United States: Delaware General Corporation Law Amendments

On June 24, 2015, Delaware Governor Jack Markell approved several important amendments to the Delaware General Corporation Law (the "DGCL"),1 with such amendments generally becoming effective on August 1, 2015. These amendments clarified Delaware's view on fee shifting provisions and forum selection provisions in corporate charters and bylaws—two issues that have been heavily litigated over the past two years—in addition to addressing the procedures necessary to ratify defective corporate acts, adding flexibility in issuing stock and options and revising certain provisions relating to public benefit corporations among other items.  We address amendment highlights below.

Fee Shifting Prohibited

Stock corporations are now prohibited from including fee-shifting provisions in their charters or bylaws. Last year, the Delaware Supreme Court issued a decision upholding as valid a bylaw that forced the losing party (the plaintiffs, in that case) in a stakeholder lawsuit to pay the corporation' s legal fees. Sections 102, 109(b), and 114(b) of the DGCL were amended to prohibit stock corporations (as opposed to non-stock corporations, like the corporation at issue in the Delaware Supreme Court decision) from including fee shifting provisions in their charters or bylaws. These amendments do not invalidate any fee-shifting provision in a stockholders agreement or other writing signed by the stockholder against whom the provision is to be enforced.

Forum Selection Provisions Authorized

New Section 115 authorizes a corporation, through its charter or bylaws, to require that all "internal corporate claims" arising under the DGCL be brought solely and exclusively in the Delaware courts—state or federal. This section codifies the holding from a Delaware case that upheld the validity of a forum selection bylaw. However, Section 115 expressly rejects the holding in another Delaware Court of Chancery decision, which upheld the validity of a Delaware corporation's forum selection bylaw that designated North Carolina as the exclusive forum for litigating internal corporate claims. This amendment presumably leaves room for Delaware corporations to have a non-Delaware forum selection provision for non-internal corporate claims.

Some examples of "internal corporate claims" that are now within the exclusive jurisdiction of the Delaware courts include all derivative actions and claims of breach of fiduciary duty by current or former directors or officers or controlling stockholders of the corporation, or persons who aid and abet such a breach.

This new section, like the amendments relating to fee-shifting, does not invalidate non-Delaware forum selection provisions contained in a stockholders agreement or other writing signed by the stockholder against whom the provision is to be enforced.

Ratifying Defective Corporate Acts and Stock

Amended Section 204 clarifies the procedures necessary to ratify defective corporate acts that would otherwise be void or voidable. In sum, to ratify a defective corporate act or stock, the board must first take action to effect the ratification; then, the board's action must be submitted to the stockholders for adoption if the underlying act is one that requires a stockholder vote, or is one that would have required a stockholder vote, either at the time the ratification is submitted for adoption or at the time the original act was taken.  In addition to establishing requirements for a board to adopt and ratify defective acts, the amendments to Section 204 also:  address the problems that occur when the initial board of directors was not identified in the original charter; clarify stockholder approval necessary to adopt and ratify defective acts; establish the approvals necessary to ratify the election of a director where the original vote was defective; clarify and explain the information necessary to obtain a certificate of validation; clarify the notice requirements for ratification of defective actions; explain which acts of the board or corporate executives are curable by ratification; confirm that certain voidable acts may be ratified under common law; clarify the notice requirements when the ratification of a defective corporate act is approved by consent of stockholders in lieu of a meeting; and clarify when the ratification of a defective corporate act is validated and becomes effective.

Amended Section 204 clarifies that a board may ratify (or initiate the process to ratify) multiple defective corporate acts in a single set of resolutions; however, each defective corporate act that requires or required a vote of stockholders must be submitted to stockholders for their approval.

Conforming amendments were made to Section 205 of the DGCL, which confers jurisdiction on the Court of Chancery to hear and determine, inter alia, the validity of any ratification effected pursuant to Section 204 and the validity of any corporate act or transaction.

Added Flexibility for Issuing Stock and Options

Amended Sections 152 and 157 provide Delaware corporations more flexibility to authorize the issuance of stock. The amendments clarify that the board (or a duly empowered committee) may authorize stock to be issued pursuant to "at the market" programs without the need to separately authorize each individual stock issuance pursuant to the program.  Further, under amended Section 152, so long as the board (or a committee of the board) authorizes that a fixed maximum number of shares may be issued during a defined period of time for no less than a specific minimum amount of consideration, those shares may be issued in one or more transactions in such numbers and at such times as determined by a person or body other than the board. Section 152 clarifies that the minimum amount of consideration cannot be less than the consideration required pursuant to Section 153 of the DGCL, so shares with par value cannot be issued for consideration having a value less than the par value of the shares. Section 152 explains that any formula used to determine the consideration for stock may include reference to or be made dependent on the operation of extrinsic facts, thereby confirming that the consideration may be based on market price or an averaged market price.

Similarly, Section 157 of the DGCL, which deals with the creation and issuance of rights and options to purchase stock, has been amended to clarify that any formula used to determine the consideration for stock issued on the exercise of rights and options may be based on market price or an averaged market price.

In sum, these changes allow the board to delegate to officers the ability to issue restricted stock on the same basis that the board may delegate to officers the ability to issue rights or options under Section 157(c) of the DGCL, an issue on which the DGCL was previously silent.

Public Benefit Corporations

Section 362 of the DGCL, as amended, makes several changes to the law affecting public benefit corporations. To begin, it is no longer necessary for a public benefit corporation to include a specific "public benefit corporation" identifier in its name; however, if an identifier is not used, the corporation must provide notice of its public benefit status before any stock is issued. Additionally, amended Section 363 relaxes the restrictions for an existing corporation to become a "public benefit corporation" and for an already established public benefit corporation to cease being a public benefit corporation.  The amendments reduce the necessary approval to change the status of a corporation (to or from a public benefit corporation) from 90% of the outstanding shares of each class of stock, whether voting or nonvoting, to 66 2/3% of the outstanding shares entitled to vote. Additionally, Section 363 now provides a "market out" exception to the appraisal rights provided in Section 363(b) for public benefit corporations—similar to the "market out" exception for appraisal rights under Section 262.

Considerations; Contact

Delaware companies should carefully review these recent amendments to determine what, if any, charter or bylaw amendments may be appropriate.  Further, Delaware companies may also want to assess their option and restricted stock grant practices in light of the clarification that officers may be delegated the authority to issue both types of awards within certain parameters.

Footnote

1. A copy of the amendments, as stated in Delaware State Senate Bill No. 75, may be found here: http://www.legis.delaware.gov/LIS/lis148.nsf/2bede841c6272c888025698400433a04/87e715e89a8c4ee785257e2f00641f25?OpenDocument&Highlight=0,DGCL.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions