| Printed Page 4390, Apr. 12 | Printed Page 4410, Apr. 12 |

The attorney general can use subdivision (a)(1) to test the legality of any actions the corporation has taken or intends to take. This duty has been shifted to the attorney general and away from the secretary of state who has limited authority in regard to filing articles. See Official Comment to Section 1.25.

2. Involuntary Dissolution by Members, a Director, or a Person Specified in a Corporation's Articles

Subdivision (a)(2) allows fifty members or members who hold 5% of the voting power, whichever is less, a director, or any person specified in the corporation's articles to bring a proceeding for involuntary dissolution of the corporation. The articles or bylaws of a religious corporation may prevent members or directors from bringing an action to dissolve the corporation. Subdivision (a)(2) sets forth the grounds upon which a court may order dissolution. In determining whether to grant dissolution a court should act with caution. In the case of public benefit corporations the primary matter of concern is the public or charitable purposes of the corporation. In the case of mutual benefit corporations the main consideration is whether the corporation can be operated for the benefit of its members. Courts should be particularly cautious in the case of religious corporations not to order dissolution if there is an appropriate alternative.

3. Dissolution by Creditors

Creditors can bring a proceeding for dissolution only if the grounds specified in subdivision (a)(3) have been met. Creditors may seek dissolution as an alternative to a federal bankruptcy proceeding.

4. Dissolution by Corporation

A corporation that has commenced a voluntary dissolution proceeding may seek protection in a court-supervised dissolution proceeding under subdivision (a)(4). The directors of the corporation may be concerned with personal liability or may face numerous suits or other actions that should be dealt with in one court-supervised dissolution proceeding.

5. Factors to Be Considered by Court Before Ordering Dissolution

Subsection (b) sets forth matters that a court should consider before ordering dissolution. As dissolution is a remedy of the last resort, a court should consider reasonable alternatives. For example, if the directors are

This section contains a number of non-Model Act provisions. For example, subsections (a)(1)(v) through (vi) have been added to clarify those actions which are not permitted. Subsections (a)(2)(ii) has been modified, and subsections (a)(2)(vi) and (vii) are entirely new.

In an action filed by a shareholder to dissolve the corporation on the grounds enumerated in this section the court may make such order or grant such relief, other than dissolution as in its discretion is appropriate, including without limitation an order:

(1) canceling or altering any provision contained in the articles of incorporation or any amendment to the articles, or in the bylaws of the corporation;

(2) canceling, altering, or enjoining any act or resolution for the corporation;

(3) directing or prohibiting any act of the corporation or of shareholders, directors, officers, or other persons party to the action; or

(4) providing for the purchase at their fair value of shares of a shareholder, by the corporation or by other shareholders.

Merely because there has not been an election of directors for two years, subsection (c)(2)(iii) will not apply automatically. The members also must be deadlocked for the provision to apply.

Section 33-31-1431. Procedure for judicial dissolution.

(a) Venue for a proceeding by the Attorney General to dissolve a corporation lies in the county where the corporation's principal office is located, and if the corporation has failed to maintain a principal office or failed to report any change of the office, in the court of common pleas for Richland County. Venue for a proceeding brought by any other party named in Section 33-31-1430 lies in the county where a corporation's principal office or, if none in this State, its registered office is or was last located.

(b) It is not necessary to make directors or members parties to a proceeding to dissolve a corporation unless relief is sought against them individually.

(c) A court in a proceeding brought to dissolve a corporation may issue injunctions, appoint a receiver or custodian pendente lite with all powers

(d) A person other than the Attorney General who brings an involuntary dissolution proceeding for a public benefit or religious corporation shall forthwith give written notice of the proceeding to the Attorney General who may intervene.
OFFICIAL COMMENT

Section 14.31 sets forth procedures to be followed in a judicial dissolution. States adopting this Model Act should determine the place where venue lies for proceedings brought by the attorney general to dissolve a corporation.
SOUTH CAROLINA REPORTERS' COMMENTS

This section is similar to the previously applicable statute, Section 33-14-310 of the South Carolina Business Corporation Act. Venue for actions brought by the Attorney General is stated as where the corporation has its principal office, but a default provision lists Richland County as being a proper court. It should be noted that in any action brought by a private party to dissolve the corporation, the Attorney General must be notified and he shall have the right to intervene in the action.

Section 33-31-1432. Receivership or custodianship.

