United States: 2016 Changes To Delaware Law Go Into Effect

Amendments to the Delaware General Corporation Law

Several significant amendments to the Delaware General Corporation Law (the DGCL) were signed into law on June 16, 2016, and went into effect on August 1, 2016.1 Most significantly, these amendments:

  • Limit certain de minimis appraisal claims and allow corporations to tender payment to stockholders to limit accrual of interest – Revised Section 262 (i) mandates dismissal of de minimis appraisal claims (i.e., where the number of shares entitled to appraisal does not exceed 1 percent of the shares eligible for appraisal or where the merger consideration for the shares entitled to appraisal does not exceed $1 million) in connection with public company transactions other than short-form mergers and (ii) permits corporations to pay each stockholder entitled to appraisal an amount of the corporation's choosing prior to a final judgment to reduce the accrual of interest owed to such stockholders.
  • Clarify certain requirements and procedures with respect to short-form mergers – The amendments to Section 251(h) clarify eligibility for short-form mergers, requirements with respect to offers and procedures for determining whether an offeree has attained a sufficient number of shares, and whether stock has been "received."

The following sections review these changes in more detail, as well as other changes to the DGCL, the Delaware Limited Liability Company Act (the LLC Act), the Delaware Revised Uniform Limited Partnership Act (the LP Act) and the Delaware Revised Uniform Partnership Act (the GP Act).

Appraisal Proceedings Provision – Section 262

Section 262 of the DGCL was amended to limit appraisal rights for de minimis claims and to allow corporations to tender payment to appraisal claimants to reduce interest on appraisal awards, as further described below. The amendments to Section 262 apply only to transactions consummated pursuant to merger and other transaction agreements entered into (or, in the case of mergers pursuant to Section 253 or 267, respectively, resolutions of the board entered into or authorizations provided) on or after August 1, 2016 (and appraisal proceedings arising out of such transactions).

  • Limitation on appraisal rights for de minimis claims

The amendments to Section 262(g) limit the right to bring an appraisal proceeding against a corporation listed on a national securities exchange when the claim is de minimis. Accordingly, the amendments require the Court of Chancery to dismiss appraisal proceedings unless (i) the total number of shares entitled to appraisal exceeds 1 percent of the outstanding shares of the class or series that could have sought appraisal, (ii) the value of the merger consideration for the total number of shares entitled to appraisal exceeds $1 million, or (iii) the merger is a short-form merger approved under Section 253 or 267 of the DGCL.

This amendment is intended to prevent stockholders from exercising their appraisal rights to gain leverage in settlement negotiations in instances where the number of shares or value of the shares in question is small, but the desire to avoid litigation costs may encourage a corporation to settle an appraisal claim. Short-form mergers are not subject to this limitation because appraisal rights may be the only remedy available to stockholders in such a transaction.

  • Tender of payment

As revised, Section 262(h) empowers corporations to limit the accrual of interest on appraisal awards by giving them the ability to make an early payment, in an amount decided by the corporation, to appraisal claimants at any time before a final judgment is entered in an appraisal proceeding. The amendments are intended to address the issue of "appraisal arbitrage"—the purchase of appraisal rights after a merger is announced, expecting a windfall from the appraisal award in addition to interest accrued on the entire amount of the award throughout the entire period from the effective date of the merger through a final judgment.

To take advantage of this amended provision, a corporation must make the payment to each appraisal claimant and may not choose to pay only certain claimants. After such payment is made, interest accrues only on (i) the difference between the amount paid and the fair value of the appraisal shares as finally determined by the court and (ii) the interest accrued prior to the date of payment (unless such interest is included in the payment itself). As it was before the 2016 amendments, interest is calculated from the effective date of the merger through the date of payment following a final judgment, is compounded quarterly and accrues at an annual rate of 5 percent over the Federal Reserve discount rate.

Short-Form Merger Provision – Section 251(h)

Section 251(h) of the DGCL allows a target corporation (Offeree) to consummate a short-form merger with another corporation (the Offeror) without a stockholder vote (unless such a vote is expressly required by the certificate of incorporation of the Offeree), if certain requirements are met following a tender, exchange or other offer. The amendments to Section 251(h) are effective only for merger agreements entered into on or after August 1, 2016, and are intended to clarify the requirements and procedures as follows:

  • Eligibility
    • To qualify for a Section 251(h) short-form merger, an Offeree must have one or more classes or series of stock (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders. It is not required that all classes and series of the Offeree's stock be so listed or held.
  • Offers
    • An Offeror may condition a tender, exchange or other offer upon the tender of a minimum number or percentage of shares of stock (or any class or series of stock) of the Offeree.
    • If more than one class or series of stock is entitled to vote on the merger, an Offeror may achieve the offer for the Offeree's stock through separate offers for separate classes or series of stock.
    • An Offeror's offer may exclude Rollover Stock (defined below) and any of the Offeree's stock owned at the time of the offer by (i) the Offeror, (ii) the Offeree, or (iii) any Affiliate (as defined below) or subsidiary of the Offeror or Offeree, thereby providing a clear path for certain stockholders to roll over their shares.
  • Sufficient shares to consummate the merger
    • The amendments clarify that, to determine whether a sufficient number of shares has been reached to approve a merger under Section 251(h), (i) shares of stock held by direct and indirect parent entities (or individuals) of the Offeree and direct or indirect wholly owned subsidiaries of any such parent entity (Affiliates) and (ii) shares of Rollover Stock (defined below) are counted toward the total number of shares.
    • "Rollover Stock" means shares of stock of the Offeree that are the subject of a written agreement requiring that such shares be transferred, contributed or delivered to the Offeror or any of its Affiliates in exchange for stock or other equity interests in the Offeror or any of its Affiliates. If such shares have not been transferred, contributed or delivered to the Offeror or any of its Affiliates immediately prior to the merger becoming effective, they are no longer considered Rollover Stock.
  • Receipt of stock
    • Finally, the amendments clarify the methods by which shares of the Offeree's stock may be "received" for purposes of determining whether they are counted toward the required minimum of shares. Shares are received:
      • with respect to certificated shares, upon physical receipt of a stock certificate along with an executed letter of transmittal (unless the certificate was canceled prior to consummation of the offer)
      • with respect to uncertificated shares held of record by a clearing corporation as nominee, when they are transferred into the Offeror's agent's account by means of an agent's message (unless the shares were otherwise sold prior to consummation of the offer)
      • with respect to all other uncertificated shares, upon physical receipt by the Offeror's agent of an executed letter of transmittal (unless the shares were otherwise sold prior to consummation of the offer).

