBA Corporation Law Committee
Portions effective August 6, 2008; portions effective January 1,2010

House Bill 332 is the Ohio version of the Revised Uniform Partnership Act (“RUPA”). RUPA was drafted by the National Conference of Commissioners on Uniform State Laws to modernize the National Uniform Partnership Act, which was originally approved in 1914. 

Some key changes that would result from the adoption of RUPA in Ohio are: 

  • RUPA defines the partners’ duties of care and loyalty, information rights, and obligation of good faith and fair dealing. These are basic standards of conduct that a partner must meet; under RUPA no partnership agreement can abolish these standards.  

  • RUPA changes the rule on dissolution of a partnership. Under RUPA, partnerships no longer dissolve any time a partner leaves. In most cases, a partnership may buy out the interest of a partner who leaves without dissolving the partnership.  This has important implications in allowing various contracts, including insurance, to continue without disruption by every change in partners. 

House Bill 332 also reflects some variations from the uniform act.  The act would allow any partnership to elect to have Ohio law govern its internal affairs.  RUPA provides that the location of the chief executive office of a partnership determines the governing law. In some instances, it is not clear what office would be the chief executive office.  Besides allowing a partnership to elect Ohio law, the act would also allow a partnership to elect the laws of another jurisdiction provided that the laws of that other jurisdiction allow that election. 

The act would also amend the fee structure of the secretary of state to provide fees for new filings created by the act.

House Bill 374     Corporation Law
A product of the OSBA Corporation Law Committee
Effective September 30, 2008

House Bill 374 makes several important changes in the Ohio corporation law.  The first change to Ohio’s corporation statute made by the act involves cumulative voting, and eliminates the requirement in current law for a 90 day waiting period before the shareholders of the corporation can adopt an amendment to the articles of incorporation opting out of cumulative voting. This change will have no effect on existing corporations, which can already opt out of cumulative voting by going to their shareholders to make that change, and would preserve the right of shareholders forming  a new corporation provide for cumulative voting, if they so desire.  The act simply streamlines the now cumbersome procedure by which a new corporation must start out with cumulative voting, and then 90 days later amend its articles to opt out.  Other states, notably Delaware, do not have this provision, which puts Ohio at a competitive disadvantage in attracting new corporations – even those that are Ohio-based.  We believe that this change will help persuade Ohio-based start-up companies to incorporate here in Ohio, rather than defaulting to Delaware.

The second change amends Section 1701.76 of the Revised Code, requiring shareholder approval of the sale or transfer of “all or substantially all of a corporation’s assets.”   HB 374 clarifies the current law by indicating exactly what “assets” mean in the context of a very common corporate structure in which most of the actual physical assets and businesses of the enterprise are held by subsidiaries of a parent holding corporation.   The amendment will also clarify that transfers by the parent company to a wholly owned subsidiary do not require shareholder approval, and also that the assets of wholly owned subsidiaries are assets of the parent company for purposes of the statute, so that sales of wholly owned subsidiaries trigger the right of shareholders to approve the sale. There has been legal uncertainty about these points that have plagued corporate practitioners, and the changes will eliminate that uncertainty.  These changes are reflective of clarifications also made in Delaware law following litigation on the subject. 

The third significant change will permit Ohio corporations to require that all of their shares be in uncertificated form. This change is made necessary by the continuing modernization of the process for issuance and transfer of corporate stock in the United States.  Transfers of shares of public companies have long been cleared through accounts maintained by brokerage companies with the Depository Trust Corporation (DTC), and shareholder customers of those brokerage companies typically do not receive certificates for the shares in their accounts.  Rather, customer share holdings are reflected on the books of the brokerage firm.  Reinforcing the trend toward electronic processing of all stock issuances and transfers, all of the stock exchanges in the United States have recently required that listed companies be eligible for the “direct registration system,” that requires the use of a “book entry” system of holding shares that reflects the ownership of the shares directly on the stock transfer records maintained by the corporation or its transfer agent, and dispenses with the use of stock certificates.  This system also allows shares to be electronically transferred between a transfer agent and a broker.

In the case of private companies, the use of a “book-entry” system can also improve and simplify the process of issuing and transferring stock.  Dispensing with stock certificates eliminates the risks to the company and shareholders from lost or stolen certificates and dispenses with the cumbersome and expensive process of dealing with requests for replacement certificates, which typically requires that a shareholder post a bond against the risk that the certificate may re-appear in the hands of a bona fide purchaser.

The corporation law currently allows the use of uncertificated shares, and Article 8 of the Uniform Commercial Code (Chapter 1308 of the Revised Code) contains extensive provisions governing the issuance and transfer of uncertificated shares.  However, even though an Ohio corporation can adopt a “book-transfer” system, current law requires it to issue certificates to any shareholder who so requests, thereby effectively requiring the maintenance of two separate systems of stock issuance and transfer, and reducing the benefits to the corporation and its shareholders of having adopted a system of uncertificated shares in the first place.  Further, in the case of public companies, maintaining the right of a shareholder to request a certificate could make the company ineligible to participate in the “direct registration system.”

