DE SB75 | 2015-2016 | 148th General Assembly
Status
Completed Legislative Action
Spectrum: Slight Partisan Bill (Democrat 22-10)
Status: Passed on June 24 2015 - 100% progression
Action: 2015-06-24 - Signed by Governor
Text: Latest bill text (Draft #1) [HTML]
Spectrum: Slight Partisan Bill (Democrat 22-10)
Status: Passed on June 24 2015 - 100% progression
Action: 2015-06-24 - Signed by Governor
Text: Latest bill text (Draft #1) [HTML]
Summary
Section 1. Section 1 amends Section 102(a)(1) to enable the Division of Corporations in the Department of State to waive the requirement under Section 102(a)(1)(ii) in certain limited circumstances. Section 2. In ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014), the Delaware Supreme Court upheld as facially valid a bylaw imposing liability for certain legal fees of the nonstock corporation on certain members who participated in the litigation. In combination with the amendments to Sections 109(b) and 114(b)(2), new subsection (f) does not disturb that ruling in relation to nonstock corporations. In order to preserve the efficacy of the enforcement of fiduciary duties in stock corporations, however, new subsection (f) would invalidate a provision in the certificate of incorporation of a stock corporation that purports to impose liability upon a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with an internal corporate claim, as defined in new Section 115. New subsection (f) is not intended, however, to prevent the application of such provisions pursuant to a stockholders agreement or other writing signed by the stockholder against whom the provision is to be enforced. Section 3. Like the concurrent amendment to Section 102, the new last sentence of subsection (b) would invalidate a provision in the bylaws of a stock corporation that purports to impose liability upon a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with an internal corporate claim, as defined in new Section 115. The new last sentence of subsection (b) is not intended, however, to prevent the application of any provision in a stockholders agreement or other writing signed by the stockholder against whom the provision is to be enforced. Section 4. The amendment to Section 114 has the effect of avoiding the application to nonstock corporations of new Section 102(f) and the new last sentence of Section 109(b). Section 5. New Section 115 confirms, as held in Boilermakers Local 154 Retirement Fund v. Chevron Corporation, 73 A.3d 934 (Del. Ch. 2013), that the certificate of incorporation and bylaws of the corporation may effectively specify, consistent with applicable jurisdictional requirements, that claims arising under the DGCL, including 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, must be brought only in the courts (including the federal court) in this State. Section 115 does not address the validity of a provision of the certificate of incorporation or bylaws that selects a forum other than the Delaware courts as an additional forum in which internal corporate claims may be brought, but it invalidates such a provision selecting the courts in a different State, or an arbitral forum, if it would preclude litigating such claims in the Delaware courts. Section 115 is not intended, however, to prevent the application of any such provision in a stockholders agreement or other writing signed by the stockholder against whom the provision is to be enforced. Section 115 is not intended to foreclose evaluation of whether the specific terms and manner of adoption of a particular provision authorized by Section 115 comport with any relevant fiduciary obligation or operate reasonably in the circumstances presented. For example, such a provision may not be enforceable if the Delaware courts lack jurisdiction over indispensable parties or core elements of the subject matter of the litigation. Section 115 is also not intended to authorize a provision that purports to foreclose suit in a federal court based on federal jurisdiction, nor is Section 115 intended to limit or expand the jurisdiction of the Court of Chancery or the Superior Court. Section 6. The amendment to Section 152 clarifies that the board of directors may authorize stock to be issued in one or more transactions in such numbers and at such times as is determined by a person or body other than the board of directors or a committee of the board, provided the resolution of the board of directors or committee of the board authorizing the issuance fixes the maximum number of shares that may be issued, the time frame during which such shares may be issued and establishes a minimum amount of consideration for which such shares may be issued. The minimum amount of consideration cannot be less than the consideration required pursuant to Section 153. The amendment further clarifies that a formula by which the consideration for stock is determined may include reference to or be made dependent upon the operation of extrinsic facts, such as, without limitation, market prices on one or more dates or averages of market prices on one or more dates. Among other things, without limitation, the amendment is intended to make clear that the board of directors may authorize stock to be issued pursuant to “at the market” programs without having to separately authorize each individual stock issuance