Recent Amendments to the North Carolina Business Corporation Act
The North Carolina General Assembly recently passed House Bill 388 (the “Act”), which was subsequently signed into law by Governor Josh Stein on June 30, 2025. The Act provided substantive amendments to the North Carolina Business Corporation Act (the “NCBCA”) that generally become effective on October 1, 2025 (with one change becoming effective immediately, as discussed below).
The Act includes a number of changes to the NCBCA that were recommended by the Business Corporations Committee of the Business Law Section (the “Committee”) and approved as “Association-sponsored legislation” by the NCBA Board of Governors in January 2025. The North Carolina Bar Association is grateful for the endorsement and support of the North Carolina Chamber and thankful to the bill’s primary sponsors, Representative Sarah Stevens, Senator Amy Galey and Senator Benton Sawrey, who each assisted with its successful passage by the General Assembly.
The NCBCA is based upon the Model Business Corporation Act (the “Model Act”), which is the work of the Corporate Laws Committee of the American Bar Association’s Business Law Section. Many of these amendments align the NCBCA with recent changes to the Model Act, as well as selected changes in other jurisdictions.
A summary of the key changes included in the Act is set forth below:
Permitting Officer Exculpation in the Articles of Incorporation (Part I of the Act)
Effective October 1, 2025
Prior to the Act
North Carolina General Statutes (“N.C.G.S.”) § 55-2-02 (Articles of incorporation) has long permitted corporations to include a provision in their articles of incorporation exculpating directors from liability for monetary damages for breach of their duties to the corporation and its stockholders arising out of their service as a director, subject to a number of limitations. In particular, pursuant to N.C.G.S. § 55-2-02(b)(3), corporations are not permitted to exculpate directors from liability with respect to (i) acts or omissions that the director knew or believed were clearly in conflict with the best interests of the corporation, (ii) liability under N.C.G.S. § 55-8-33 (liability for unlawful distributions), (iii) transactions from which the director or officer derived an improper personal benefit, or (iv) acts or omissions occurring prior to the date the exculpation provision became effective. Historically, however, corporations were not permitted to extend these exculpation provisions to corporate officers.
As Amended
The Act amended N.C.G.S. § 55-2-02 to extend the ability of a corporation to exculpate officers from liability for monetary damages in a manner similar to directors. The right to exculpate officers is subject to the same limitations that apply to directors and also does not permit a corporation to exculpate officers from liability with respect to any claim by or in the right of the corporation. For purposes of the officer exculpation provision, unless the corporation’s articles of incorporation provide otherwise, an “officer” includes the corporation’s president, chief executive officer, chief operating officer, chief financial officer, chief legal officer, secretary, controller, treasurer, chief accounting officer, or any other officer designated by the board of directors as an officer for purposes of the officer exculpation provisions.
This change is consistent with recent amendments to the Delaware General Corporation Law (“DGCL”) and the Model Act.
Clarifying Provisions for Emergency Bylaws and Emergency Powers (Part II of the Act)
Effective October 1, 2025
Prior to the Act
N.C.G.S. § 55-2-07 (Emergency bylaws) included provisions allowing for a corporation’s board of directors to adopt bylaws that would only be effective during an emergency, which for purposes of § 55-2-07 existed if a quorum of the corporation’s directors could not be readily assembled because of some catastrophic event.
N.C.G.S. § 55-3-03 (Emergency powers) included provisions allowing for a corporation’s board of directors to exercise certain powers or act in certain ways in anticipation of or during an emergency, which had the same definition as set forth in § 55-2-07. N.C.G.S. § 55-3-03 did not include provisions allowing for the postponing of meetings of shareholders or changing the means of holding such meetings.
As Amended
The Act amended N.C.G.S. § 55-2-07 to clarify that emergency bylaws may only be adopted in advance of an emergency and may only remain in effect during an emergency. The definition of emergency was unchanged.
The Act amended N.C.G.S. § 55-3-03 to specifically permit the board of directors, in the event of an emergency, to postpone a meeting of shareholders or authorize shareholders to participate in a meeting by any means of remote communication that complies with N.C.G.S. § 55-7-09(b). To do so, the corporation must give notice to shareholders (with advance notice that is reasonable under the circumstances) of any such postponement. For purposes of this new provision, an emergency exists if, as a result of some catastrophic event, it is impracticable to convene a meeting of shareholders in accordance with the provisions of the NCBCA, the bylaws or as specified in the meeting notice. Taken together, the amendments to the NCBCA provide boards of directors with greater flexibility and certainty with respect to preparing for and acting during an emergency.
These amendments are consistent with recent changes to the Model Act.