(a) A court in a judicial proceeding brought to dissolve a public benefit or mutual benefit corporation may appoint one or more receivers to wind up and liquidate or one or more custodians to manage the affairs of the corporation. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has exclusive jurisdiction over the corporation and all of its property wherever located.

(b) The court may appoint an individual, or a domestic or foreign business or nonprofit corporation authorized to transact business in this State as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.

(c) The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:

(1) the receiver may:

(i) dispose of all or any part of the assets of the corporation wherever located, at a public or private sale, if authorized by the court; however, the receiver's power to dispose of the assets of the corporation

(ii) sue and defend in the receiver's or custodian's name as receiver or custodian of the corporation in all courts of this State;

(2) the custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the extent necessary to manage the affairs of the corporation in the best interests of the corporation, its members, and creditors.

(d) The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the corporation, its members, and creditors.

(e) The court during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and the receiver or custodian's counsel from the assets of the corporation or proceeds from the sale of the assets.
OFFICIAL COMMENT

Section 14.32 authorizes a court to appoint a receiver or custodian in a judicial dissolution proceeding involving a public benefit or mutual benefit corporation. Section 14.32 is designed to supplement provisions found in most states dealing with the power of courts to appoint receivers and custodians.
SOUTH CAROLINA REPORTERS' COMMENTS

The only difference between this section and the previously controlling South Carolina Business Corporation Act Section 33-14-320 is that this section:

a. allows for nonprofit corporations to be appointed; and

b. specifies in subsection (c)(1) that the assets may be subject to conditions of trust.

Section 33-31-1433. Decree of dissolution.

(a) If after a hearing the court determines that one or more grounds for judicial dissolution described in Section 33-31-1430 exist, it may enter a decree dissolving the corporation and specifying the effective date of the dissolution, or may order any other form of relief which it deems proper in the circumstances, and the clerk of the court shall deliver a certified copy of the decree to the Secretary of State, who shall file it without charging a fee.

(b) After entering the decree of dissolution, the court shall direct the winding up and liquidation of the corporation's affairs in accordance with Section 33-31-1406 and the notification of its claimants in accordance with Sections 33-31-1407 and 33-31-1408.

Section 14.33 provides that the court order dissolving a corporation shall be filed with the secretary of state. The filing of the order of dissolution has the same effect as the filing of the articles of dissolution. After the decree of dissolution has been entered, the corporation pursuant to court order must wind up and liquidate in accordance with the provisions of sections 14.06-14.08.
SOUTH CAROLINA REPORTERS' COMMENTS

This section is essentially identical to Section 33-14-330 in the South Carolina Business Corporation Act.

Section 33-31-1440. Deposit with Department of Revenue and Taxation.

Assets of a dissolved corporation that should be transferred to a creditor, claimant, or member of the corporation who cannot be found or who is not competent to receive them, must be reduced to cash subject to known trust restrictions and deposited with the Department of Revenue and Taxation or other appropriate state official for safekeeping in accordance with the Uniform Disposition of Unclaimed Property Act. However, in the Department of Revenue and Taxation or other appropriate officials discretion, property may be received and held in kind. When the creditor, claimant, or member furnishes satisfactory proof of entitlement to the amount deposited, the department or the appropriate state official shall pay him or his representative that amount.
OFFICIAL COMMENT

Section 14.40 provides for the deposit of unclaimed assets with the [Department of Revenue and Taxation] State Treasurer. State escheat or other laws provide for the ultimate disposition of these assets.

Section 14.40 provides that assets deposited with the state treasurer shall be reduced to cash unless they are subject to known trust restrictions or the treasurer decides it is in the public interest to hold the assets in kind. The treasurer may decide to hold the assets in kind when they are unique from an artistic or historical perspective.
SOUTH CAROLINA REPORTERS' COMMENTS

This section is similar to previously applicable statute, Section 33-14-400 of the South Carolina Business Corporation Act. However, under this new section property may be retained in kind.

Section 33-31-1501. Authority to transact business required.

(a) A foreign corporation may not transact business in this State until it obtains a certificate of authority from the Secretary of State.