pursuant to such program. Section 7. The amendment to Section 157(b) clarifies that a formula by which the consideration for stock issued upon the exercise of rights and options in respect of stock is determined may include reference to or be made dependent upon the operation of extrinsic facts, such as market prices on one or more dates, or averages of market prices on one or more dates. Section 8. Section 204, which became effective on April 1, 2014, sets forth procedures for ratifying stock or corporate acts that, due to a "failure of authorization," would be void or voidable. This legislation clarifies and confirms the operation of specified provisions of Section 204 and makes certain other changes in respect of the procedures by which stock and defective corporate acts may be statutorily ratified. The amendments to Section 204(b)(1) confirm that the resolutions that the board of directors adopts to ratify a defective corporate act may include one or more other defective corporate acts. The amendments make clear that the quorum and voting requirements applicable to each defective corporate act contained in a set of board resolutions ratifying one or more defective corporate acts are those applicable to each defective corporate act, viewed on an act-by-act basis. For example, if the resolutions adopted pursuant to subsection 204(b)(1) address two defective corporate acts—the filing of an amendment to the certificate of incorporation and an issuance of shares—and the former required at all relevant times for its approval under the certificate of incorporation the affirmative vote of 75% of the total number of directors, while the latter required for its approval at all relevant times the affirmative vote of a majority of the directors present at a meeting at which a quorum is present, the resolutions must be adopted, with respect to the defective amendment, by the affirmative vote of 75% of the total number of directors, and with respect to the defective issuance, by the vote of a majority of the directors present at the meeting at which the resolutions are submitted to a vote of directors (provided a quorum is established at that meeting). Nothing in the statute is intended to prevent the board from cross-conditioning its own ratification of a defective corporate act on the approval of one or more other defective corporate acts, or from conditioning its ratification of any defective corporate act on the approval by stockholders of one or more other defective corporate acts, whether or not such vote is required by Section 204(c). Section 204(b)(2) is new. The new subsection addresses the situation in which the initial board of directors was not named in the original certificate of incorporation and has not been constituted by the incorporator. It permits those persons who have been acting as the corporation’s directors under claim and color of an election or appointment to adopt resolutions ratifying the election of those persons who, despite having not been named in the certificate of incorporation or by the incorporator as the initial directors, first took action on behalf of the corporation as the board of directors. Nothing in this subsection is intended to prevent a corporation from correcting its certificate of incorporation pursuant to Section 103(f) if the certificate of incorporation inadvertently omitted the provision naming the initial directors or otherwise constitutes an inaccurate record with respect to the naming of the initial directors. The amendments to Section 204(c) are designed to conform that subsection to the changes to Section 204(b) clarifying that the board may adopt a single set of resolutions ratifying multiple defective corporate acts. The changes to Section 204(c) provide that each defective corporate act—rather than the board’s resolutions ratifying one or more defective corporate acts—must be submitted to stockholders for their approval, except where the defective corporate act would not have required a vote of stockholders under the General Corporation Law, the certificate of incorporation or bylaws of the corporation, or any plan to which the corporation is a party, either at the time of the defective corporate act or the time the board adopts the resolutions ratifying the act (and provided that the defective corporate act did not result from a failure to comply with Section 203). Section 204(d), which specifies the voting standards applicable to the stockholders’ approval of a defective corporate act, has been revised principally to conform with the changes to Section 204(b)(1) and Section 204(c). Consistent with the revisions to Section 204(c), Section 204(d) eliminates references to the board’s resolution ratifying a defective corporate act being submitted to stockholders and instead describes the circumstances under which a defective corporate act must be submitted to stockholders for approval. Because Section 204(d), as revised, eliminates the requirement that the board’s “resolution” adopting a defective corporate act be submitted to stockholders, it requires that, where the ratification of a defective corporate act is submitted to stockholders for approval at a meeting, the notice must include either the board’s resolutions ratifying the defective corporate act or the information set forth in paragraphs (A) through (E) of Section 204(b)(1). As with the voting standards applicable to the board’s adoption of resolutions ratifying any defective corporate act, the amendments to Section 204(d) make clear that the quorum and voting requirements applicable to the ratification of each defective corporate act submitted to stockholders are those applicable to the particular defective corporate act, viewed on an act-by-act basis. For example, if the board submits two defective corporate acts to stockholders for their approval—one involving a defective amendment to the certificate of incorporation and the other involving a defective issuance of shares—and the former required at all relevant times for its approval under the certificate of incorporation the affirmative vote of a majority of the outstanding voting power of the capital stock, while the latter required for its approval at all relevant times the affirmative vote of a majority of the Series A Preferred Stock, voting as a single class, the defective amendment must be approved by the affirmative vote of a majority in voting power of the outstanding capital stock, while the defective issuance must be approved by the vote of a majority of the outstanding Series A Preferred Stock. Nothing in the statute is intended to prevent the corporation from cross-conditioning the stockholders’ approval of one defective corporate act on the stockholders’ approval of one or more other defective corporate acts. Next, Section 204(d) has been amended to clarify that the only stockholders entitled to vote on the ratification of a defective corporate act, or to be counted for purposes of a quorum for such vote, are the holders of record of valid stock as of the record date for determining stockholders entitled to vote thereon. It does so by confirming that shares of putative stock will not be counted for purposes of determining the stockholders entitled to vote or to be counted for purposes of a quorum in any vote on the ratification of any defective corporate act. Corresponding changes are being made to Section 204(f) to clarify that the “retroactive” validity that Section 204 gives to putative stock will not result in shares of putative stock being considered valid stock as of the record date for the vote on the ratification of a defective corporate act or acts previously submitted to stockholders. Section 204(d)(2), which deals with the voting standards applicable to the ratification of the election of a director requiring a vote of stockholders, has been revised such that the voting standard conforms with that of Section 204(d)(1). Thus, as with Section 204(d)(1), if the certificate of incorporation or bylaws in effect at the time of the vote on the ratification of the election of directors or at the time of the defective election require or required a larger portion of stock or of any class or series of stock or of any specified stockholder to elect such director, then the affirmative vote of such larger number or portion or stock or of any class or series of stock or of such specified stockholder will be required to ratify the election. As with Section 204(d)(1), the amendments to Section 204(d)(2) provide that the presence or approval of shares of any class or series of which no shares are then outstanding, or of any person that is no longer a stockholder, will not be required for purposes of the vote on the ratification of an election. The amendments to Section 204(e) are intended to clarify the requirements in respect of certificates of validation. First, the changes to Section 204(e) dispense with the requirement that the board’s resolutions ratifying the defective corporate act be attached to the certificate of validation. The changes to Section 204(e) require instead that the certificate of validation set forth specified information regarding the defective corporate act and the related failure of authorization. The changes to Section 204(e) clarify that a separate certificate of validation must be filed in respect of each defective corporate act that requires the filing of a certificate of validation, except in two limited cases. The first case occurs where the corporation had filed (or, to comply with the General Corporation Law, would have filed) a single certificate under another provision of the General Corporation Law to effect multiple defective corporate acts. For example, if two or more subsidiaries of a parent corporation were merged with and into such parent corporation, albeit defectively, and the parent corporation purportedly effected both such mergers through the filing of a single certificate of merger, the defective corporate acts (i.e., both such mergers that were defectively consummated due to a failure of authorization) may be included in a single certificate of validation. The second case occurs where two or more overissues are being validated. In that case, a single certificate of validation may be used so long as the total increase in the authorized capital stock of each class or series of stock is effective as of the date of the earliest overissue referenced in the certificate of validation. Second, the amendments clarify the information that must be included in the form of certificate of validation in cases where (x) a certificate in respect of the defective corporate act had previously been filed and