DE HB341 | 2009-2010 | 145th General Assembly
Status
Completed Legislative Action
Spectrum: Bipartisan Bill
Status: Passed on May 3 2010 - 100% progression
Action: 2010-05-03 - Signed by Governor
Text: Latest bill text (Draft #1) [HTML]
Spectrum: Bipartisan Bill
Status: Passed on May 3 2010 - 100% progression
Action: 2010-05-03 - Signed by Governor
Text: Latest bill text (Draft #1) [HTML]
Summary
This bill is a comprehensive set of amendments to many sections of the General Corporation Law of the State of Delaware (“DGCL”), and to Chapter 5 of Title 8, to clarify, fill gaps in, and make consistent the DGCL’s application to corporations that are not authorized to issue capital stock, commonly known as nonstock corporations. For historical reasons, the DGCL has not comprehensively addressed nonstock corporations. Since Delaware now has approximately 18,000 registered nonstock corporations, these amendments will provide clarity and consistency so that these entities and their advisors will have appropriate and necessary statutory guidance. Most notably, new Section 114 of the DGCL is a “translator” provision that sets forth which provisions of the DGCL apply to nonstock corporations generally and which provisions apply to non-profit nonstock corporations specifically. With the exception of amendments to Sections 313, 391, and 501, none of these amendments is intended to affect the DGCL with respect to stock corporations, either directly or by negative implication. Section 1 amends 102(a)(4) of the DGCL to allow nonstock corporations to put the conditions of membership, or other criteria for identifying members, in their certificates of incorporation or in their bylaws. This Section further amends 102(a)(4) to clarify that nonstock corporations shall have members, but the failure to have members shall not affect otherwise valid corporate acts or work a forfeiture or dissolution of the corporation. This Section further amends 102(a)(4) to provide that, until provided otherwise in the corporation’s certificate of incorporation or bylaws, the members of a nonstock corporation that fails to state the conditions of membership in its certificate of incorporation or bylaws shall be deemed to be those entitled to vote for the election of the members of the corporation’s governing body under the corporation’s certificate of incorporation or bylaws or otherwise. This Section further amends 102(a)(4) to clarify that nonstock corporations may provide for classes or groups of members; that nonstock corporations may provide for full, limited, or no voting rights and powers of members, including that members may be entitled to vote on certain transactions even if they are not entitled to vote for the election of members of the corporation’s governing body; and that voting by members may be made on a per capita, number, financial interest, or any other basis. This Section further amends 102(a)(4) to provide that provisions regarding classes and voting rights of members may be set forth either in the corporation’s certificate of incorporation or in its bylaws. Section 2 amends 102(b)(1) of the DGCL to add language applying to nonstock corporations. Sections 3 and 4 amend 102(b)(2) of the DGCL to provide language regarding compromises between the corporation and its creditors and/or between the corporation and its members appropriate for the certificate of incorporation of a nonstock corporation. Sections 5, 6, 7, and 8 make technical changes to 102(b)(6), 102(b)(7), 102(d), and 109(a) of the DGCL consistent with the intent of the bill and with the translator provision in new 114(a). Section 9 amends the DGCL to add a new 114. Section 114 has four operative provisions. New 114(a) provides that, unless otherwise provided in 114(b) or 114(c), the provisions of the DGCL generally apply to nonstock corporations and that, for purposes of applying to nonstock corporations, the stock-corporation terms in each applicable section will be translated into nonstock-corporation terms. Section 114(a)(4) provides that members of non-profit nonstock corporations have memberships, while members of other nonstock corporations hold membership interests in the nonstock corporations. New 114(b) carves out certain provisions of the DGCL from the operation of 114(a), so the provisions listed in 114(b) are not translated by 114(a). Specifically, new 114(b)(1) lists provisions of the DGCL that apply to nonstock corporations by their terms and therefore require no translation; and 114(b)(2) and 114(b)(3) list sections and subchapters of the DGCL that do not apply to nonstock corporations by virtue of the translator provision in 114(a) (but which may be made otherwise applicable by a different provision). New 114(c) carves out provisions in addition to those listed in 114(b) to ensure that those provisions are not applied to non-profit nonstock corporations. New 114(d) defines the following terms relating to nonstock corporations: “nonstock corporation,” “membership interest,” “non-profit nonstock corporation,” and “charitable nonstock corporation.” Section 144(a)(2) is listed in new 114(c)(2) in