Iowa Banking Act Reflects the “New Normal”
Posted on 09/02/2022 at 02:03 PM by Sierra McConnell
On July 1, the most significant change to the legal landscape for Iowa banks in a generation occurred when new amendments to Iowa Code Chapter 524 became effective. For the next several weeks, Dickinson Law will cover some of the most significant changes and how they affect Iowa banks.
Although banks are not incorporated under the same Iowa Code chapter as nonbank corporations, Iowa banks must follow many of the same corporate governance and operations provisions. Many of the revisions made to the Iowa Banking Act, Iowa Code chapter 524, reflect those made in the 2021 Iowa Business Corporation Act, Iowa Code chapter 490, and also reflect the “new normal” Iowa businesses have come accustomed to after the Covid-19 pandemic.
A lot of banks like to hold their annual shareholder meeting during the first quarter of the year, but this comes with its own challenges as shareholders are often spending time with loved ones, traveling, or reluctant to venture outside due to Iowa weather. Under the revised Iowa Banking Act (the “Act”), effective July 1, 2022, the annual meeting of shareholders may be held outside the state of Iowa. The caveat to this change is a requirement to include a statement in either the articles of incorporation or bylaws of the bank that if the bank does decide to hold a meeting outside of the state, remote participation by shareholders via telephone or video technology is required. The Act also updates the definition of “notice” to allow for shareholders and directors to receive notice of meetings electronically rather than having to send a hard copy. The ability for the bank to take an action is also made easier now that the Act expressly states that bank directors may approve an action without a meeting by sending an email that provides unequivocal consent to the proposed board action.
Beyond allowing remote participation, the revised Act relieves the burden of obtaining shareholder approval for any changes made to profit-sharing compensation plans for directors, officers, and employees. During the stakeholder meetings the Iowa Division of Banking (“IDOB”) conducted prior to the introduction of the Act, several bankers noted that this requirement was overly burdensome, especially due to the IRS periodically imposing various administrative changes on bankers. The Act now provides that shareholder approval is only required for changes to profit-sharing plans that affect benefits, required contributions, or eligibility to participate in the plan. Absent one of these changes, only the board will need to approve.
Further allowing ease of corporate governance, the process of notarizing a director’s oath of office was modernized under the revised Act. The IDOB believes that the requirement to obtain a notarized oath is an important way to underscore the significance of the role each director has for the bank. The Act clarified the language stating that any individual who is authorized as a notary is eligible to witness a director’s oath. Clarity was also provided regarding a director’s liability when they vote to approve a dividend that violates an order from the Superintendent restricting such payment. Under these circumstances, a director will be liable to the bank for the amount of the impermissible dividend.
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