no changes are required to give effect to the ratification of the defective corporate act that is the subject of the certificate of validation, (y) a certificate in respect of the defective corporate act had previously been filed and changes are required to that certificate to give effect to the ratification of the defective corporate act that is the subject of the certificate of validation, and (z) no certificate had previously been filed and the filing of a certificate was required to give effect to the ratification of a defective corporate act. Where a certificate had previously been filed and no changes to it are required, Section 204(e) now requires that the certificate as previously filed with the Secretary of State be attached to the certificate of validation as an exhibit. Thus, if a corporation defectively amended its certificate of incorporation due to, for example, the fact that the board adopted the amendment by written consent of fewer than all directors, but a certificate of amendment was previously filed and requires no changes, the file-stamped copy of the certificate of amendment as previously filed would be attached to the certificate of validation as an exhibit. Where a certificate had previously been filed and changes are required, Section 204(e) now expressly requires that a certificate containing all of the information required under the other section of the General Corporation Law, including the changes necessary to give effect to the ratification of the defective corporate act, be attached to the certificate of validation as an exhibit. The certificate of validation must also state the date and time as of which the certificate attached to it would have become effective. Thus, for example, if the corporation defectively effected a forward stock split of its outstanding common stock and filed a certificate of amendment that increased the authorized shares of common stock to account for the forward split but failed to include the language required by Section 242(b) of the General Corporation Law to effect the forward split of the outstanding shares of common stock, a copy of the certificate of amendment as it would have been filed, including both the increase in the authorized number of shares of common stock and the language effecting the forward stock split of the then outstanding shares of common stock, must be attached as an exhibit to the certificate of validation. The certificate attached to the certificate of validation under these circumstances need not be separately executed and acknowledged, and it need not include any statement required by any other section of the General Corporation Law that the instrument has been approved and adopted in accordance with such other section. Where no certificate in respect of the defective corporate act had previously been filed and a certificate would have been required to be filed to give effect to the defective corporate act, Section 204(e) now expressly requires that a certificate containing all of the information required under the other section of the General Corporation Law be attached to the certificate of validation as an exhibit. The certificate of validation must also state the date and time as of which the certificate attached to it would have become effective. Thus, for example, if a corporation defectively effected a reverse stock split by board action alone, and failed to file a certificate of amendment including the language necessary to effect the reverse stock split, a certificate of amendment that includes all of the provisions that would be required under Section 242(b) of the General Corporation Law must be attached to the certificate of validation. The certificate attached to the certificate of validation under these circumstances need not be separately executed and acknowledged, and it need not include any statement required by any other section of the General Corporation Law that the instrument has been approved and adopted in accordance with such other section. Consistent with the amendments to Section 204(d), the amendments to Section 204(f) are intended to make clear that the stockholders entitled to vote and be counted for quorum purposes on the ratification of a defective corporate act that requires a vote of stockholders are the holders of valid stock as of the record date for the approval of the ratification of the defective corporate act. By making the “retroactive effect” that Section 204(f) grants to defective corporate acts subject to the provision of Section 204(d) that expressly states that shares of putative stock will not be counted for purposes of determining the shares entitled to vote or be counted for quorum purposes on the ratification of a defective corporate act, Section 204(f) confirms that the ratification of a defective corporate act will not result in putative shares being retroactively validated such that they would need to be included in the vote on the ratification of a defective corporate act. For example, if, as of the record date for the approval of the ratification of a defective corporate act that involved the issuance of putative shares of preferred stock, the corporation has 100 shares of valid common stock outstanding and 100 shares of putative preferred stock “outstanding,” only the shares of common stock would be counted as