Other DGCL Amendments

The DGCL amendments also, among other things:

  • Expand the jurisdiction of the Delaware Court of Chancery – The amendments to Section 111(a)(2) expand the jurisdiction of the Delaware Court of Chancery to include any civil action to interpret, apply, enforce or determine the validity of any instrument, document or agreement entered into on or after August 1, 2016:
  • to which a Delaware corporation and one or more of its stockholders are party, and pursuant to which any such stockholder(s) sell or offer to sell any stock of the corporation or
  • by which a Delaware corporation agrees to sell, lease or exchange any of its property or assets, and pursuant to which one or more stockholders must approve of or consent to such sale, lease or exchange.
  • Clarify default quorum and voting requirements for committees and subcommittees – Amended Section 141(c) clarifies that:
  • Quorum – A majority of the directors then serving on a committee or subcommittee shall constitute a quorum, unless the organizational documents of the corporation or certain resolutions require a greater or lesser number, provided that the minimum number permitted to constitute a quorum is one-third of the directors then serving on such committee or subcommittee.
  • Voting – The vote of the majority of the members of a committee or subcommittee present at a meeting at which a quorum is present is required, unless the organizational documents of the corporation or certain resolutions require a greater number (but not a lesser number).
  • Streamline references to committees and subcommittees – Amendments to Section 141(c) streamline committee and subcommittee references such that references to board committees and committee members are deemed to include a reference to subcommittees and subcommittee members.
  • Allow any two authorized officers of a corporation to sign stock certificates – The amendment to Section 158 deletes the provision specifying which officers must sign stock certificates and, instead, permits any two authorized officers to sign.
  • Clarify procedures for restoration and revival of certificates of incorporation and revocation of dissolution – Amendments to Sections 311 and 312 provide procedures to restore a corporation's certificate of incorporation after it has expired by limitation and revoke a corporation's dissolution, and distinguish these procedures from those to restore a corporation's certificate of incorporation after it has become forfeited or void.

Amendments to the LLC and Partnership Acts

  • Recent amendments to the LLC Act, the LP Act and the GP Act, and collectively with the LLC Act and the LP Act, the LLC and Partnership Acts were also signed into law on June 22, 2016, and went into effect on August 1, 2016.1 The most significant of these amendments:
  • Create a default rule regarding a sole member's assignment of its interest in a Delaware limited liability company – When the sole member of a Delaware limited liability company voluntarily (not due to foreclosure or similar legal process) assigns all of its interests in the limited liability company to a single assignee, the assignee is deemed admitted as a member of the limited liability company, unless otherwise provided in the limited liability company agreement or otherwise.2
  • Clarify the ability of Delaware limited liability companies and limited partnerships (and series thereof) to guarantee debt – Following the amendments, a Delaware limited liability company or limited partnership (or any series thereof) can agree, in the limited liability company agreement or limited partnership agreement or otherwise, to guarantee the debts, liabilities, obligations and expenses of the entire entity or another series of the entity.3
  • Remove the default rule in various sections of the LLC and Partnership Acts requiring a written vote or consent – The amendments deleted the requirement that actions of the members, managers or partners, as applicable, of a Delaware entity require a written vote.4
  • Specify how service of process may be accomplished on a Delaware series limited liability company or series limited partnership – The amendments to the LLC Act and LP Act outline procedures regarding service of process on series limited liability companies and series limited partnerships, and provide that, if service of process is made upon such limited liability company's or limited partnership's registered agent or upon the Secretary of State on behalf of the series, such process shall include the name of the limited liability company or limited partnership and the name of the series.5

Footnotes

1 H.R. 367, 148th Gen. Assem., Reg. Sess. (Del. 2016) (revising the Delaware Revised Uniform Limited Partnership Act); H.R. 368, 148th Gen. Assem., Reg. Sess. (Del. 2016) (revising the Delaware Revised Uniform Partnership Act); H.R. 372, 148th Gen. Assem., Reg. Sess. (Del. 2016) (revising the Delaware Limited Liability Company Act).

2 H.R. 372, 148th Gen. Assem., Reg. Sess. (Del. 2016).

3 H.R. 367, 148th Gen. Assem., Reg. Sess. (Del. 2016); H.R. 372, 148th Gen. Assem., Reg. Sess. (Del. 2016).

4 H.R. 367, 148th Gen. Assem., Reg. Sess. (Del. 2016); H.R. 368, 148th Gen. Assem., Reg. Sess. (Del. 2016); H.R. 372, 148th Gen. Assem., Reg. Sess. (Del. 2016).

5 H.R. 367, 148th Gen. Assem., Reg. Sess. (Del. 2016); H.R. 372, 148th Gen. Assem., Reg. Sess. (Del. 2016).

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