Other states with similar provisions in their corporation laws have eliminated them, including Delaware, Georgia, and New York.  A recent survey discloses that Ohio is one of only seven states that still allow a shareholder to request a certificate when the corporation has adopted a “book-entry” system.

These changes to our general corporation law are necessary to keep it modern and our state competitive with states such as Delaware that compete with us for incorporations.  Even for new companies that are incorporated in this state, especially those with venture capital or other institutional investors, there is often pressure to favor Delaware as a jurisdiction for incorporation, given the perception of investment bankers and institutional investors that Delaware’s corporation law is more modern and flexible. 

Adapted from testimony presented by William J. Kelly, OSBA Corporation Law Committee.  

Senate Bill 281    Bankruptcy; debtor property exemptions
Effective September 30, 2008

Senate Bill 281:

  •  increases the exemptions for certain types of property a debtor may hold exempt from execution, garnishment, attachment, or sale to satisfy a judgment or order to reflect the higher exemptions under the United States Bankruptcy Code;
  • provides for automatic, annual adjustments to the exemption amounts based on changes in the Consumer Price Index; and

  • modifies certain aspects of the current garnishment procedures. 

Specifically, Senate Bill 281: 

  • generally increases the values of certain types of real and personal property interests already exempt under the current law to be consistent with federal exemptions;

  • increases from $5,000 to $20,200 the exemption for one parcel or item of real or personal property that the person  or that person’s dependent uses as a residence;

  • increases from $1,000 to $3,225 a person’s interest in one motor vehicle;

  • reorganizes and increases exemptions for personal, family, and household items and appliances;

  • increases from $750 to $2,025 the exemption for all implements, professional books or tools of that person’s profession, trade, or business, including agriculture;

  • increases from $5,000 to $20,200 the exemption for payments on account of personal bodily injury; and

  • increases from $400 to $1,075 the exemption for a person in a bankruptcy procedure for an aggregate interest in any property. 

Unlike current law, the act requires periodic adjustment of the maximum amounts for each type of property that may be exempt from execution, garnishment, attachment, or sale to satisfy a judgment or order.  The bill requires that on April 1, 2010, and on the same day every third year thereafter, each exempted dollar amount must be adjusted to reflect the change in the Consumer Price Index, as published by the U.S. Department of Labor.  In the event the index is no longer published, the amounts instead must be adjusted to reflect a generally available comparable index for the three-year period ending on December 31 of the preceding year, with any such adjustment being rounded to the nearest $25. 

The act also makes a number of changes in garnishment procedures as follows: 

  • repeals the requirement in prior law that a judgment creditor filing an affidavit to begin a proceeding in garnishment of personal earnings or other property affirm that the judgment creditor has good reason to believe that the garnishee may have earnings or other property of the debtor that are not exempt from garnishment and instead requires that the affidavit contain the name and address of the garnishee;

  • repeals the requirement that orders of garnishment provide that the judgment creditor has filed an affidavit stating that the garnishee owed the judgment debtor money for personal earnings and that some of that money may not be exempt from garnishment under Ohio or federal law and instead requires that the order provide that the judgment creditor has filed an affidavit stating that the garnishee may owe the judgment debtor money for person earnings; makes a similar modification to provisions governing the order and notice of garnishment of property other than personal earnings and requires that that notice specify that it applies to property in excess of $400 that may be in the garnishee’s possession;

  •  requires that the clerk of court mail a copy of an order of garnishment to the garnishee by ordinary or regular mail and requires that the garnishee’s answer specify how much property of the judgment debtor the garnishee has in excess of $400;

  •  provides civil immunity to garnishees that garnish property in good faith reliance on the order and notice sent by the clerk, as described above; and 

  •  exempts from attachment or other process benefits under all policies of sickness and accident insurance to the extent the benefits are reasonably necessary for the debtor’s support or support of the debtor’s dependents; similarly exempts from attachment or other process most payments under stock bonuses, pensions, profit sharing, annuities, and similar plans to the extent reasonably necessary for the support of the plan’s beneficiary or that person’s dependents. 

The garnishment portions of this analysis are adapted from Ohio Judicial Conference materials prepared by Andre Imbrogno

House Bill 46       Identity fraud (formerly Senate Bill 6)
Effective August 5, 2008; portions effective September 1, 2008

House Bill 46 will: 

  •  allow a consumer to place a security freeze on the consumer's credit report;

  • require a public office to redact from a document that is otherwise a public record certain information;

  • require a public office to redact social security numbers or federal tax identification numbers from any document that is made available online to the public through the internet;

  • require the Office of Criminal Justice Services to make state funding grants available to local law enforcement agencies for enforcement of identity fraud laws;

  • require the attorney general to support local law enforcement agencies with the enforcement of identity fraud laws;

  • enact a special statute of limitations for criminal prosecutions and civil actions against identity fraud;

  • allow a safety worker to request the county auditor to remove the safety worker's name from the general tax list of real and public utility property and the general duplicate of real and public utility property and insert the safety worker's initials; and
  • prohibit a county auditor from charging a real property conveyance fee to a safety worker who changes the current owner name on the general tax list of real and public utility property and the general duplicate of real and public utility property to the safety worker's initials.

A complete outline is attached as Appendix A.



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