accordance with the concept noted in Oberly v. Kirby, 592 A.2d 445, 467–68 (Del. 1991), that the members of a non-profit nonstock corporation may not ratify such interested transactions because they have no financial interest in the corporation. Because the translator provision in new 114(a) operates on 159 for nonstock corporations other than non-profit nonstock corporations, membership interests in nonstock corporations are personal property. Sections 10, 11, 12, 13, and 14 make technical changes to 141 and 144 of the DGCL consistent with the intent of the bill and with the translator provision in new 114(a). Section 15 amends 154 of the DGCL to make clear, for purposes of 154, 160, and 170, that capital in a nonstock corporation is zero. Sections 16 and 17 amend 160 of the DGCL to ensure consistency with the amendment to 154 regarding the capital of a nonstock corporation, and to allow a nonstock corporation to redeem its membership interests if the redemption of such membership interests is authorized by the corporation’s certificate of incorporation. Section 18 amends 170 of the DGCL to ensure that the translator provision in new 114(a) operates properly on 170. Section 19 amends 215(a) of the DGCL to apply 211(d) (regarding special meetings of members) and 212(e) (regarding irrevocable proxies) to nonstock corporations; this Section further amends 215(a) to ensure that it translates correctly the provisions to which it refers. This Section amends 215(b) of the DGCL to ensure consistency with the amendments to 102(a)(4) allowing the corporation’s certificate of incorporation or bylaws to set forth the members’ voting rights. This Section further amends 215(b) to provide that members’ voting rights are subject to the record date for any particular meeting. This Section amends the DGCL to add new 215(c)(4). Consistent with the amendments to 102(a)(4), new 215(c)(4) defines the quorum and vote necessary to take action for separate votes of classes or groups of members. This Section also amends the DGCL to add new 215(f). New 215(f) provides that, except as otherwise provided in the corporation’s certificate of incorporation, in the corporation’s bylaws, or by resolution of the corporation’s governing body, the record date for meetings of nonstock corporations shall be deemed to be the date of the meeting, so long as no record date precedes the action by the governing body fixing that record date. Sections 20, 21, 22, 23, 24, 25, and 26 make technical changes to 220, 223, and 225 of the DGCL consistent with the intent of the bill and with the translator provision in new 114(a). Section 27 amends the DGCL to add new 226(c) to provide that, in the case of a charitable nonstock corporation, the applicant must provide a copy of the application referred to in 226(a) to the Attorney General of the State of Delaware within one week of filing the application with the Court of Chancery. Sections 28, 29, and 30 make technical changes to 227, 232, and 233 of the DGCL consistent with the intent of the bill and with the translator provision in new 114(a). Section 31 and 32 amend 241 of the DGCL, amending 241(b) to ensure that 241 properly applies to nonstock corporations, and adding new 241(c) to provide that 241 applies to nonstock corporations before such corporations have any members. Sections 33, 34, and 35 amend 242 of the DGCL to ensure that 242 is consistent with the terms used in the translator provision in new 114(a), and to clarify that 242(b)(4) applies to nonstock corporations. Sections 36 and 37 amend 245 of the DGCL to clarify that 245 applies to a nonstock corporation even if no vote of the members of the corporation is required to amend the corporation’s certificate of incorporation. Sections 38, 39, and 40 amend the DGCL to add new 253(f) and amend 253 of the DGCL to allow a nonstock corporation that owns 90% of the outstanding shares of each class of stock of a subsidiary otherwise entitled to vote on a merger to effect a short-form merger, so long as the nonstock corporation is the surviving corporation. These Sections also amend the DCGL to add new 253(g) to provide that nothing in 253 shall be deemed to authorize the merger of a corporation with a charitable nonstock corporation, if the charitable status of such charitable nonstock corporation would thereby be lost or impaired. Section 41 amends 255 of the DGCL to ensure that 255 is consistent with the terms used in the translator provision in new 114(a) and to clarify procedures regarding the execution, acknowledgment, adoption, and certification of the merger agreement. This Section also amends 255(c) to clarify that members may vote on a merger if, under the corporation’s certificate or incorporation or bylaws, they are entitled to vote on the merger or for the election of the members of the governing body. The amendment to 255(c) further clarifies that the decision to include either a copy or a summary of an agreement of merger or consolidation in a notice of a meeting of the members of a constituent nonstock corporation need not be approved by a specific act of the governing