2022 Delaware General Corporate Law Amendments
In July 2022, the Governor of Delaware approved changes to the General Corporation Law of Delaware (DGCL). These changes were proposed by the Delaware State Bar Association and later approved by the Delaware legislature. The amendments cover various topics such as the rights of corporate officers, the authority to issue stock and options, the extension of certain appraisal rights to beneficial owners, and the process for non-U.S. entities to become domestic companies in Delaware.
The amendments extend exculpation rights for breaches of the fiduciary duty of care to senior officers of a Delaware corporation. The amendments revise Section 102(b)(7) of the DGCL to authorize a corporation to include in its certificate of incorporation a provision to eliminate or limit the monetary liability of specified executive officers for breach of the duty of care. The amendments address a long-standing discrepancy between exculpation rights granted to directors but not to officers. The amendments permit a corporation to adopt exculpatory language limiting the personal liability of both directors and officers, including the president, chief executive officer, chief operating officer, chief financial officer, chief legal officer, controller, treasurer, chief accounting officers, and others “identified in the corporation’s public filings with the SEC” or who have consented through a written agreement to accept service of process on the corporation’s behalf. Because the exculpation provision must be included in the certificate of incorporation, corporations must implement the provisions through a stockholder proposal.
The amendments have also expanded the ability of boards to delegate to an individual or entity for purposes of issuing stock or options. Under the amendments, a board is permitted to delegate authority to an individual or entity to issue stock, sell treasury shares, or issue rights or options to acquire stock. The amendments require that before delegating these responsibilities, the board must adopt a resolution establishing: (i) the maximum number of shares of stock, rights, or options that may be sold or issued; (ii) a time period for selling shares or issuing stock; and (iii) the minimum amount of consideration for these transactions.
The amendments eliminate the requirement that a corporation make a stockholder list available for inspection during a meeting of stockholders. The amendments also explicitly provide that a notice of meeting of stockholders may be given in any manner permitted by Section 232 of the DGCL. The amendments also address potential technical issues that may arise during a virtual meeting of stockholders, providing that (unless the corporation’s bylaws state otherwise) if a virtual meeting of stockholders is adjourned, including due to a technical failure to convene or continue a virtual meeting, notice need not be given if the time, date, and place of the adjourned meeting are announced at the meeting, displayed during the time scheduled for the meeting on the virtual platform utilized for the meeting, or set forth in the notice of meeting. As a practical matter, corporations using a virtual meeting format may also include an advance adjournment notice in the meeting notice to address potential technical issues that may arise while convening or holding the stockholder meeting.
The amendments also clarify that a stockholder executing a written consent that is effective at a future time, including a time determined by the happening of a future event, need not be a stockholder at the time such consent is executed if the person is a stockholder of record as of the record date set for determining stockholders entitled to consent to the action.
The amendments revise the DGCL to modify the time frame by which a conversion must be approved. While the statute previously required the approval of the converting entity and the approval of the certificate of incorporation by the same authorization required to approve the conversion to occur prior to the filing of the certificate of conversion, the amendments provide that the approvals must occur by the time the certificate of conversion filed with the Delaware Secretary of State becomes effective. For conversion of a Delaware corporation to another entity, the amendments were also revised to require the vote of holders of a majority in voting power of the outstanding shares entitled to vote on the conversion, versus the prior requirement for unanimous approval of the conversion by all of the outstanding stock of the entity regardless of voting rights.
The amendments also clarify the dissolution procedures for corporations specifying the duration of the corporation’s existence in their certificate of incorporation. The amendments provide that any corporation whose certificate of incorporation specifies the duration of the company’s existence must file dissolution documents with the Delaware Secretary of State within ninety days of the date set in the company’s incorporation documents. The certificate of dissolution must also contain certain information about the company. Further, the amendments specify that the corporation will be dissolved as a legal matter on either the date listed in the certificate of incorporation of the date on which the certificate of dissolution goes into effect, whichever is earlier. To address the possibility that a corporation fails to file a certificate of dissolution, the amendments provide that any certificate of good standing issued after the date on which the corporation’s existence terminates shall be of no force or effect. Additionally, the amendments modify the DGCL to contain confirming dissolution provisions for nonstick corporations.
The amendments substantially revise the DGCL to permit a non-United States entity domesticating into Delaware to adopt a plan of domestication setting forth the terms and conditions of the domestication, including the manner of exchanging or converting the equity interests of the non-United States entity to be domesticated and any details or provisions deemed desirable. The revised statutory language providing for a plan of domestication significantly streamlines the mechanics and technical approvals required in connection with the formation of a new Delaware corporation upon domestication and offers greater flexibility to transaction planners in structuring deals that contemplate one or more non-United States entities domesticating into Delaware.