Clarifying Provisions for the Selection of an Exclusive Forum (Part III of the Act)
Effective October 1, 2025
Prior to the Act
N.C.G.S. § 55-7-50 (Exclusive forum or venue provisions valid) simply provided that “[a] provision in the articles of incorporation or bylaws of a corporation that specifies a forum or venue in North Carolina as the exclusive forum or venue for litigation relating to the internal affairs of the corporation shall be valid and enforceable.”
As Amended
The Act replaced N.C.G.S. § 55-7-50 with N.C.G.S. § 55-2-08 (Forum selection provisions). N.C.G.S. § 55-2-08 provides additional procedural protections for shareholders and clarity regarding the scope and enforceability of forum selection provisions with respect to “internal corporate claims,” which are now defined in the new statute. In particular, § 55-2-08 provides that a corporation’s articles or bylaws (i) may require any internal corporate claim be brought exclusively in any specified court or courts of the State of North Carolina and in any additional courts (such as federal courts) in the State of North Carolina or any other jurisdictions with which the corporation has a reasonable relationship, (ii) cannot confer personal or subject matter jurisdiction where there is none, and (iii) may not prohibit an internal corporate claim from being brought in a North Carolina state court or require an internal corporate claim to be decided by arbitration.
These amendments are consistent with the current provisions of the Model Act.
Prohibiting the Issuance of Scrip in Bearer Form (Part IV of the Act)
Effective October 1, 2025
Prior to the Act
N.C.G.S. § 55-6-04 (Fractional shares) provided that scrip (i.e., evidence of a right to obtain title to a fractional share of a corporation) could be issued in registered or bearer form.
As Amended
The Act amended N.C.G.S. § 55-6-04 to provide that scrip may not be issued in bearer form. It also clarified § 55-6-25 (Form and content of certificates) to include a specific statement that share certificates (for both whole and fractional shares) may not be issued in bearer form.
These amendments are consistent with recent changes to the Model Act.
Clarifying and Revising Derivative Proceeding Procedures (Part V of the Act)
Effective October 1, 2025
Prior to the Act
N.C.G.S. § 55-7-40.1 (Definitions) provided in part that a “‘[d]erivative proceeding’ means a civil suit in the right of a domestic corporation or, to the extent provided in G.S. 55-7-47, in the right of a foreign corporation.”
N.C.G.S. § 55-7-42 (Demand) prohibited a shareholder from commencing a derivative proceeding unless (i) a written demand was made for the corporation to act and (ii) 90 days had passed from the date of the demand, or in the alternative, the shareholder was notified that the corporation rejected the demand.
N.C.G.S. § 55-7-44 (Dismissal) provided the procedures for dismissing a derivative proceeding. In particular, § 55-7-44(a) provided that a derivative proceeding may be dismissed by the court upon a reasonable inquiry and a good faith determination that the maintenance of the derivative proceeding was not in the best interest of the corporation. These determinations were made by specified groups set forth in § 55-7-44(b) and § 55-7-44(f). N.C.G.S. § 55-7-44(b) provided for the determination to be made by “(1) [a] majority vote of independent directors present at a meeting of the board of directors if the independent directors constitute a quorum, or (2) [a] majority vote of a committee consisting of two or more independent directors appointed by a majority vote of independent directors present at a meeting of the board of directors, whether or not the independent directors constituted a quorum.” N.C.G.S. § 55-7-44(f) allowed a court-appointed panel to make the determination. Further, if a derivative proceeding commenced after a determination was made, then § 55-7-44(d) required the complaint to allege facts that § 55-7-44(a) was not established. Whether the burden of proof was on the corporation or the plaintiff depended on whether the majority of the board of directors consisted of independent directors at the time of the determination.
N.C.G.S. § 55-7-46 (Payment of expenses) allowed the court to order a corporation to pay the plaintiff’s reasonable expenses incurred in the derivative proceeding if the proceeding had resulted in a substantial benefit to the corporation. Additionally, § 55-7-46 allowed the court to order the plaintiff to pay any defendant’s expenses if the derivative proceeding was commenced or maintained without reasonable cause or for an improper purpose. However, the court was not permitted to extend the plaintiff’s financial responsibility to expenses incurred by corporations or expenses incurred in responding to a demand.
As Amended
The Act amended N.C.G.S. § 55-7-40.1 to clarify that the objective of a derivative proceeding is to allow the corporation to recover for injuries sustained by the corporation itself, unlike a direct claim that redresses injuries sustained by shareholders.
The Act amended N.C.G.S. § 55-7-42 to ensure a corporation is put on notice that a shareholder may commence a derivative proceeding by requiring the written demand to (i) be delivered to the corporation, (ii) include a reasonably detailed description of the reasons for the demand, (iii) include the action being requested, and (iv) state that a derivative proceeding may be commenced if the corporation does not take the requested action. In addition to the written demand, if the shareholder making the demand is a beneficial shareholder or an unrestricted voting trust beneficial owner, the shareholder must provide the corporation with evidence of the shareholder’s beneficial ownership in the corporation.