body of the nonstock corporation. The amendment is not intended to define or limit any duty of members of the governing body relating to disclosure to members in connection with the transaction. This Section further amends 255 to provide that, if no members of the corporation are entitled to vote on the merger other those who are members of the governing body, only a single vote is required to approve the agreement of merger or consolidation, so long as the resolution approving that agreement of merger or consolidation is approved by a majority of all the members of the governing body. This amendment dispenses with the need for a second vote authorizing a merger and decreases the necessary vote from two-thirds of the members of the governing body to a majority of the members of the governing body. This Section also amends the DCGL to add new 255(e), which provides that 251(d), as translated for application to nonstock corporations, shall apply to mergers under 255. Sections 42 and 43 amend 256 of the DGCL to ensure that 256 is consistent with the terms used in the translator provision in new 114(a); to add new 256(f), which provides that 251(d), as translated for application to nonstock corporations, shall apply to mergers under 256; and to add new 256(g) to clarify that nothing in 256 shall be deemed to authorize the merger of a charitable nonstock corporation into a nonstock corporation, if the charitable status of such charitable nonstock corporation would thereby be lost or impaired. Section 44 amends 257 of the DGCL consistent with the intent of the bill and with the translator provision in new 114(a). This Section also amends the DGCL to add new 257(e), which provides that 251(d), as translated for application to nonstock corporations, shall apply to mergers under 257. Sections 45 and 46 amend 258 of the DGCL consistent with the intent of the bill and with the translator provision in new 114(a) and to clarify that 251(d), as translated for application to nonstock corporations, shall apply to mergers under 258. Sections 47, 48, 49, and 50 amend 262 of the DGCL to ensure that the translator provision in new 114(a) operates properly on 262, to clarify that 262 applies to mergers under 255 and 256, and to amend 262(d) to provide notice procedures appropriate for nonstock corporations, including requiring that a copy of new 114 be provided if one of the constituent corporations is a nonstock corporation. These amendments shall be effective only with respect to transactions consummated pursuant to agreements entered into after August 1, 2010 (or, in the case of mergers pursuant to Section 253, resolutions of the board of directors adopted after August 1, 2010), and appraisal proceedings arising out of such transactions. Sections 51, 52, and 53 amend 263 of the DGCL to ensure that the translator provision in new 114(a) operates properly on 263 and to clarify that 263 applies to nonstock corporations, and add new 263(f) to clarify that nothing in 263 shall be deemed to authorize the merger of a charitable nonstock corporation into a partnership, if the charitable status of such charitable nonstock corporation would thereby be lost or impaired. Sections 54, 55, and 56 amend 264 of the DGCL to ensure that the translator provision in new 114(a) operates properly on 264 and to clarify that 264 applies to nonstock corporations, and add new 264(f) to clarify that nothing in 264 shall be deemed to authorize the merger of a charitable nonstock corporation into a limited liability company, if the charitable status of such charitable nonstock corporation would thereby be lost or impaired. Section 57 amends the DGCL to add new 266(j) to clarify that nothing in 266 shall be deemed to authorize the conversion of a charitable nonstock corporation into another entity, if the charitable status of such charitable nonstock corporation would thereby be lost or impaired. Section 58 amends 271(a) of the DGCL to clarify that members may vote on a sale, lease or exchange of all or substantially all of its property and assets if, under the corporation’s certificate or incorporation or bylaws, they are entitled to vote thereon or for the election of the members of the governing body. Section 59 amends the DGCL to add new 273(c) to provide that, in the case of a charitable nonstock corporation, the petitioner must provide a copy of the petition referred to in 273(a) to the Attorney General of the State of Delaware within one week of filing the petition with the Court of Chancery. Section 60 amends 276 of the DGCL to ensure that the translator provision in new 114(a) operates properly on 276; to clarify that members may vote for dissolution if, under the corporation’s certificate of incorporation or bylaws, they are entitled to vote thereon or for the election of the members of the governing body; and to clarify that members of the corporation may authorize dissolution without action of the members of the governing body if all the members of the corporation entitled to vote thereon shall consent in writing and a certificate of dissolution shall be properly filed with