(1) maintaining, defending, or settling any proceeding;

(2) holding meetings of the board of directors or members or carrying on other activities concerning internal corporate affairs;

(3) maintaining bank accounts;

(4) maintaining offices or agencies for the transfer, exchange, and registration of memberships or securities or maintaining trustees or depositaries with respect to those securities;

(5) selling through independent contractors;

(6) soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this State before they become contracts;

(7) creating or acquiring indebtedness, mortgages, and security interests in real or personal property;

(8) securing or collecting debts or enforcing mortgages and security interests or any other rights in property securing the debts;

(9) owning, without more, real or personal property;

(10) conducting an isolated transaction that is completed within thirty days and that is not one in the course of repeated transactions of a like nature;

(11) transacting business in interstate commerce.

(12) soliciting those contributions as are defined in Section 33-55-20(3) or any succeeding statute of like tenor and effect.

(c) The list of activities in subsection (b) is not exhaustive.
OFFICIAL COMMENT

A state may prescribe the terms and conditions upon which a foreign corporation is permitted to transact business within the state, subject, of course, to the restrictions of the United States Constitution. Chapter 15 requires that a foreign corporation seeking to transact business within the state must (1) obtain a certificate of authority from the secretary of state and (2) maintain a registered office and appoint a registered agent within the state. . . .

The Model Act does not attempt to formulate an inclusive definition of what constitutes the transaction of business. Rather, the concept is defined in a negative fashion by section 15.01(b), which states that certain activities do not constitute the transaction of business. In general terms, any conduct more regular, systematic, or extensive than that described in section 15.01(b) constitutes the transaction of business and requires the corporation to obtain a certificate of authority. Typical conduct requiring a certificate of authority includes maintaining an office to conduct local

The test of "transacting business" defined in a negative way in section 15.01(b) applies only to the question of whether the corporation's contacts with the state are such that it must obtain a certificate of authority. It is not applicable to other questions such as whether the corporation is amenable to service of process under state "long-arm" statutes or liable for state or local taxes. A corporation that has obtained (or is required to obtain) a certificate of authority to transact business under chapter 15 will generally be subject to suit and state taxation in the state, while a corporation that is subject to service of process or state taxation in a state will not necessarily be required to obtain a certificate of authority under chapter 15.

The list of activities set forth in section 15.01(b) is not exhaustive. See section 15.01(c). The list excludes several different types of activities from the definition of "transacting business" which are discussed below. Official Comment to Model Business Corporation Act Section 15.01.

A corporation is not "transacting business" by "maintaining, defending or settling any proceeding" in a state. Section 15.01(b)(1). The term "proceeding" is broadly defined in section 1.40(27) to include civil suits and criminal, administrative and investigatory actions.

A corporation may carry on activities concerning its internal corporate affairs and hold directors' and members' meetings without transacting business within a state. Section 15.01(b). "Other activities relating to the internal affairs of the corporation that do not constitute the transaction of business under section 15.01(b) including having officers or representatives of a corporation who reside within or are physically present in the state . . . make executive decisions relating to the affairs of the corporation without imposing on the corporation the requirement that it obtain a certificate of authority in the state, provided these activities are not so regular and system[at]ic as to cause the residence to be viewed as a business office." Official Comment to Model Business Corporation Act Section 15.01.

"A corporation is not `transacting business' . . . if it is transacting business in interstate commerce . . . or soliciting or obtaining orders that must be accepted outside the state before they become contracts. . . . These limitations reflect the provisions of the United States Constitution that grant to the United States Congress exclusive power over interstate

There is no analogous section to this in former Chapter 31, Title 33. However, other than subsection (b)(12), this section is essentially identical with Section 33-15-101 of the South Carolina Business Corporation Act. This section governed South Carolina nonprofit corporations prior to the adoption of this Act. There is a small deviation from the Model Act in item (8) which permits a foreign corporation to enforce any rights which it has in any property in South Carolina, not merely mortgages and deeds of trust.

In regard to subsection (b)(12), a non-Model Act provision, it was the drafters intention that this section would protect out-of-state colleges and similar entities from being required to register in South Carolina merely because they had isolated fund raising activities in South Carolina or held alumni meetings within the State.

It should be noted that there is a separate statute which deals with charitable solicitations, Section 33-55-10, et seq. A foreign nonprofit corporation which is not required to qualify under this section might be required to register under this Charitable Solicitations Act (and even if not required to register, might be required to comply with certain provisions of that act). Conversely, corporations which are not required to register under the Charitable Solicitations Act may still be required to qualify to do business in South Carolina under this section. If a foreign nonprofit corporation is not required to qualify to do business in South Carolina, then many of the sections in this part of the chapter will not apply. Sections 33-31-1502 through 33-31-1509, and 33-31-1520 through 33-31-1532 would not apply.

