What Corporations Should Do When Notice of Shareholder Meetings and Dividends Go Unclaimed
Under Pennsylvania law, when a shareholder has moved and provided no forwarding address, the corporation should continue mailing all notices to the shareholder's address of record for at least 24 months. That is because under Section 1707(b) of Pennsylvania's Business Corporation Law of 1988 (15 Pa. C.S. § 1101, et seq.), when a corporation is unable to communicate with a shareholder for more than 24 consecutive months because communications to the shareholder are returned unclaimed or the shareholder has otherwise failed to provide the corporation with a current address, the giving of notice or communication to that shareholder will no longer be required. After such 24-month period, any action or meeting that is taken or held without notice or communication to that shareholder shall have the same validity as if the notice or communication had been duly given. This 24-month rule holds for corporations organized under Pennsylvania law.
In addition to shareholders failing to respond to notices, many times dividends and voting rights go unclaimed. Addressing these issues is a bit more complicated, because the unclaimed property law (or escheat law) of the state of the shareholder's last known address holds priority over both the law of the state of the company's incorporation and the law of the state of incorporation of any intermediary, such as an investment company or stockbroker, that ultimately holds the dividends on account for the shareholder. See Texas v. New Jersey, 379 U.S. 674 (U.S. 1965), Pennsylvania v. New York, 407 U.S. 206 (U.S. 1972), and Delaware v. New York, 507 U.S. 490 (U.S. 1993).
Each state has different requirements and time periods after which the unclaimed dividends or unexercised stock powers are considered to be abandoned. Once dividends or certificates of stock are deemed abandoned, the corporation is required to adhere to certain requirements under the applicable unclaimed property law. A corporation's failure to comply with a state's unclaimed property law could result in criminal/civil penalties.
If the nonresponsive shareholder's last known address is located in Pennsylvania, under Pennsylvania's Unclaimed Property Act (72 P.S. § 1301.1 et seq.) (the "Act"), the dividends and/or the certificates of stock the shareholder owns will be deemed abandoned if the shareholder fails to claim the dividends or indicate an interest in the stock for a period of three years. In such a scenario, the corporation is required to submit a report to the Commonwealth's Treasurer in accordance with Section 1301.11 of the Act prior to April 15 of the year following the date in which the property was first presumed abandoned and must also follow other reporting requirements set forth in the Act.
When notices and/or shares go unclaimed or undeliverable for a period of time, a corporation should document the non-delivery and escrow all dividends so that it is able to make a valid report to the state's treasurer. Taking reasonable steps to locate the shareholder will enable the company to avoid having to deal with the unclaimed property laws and procedures of different states, and the penalties that go along with failure to comply.
For more information about this or any Corporate Law matter, please contact Tim Quinn, or any of the below listed MUS Corporate attorneys.
This material is for informational purposes only. It is not and should not be solely relied on as legal advice in dealing with any specific situation.
He can be reached at: 412.456.2846 or jcq@muslaw.com.
No comments:
Post a Comment