the Secretary of State. Section 61 amends the DGCL to add new 280(g) to provide that, in the case of a nonstock corporation, any notice referred to in the last sentence of 280(a)(3) shall include a copy of new 114 and to provide that, in the case of a non-profit nonstock corporation, provisions of 280 regarding distributions to members shall not apply to the extent that those provisions conflict with any other applicable law or with that corporation’s certificate of incorporation or bylaws. This amendment shall be effective only with respect to dissolutions made effective after August 1, 2010, and the filing of claims arising out of such dissolutions. Section 62 amends the DGCL to add new 281(f) to provide that, in the case of a non-profit nonstock corporation, provisions of 281 regarding distributions to members shall not apply to the extent that those provisions conflict with any other applicable law or with that corporation’s certificate of incorporation or bylaws. This amendment shall be effective only with respect to dissolutions made effective after August 1, 2010, and the filing of claims arising out of such dissolutions. Section 63 amends the DGCL to add new 311(f) to provide that, in a procedure analogous to that for a stock corporation, a nonstock corporation can revoke a dissolution effected by it. New 311(f) provides that the revocation of dissolution will include, if applicable, a vote of the members entitled to vote (if any) on the dissolution and the filing of a certificate of revocation of dissolution containing information comparable to that described in 311(a)(4). Section 64 amends 312(j) of the DGCL to ensure that 312(j) is consistent with the terms used in the translator provision in new 114(a); to clarify that members may vote for renewal or revival if, under the corporation’s certificate of incorporation or bylaws, they are entitled to vote for dissolution or for the election of the members of the governing body; to clarify that 312(j) is subject to the provisions of 313; and to clarify that 312(i) does not apply to nonstock corporations. Section 65 amends 313(a) of the DGCL to provide that 313 applies to all exempt corporations, as defined under new 501(b) of Title 8. Section 66 amends the DGCL to add new 390(i) to provide that nonstock corporations may transfer to or domesticate or continue in any foreign jurisdiction in a manner analogous to that of a stock corporation and, in the case of a charitable nonstock corporation, that the Attorney General of the State of Delaware must be provided with notice of the corporation’s intent to effect a transfer, domestication or continuance 10 days prior to the date of the proposed transfer, domestication or continuance. Section 67 amends 391(j) of the DGCL to refer to the definition of “exempt corporation” in new 501(b) of Title 8. Section 68 amends 501 of Chapter 5 of Title 8 to incorporate the definition of “exempt corporation,” which has been expanded to include stock corporations, and to clarify that exempt corporations are exempt from the franchise tax. Section 69 amends 503(a)(1) of Chapter 5 of Title 8 to provide that the franchise tax applicable to nonstock corporations (except exempt corporations, which are exempt from the franchise tax) is $75. Section 70 amends 505(c) of Chapter 5 of Title 8 to ensure that it is consistent with the amendment of 501 of Chapter 5 of Title 8. Section 71 provides that Sections 1 through 46, 51 through 60, and 63 through 70 shall be effective on August 1, 2010; that Sections 47 through 50 shall be effective only with respect to transactions consummated pursuant to agreements entered into after August 1, 2010 (or, in the case of mergers pursuant to Section 253, resolutions of the board of directors adopted after August 1, 2010), and appraisal proceedings arising out of such transactions; and that Sections 61 and 62 shall be effective only with respect to dissolutions made effective after August 1, 2010, and the filing of claims arising out of such dissolutions.
Title
An Act To Amend Title 8 Of The Delaware Code Relating To The General Corporation Law.
Sponsors
| Rep. Edward Bennett [D] | Sen. Patricia Blevins [D] | Rep. William Carson [D] | Rep. George [?] |
| Rep. Thomas Kovach [R] | Sen. David Wilson [R] |
Roll Calls
2010-04-28 - Senate - Senate Third Reading (Y: 18 N: 0 NV: 0 Abs: 3) [PASS]
2010-03-25 - House - House Third Reading (Y: 39 N: 0 NV: 0 Abs: 2) [PASS]
2010-03-25 - House - House Third Reading (Y: 39 N: 0 NV: 0 Abs: 2) [PASS]
History
| Date | Chamber | Action |
|---|---|---|
| 2010-05-03 | Signed by Governor | |
| 2010-04-28 | Passed by Senate. Votes: Passed 18 YES 0 NO 0 NOT VOTING 3 ABSENT 0 VACANT | |
| 2010-04-28 | Reported Out of Committee (JUDICIARY) in Senate with 4 On Its Merits | |
| 2010-03-30 | Assigned to Judiciary Committee in Senate | |
| 2010-03-25 | Passed by House of Representatives. Votes: Passed 39 YES 0 NO 0 NOT VOTING 2 ABSENT 0 VACANT | |
| 2010-03-24 | Reported Out of Committee (JUDICIARY) in House with 6 Favorable, 2 On Its Merits | |
| 2010-03-23 | Introduced and Assigned to Judiciary Committee in House |