Section 33-31-1502. Consequences of transacting business without authority.

(a) A foreign corporation transacting business in this State without a certificate of authority may not maintain a proceeding in a court in this State until it obtains a certificate of authority.

(b) The successor to a foreign corporation that transacted business in this State without a certificate of authority and the assignee of a cause of action arising out of that business may not maintain a proceeding on that cause of action in any court in this State until the foreign corporation or its successor obtains a certificate of authority.

(d) A foreign corporation is liable for a civil penalty of ten dollars for each day it transacts business in this State without a certificate of authority, but not to exceed a total of one thousand dollars. The Attorney General may collect all penalties due under this subsection.

(e) Notwithstanding subsections (a) and (b), the failure of a foreign corporation to obtain a certificate of authority does not impair the validity of its corporate acts or prevent it from defending any proceeding in this State.
OFFICIAL COMMENT

Section 15.02 is designed to compel foreign corporations to qualify to transact business in a state by obtaining a certificate of authority but not to impose Draconian penalties on those who fail to qualify. The failure to qualify does not impair the validity of corporate acts or prevent a corporation from defending itself in any proceeding. Section 15.01(e).

A corporation that is required to qualify, but has not qualified, may not bring suit or seek an affirmative recovery in an action in which it is a defendant until it has qualified. A court may stay a proceeding commenced by a foreign corporation until it determines whether the corporation should have qualified to transact business. If it concludes that qualification is necessary, it may grant a further stay until the foreign corporation obtains a certificate of authority. A foreign corporation that is required to but has not obtained a certificate of authority may do so and is not required to refile the suit.

Subsection (d) provides a specified dollar amount per day with a maximum yearly total penalty for each year in which a foreign corporation fails to qualify. Each state adopting the Model Act should determine the appropriate daily and yearly amounts and insert them in subsection (d).
SOUTH CAROLINA REPORTERS' COMMENTS

This section is identical to the formerly applicable statute, Section 33-15-102 of the South Carolina Business Corporation Act. This section does not specify whether or not the bar to bringing an action in South Carolina also applies to actions brought in federal court. This question was intentionally left up to the determination of the particular federal court.

(a) A foreign corporation may apply for a certificate of authority to transact business in this State by delivering an application to the Secretary of State. The application must set forth:

(1) the name of the foreign corporation or, if its name is unavailable for use in this State, a corporate name that satisfies the requirements of Section 33-31-1506;

(2) the name of the state or country under whose law it is incorporated;

(3) the date of incorporation and period of duration;

(4) the street address, including zip code, of its principal office;

(5) the street address, including zip code, of its proposed registered office in this State and the name of its proposed registered agent at that office;

(6) the names and usual business addresses, including zip codes, of its current directors and officers;

(7) whether the foreign corporation has members; and

(8) whether the corporation, if it had been incorporated in this State, would be a public benefit, mutual benefit or religious corporation.

(b) The foreign corporation shall deliver with the completed application a certificate of existence, or a document of similar import, duly authenticated by the Secretary of State or other official having custody of corporate records in the state or country under whose law it is incorporated within sixty days of the date that it is filed in this State.
OFFICIAL COMMENT

Section 15.03 requires corporations to submit specified information to obtain a certificate of authority. "The purposes of these disclosure requirements are: (1) to ensure that citizens of the state have adequate information about foreign corporations in their transactions with them; (2) to put them in a status of equality with domestic corporations with respect to information required to be furnished; (3) to facilitate their subjection to the jurisdiction of the state's courts, thereby removing any disadvantage citizens of the state may have when dealing with them; and (4) to provide readily accessible evidence of their existence." Official Comment to Model Business Corporation Act Section 15.03. Each application for a certificate of authority must be accompanied by a certificate of existence (or document of similar import) and the filing fee set forth in section 1.22.

Section 16.22 requires qualifying corporations to file annual reports with the Secretary of State. [This provision was not adopted in South Carolina.] They may also have to make other filings pursuant to sections 15.04, 15.06, and 15.07, and regulatory and tax statutes.

| Printed Page 4390, Apr. 12 | Printed Page 4410, Apr. 12 |