The Act amended N.C.G.S. § 55-7-44 to clarify and simplify the procedures governing the dismissal of a derivative proceeding. N.C.G.S. § 55-7-44(a) clarifies that the requirements for dismissal remain the same regardless of the determination’s timing in relation to the commencement of the derivative proceeding. Additionally, the Act combined the specified groups previously listed in subsections (b) and (f) into the amended § 55-7-44(b). N.C.G.S. § 55-7-44(d) clarifies that if a determination is made by one of the specified groups, then the plaintiff must allege facts that the requirements of § 55-7-44(a) have not been met. Under § 55-7-44(e), the Act establishes a presumption that the plaintiff bears the burden of proof, unless the plaintiff alleges “with particularity facts establishing that a majority of the board of directors at the time the determination was made did not consist of independent directors.” The Act also added a provision to allow the court, or any party, to require that any motion to dismiss under § 55-7-44(a) be made within a specified reasonable time.
The Act amended N.C.G.S. § 55-7-46 to clarify that the court may order the plaintiff to pay the corporation’s or any defendant’s reasonable expenses, including attorney’s fees, incurred in both responding to and defending the derivative proceeding, if the court finds that either the demand was made or the proceeding was commenced or maintained without reasonable cause or for an improper purpose.
These amendments are consistent with recent changes to the Model Act.
Making Technical Changes Regarding the Authority of Board Committees (Part VI of the Act)
Effective Immediately
Prior to the Act
N.C.G.S. § 55-8-25 (Committees) provided guidelines for boards of directors to create committees and outlined the associated powers of such committees. Further, § 55-8-25(e)(4) prohibited a committee from approving amendments to the articles of incorporation without shareholder approval pursuant to N.C.G.S. § 55-10-02 (Amendment by board of directors) even where the corporation’s board of directors was permitted to do so.
As Amended
The Act removed this limitation from N.C.G.S. § 55-8-25(e), allowing boards of directors to delegate authority to committees to approve amendments to the articles of incorporation. This change is consistent with long-standing amendments to the Model Act, the DGCL and the New York Business Corporation Law (“NYBCL”). Thus, the change became effective immediately.
Clarifying Provisions for Mergers Between Parent Entities and Subsidiary Corporations (Part VII of the Act)
Effective October 1, 2025
Prior to the Act
N.C.G.S. § 55-11-04 (Merger between parent corporation and subsidiary or between subsidiaries) provides that a parent corporation with at least 90% of the voting power of the subsidiary corporation may merge the subsidiary into itself or into another subsidiary without shareholder approval (commonly referred to as a short-form merger). N.C.G.S. § 55-11-04(f) also provided that the provisions of N.C.G.S. § 55-13-02(b), which provides the “market-out exception” for judicial appraisal and its limitations, do not apply to subsidiary corporations that are parties to a short-form merger.
N.C.G.S. § 55-11-12 (Merger between parent unincorporated entity and subsidiary corporation or corporations) provided that parent unincorporated entities may also use the short-form merger procedure for subsidiary corporations owned at least 90% by the parent unincorporated entity. However, there were various technical differences between §§ 55-11-04 and 55-11-12, including that the articles of merger required to be filed to effect a short-form merger under § 55-11-12 were required to include the terms and conditions of the merger and the manner and basis of converting the interests in each merging business entity.
As Amended
The Act repealed N.C.G.S. § 55-11-04(f) so that the market-out exception applies equally to all short-form mergers of subsidiary corporations.
The Act also amended N.C.G.S. § 55-11-12 to make its requirements consistent with § 55-11-04, including removing the requirement to include in the articles of merger the terms and conditions of the merger and the manner and basis of converting the interests in each merging business entity.
These amendments are consistent with the provisions of the Model Act.
Committee Members Involved in These Amendments
The following are the Committee members who participated in drafting the proposed bill resulting in the Act and who represented the North Carolina Bar Association in various committee hearings in the North Carolina General Assembly regarding House Bill 388:
Heyward D. Armstrong – Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., Raleigh
William Bray – Michael Best, Charlotte
Lisa M. Crandall – PLG Law, Charlotte
Carly Ginley – McGuireWoods LLP, Charlotte
Stephen M. Lynch – Robinson, Bradshaw & Hinson, P.A., Charlotte
Justin G. Truesdale – Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., Raleigh
Nicholas Zanzot – Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., Raleigh
Special thanks to Smith Anderson Summer Associate Margot Porter for her assistance in preparing this article.
This article was originally published on the NCBA's Bar Blog, Business Law Section on Sept. 2, 2025, and has been republished here with the consent of the NCBA.