shares entitled to vote on the ratification of such defective corporate act and any other defective corporate act submitted to stockholders at such time, even if the shares of preferred stock, by virtue of the ratification, will be deemed to have been validly issued as of a date prior to such record date. Section 204(g) is being amended to provide that corporations that have a class of stock listed on a national securities exchange may give the notice required by Section 204(g) by means of a public filing pursuant to specified provisions of the Securities Exchange Act of 1934, as amended. Section 204(g) is also being amended to provide clarity as to the manner in which notice may be given when stockholders are approving the ratification of a defective corporate act by written consent in lieu of a meeting. The amendments provide that, where the ratification of a defective corporate act is approved by consent of stockholders in lieu of a meeting, the notice required by Section 204(g) may be included in the notice required to be given pursuant to Section 228(e). The amendments further clarify that, where a notice sent pursuant to Section 204(g) is included in a notice sent pursuant to Section 228(e), the notice must be sent to the parties entitled to receive the notice under both Section 204(g) and Section 228(e). The amendments to Section 204(g) also clarify that no such notice need be provided to any holder of valid shares that acted by written consent in lieu of a meeting to approve the ratification of a defective corporate act or to putative stockholders who otherwise consented to the ratification. Section 204(h)(2) is being amended to clarify that the failure of the board of directors or any officer of the corporation to approve an act or transaction taken by or on behalf of the corporation that would have required approval by the board or such officer may constitute a "failure of authorization." The amendment is intended to clarify that any act taken without such approval by the board or such officer could constitute a defective corporate act susceptible to cure by ratification under Section 204. The amendment is intended solely to confirm the broad scope of acts that may be ratified under Section 204 and is not intended to imply that any specific acts suffering from such a failure of authorization would necessarily be void or voidable or that they may not be susceptible to cure by ratification under principles of common law. Section 204(h)(6) currently defines "validation effective time" as the later of (x) the time at which the ratification of the defective corporate act is approved by stockholders (or, if no vote is required, the time at which the notice required by Section 204(g) is given) and (y) the time at which any certificate of validation has become effective. The amendments to Section 204(h)(6) confirm that, in respect of the ratification of any defective corporate act that requires stockholder approval but does not require the filing of a certificate of validation, the "validation effective time" is the time at which the stockholders approve the ratification of the defective corporate act, whether the stockholders are acting at a meeting or by consent in lieu of a meeting pursuant to Section 228. (Although the statute clarifies that, in such cases, the validation effective time commences upon the stockholders' approval of the ratification of the defective corporate act, a corresponding amendment to Section 204(g) is being made to confirm that the 120-day period during which stockholders may challenge the ratification of a defective corporate act commences from the later of the validation effective time and the time at which the notice required by Section 204(g) is given). The term "validation effective time" in Section 204(h)(6) is being further amended to permit the board of directors to fix a future validation effective time for any defective corporate act that is not required to be submitted to a vote of stockholders and that does not require the filing of a certificate of validation. Again, the 120-day period during which challenges to the ratification may be brought would commence from the later of the validation effective time and the time at which the notice required by Section 204(g) is given. The amendment is intended to obviate logistical issues that may arise in connection with the delivery of notices in situations where multiple defective corporate acts are being ratified at the same time. As amended, Section 204(h)(6) enables the board to set one date on which the ratification of all defective corporate acts approved by the board will be effective, regardless of when the notice under Section 204(g) is sent. Section 204(i) provides that Section 204 is not the exclusive means of ratifying corporate acts, recognizing that certain "voidable" acts may be susceptible to cure by ratification under common law. The amendments to Section 204(i) are intended to clarify that the scope of the subsection encompasses actions ratified under the common law "pre-incorporation doctrine," which generally provides that a corporation is competent to adopt and ratify agreements made by its organizer or promoter in contemplation of its organization. Section 9. Section 205(f) is being amended to conform that subsection to amended Section 204(g). These amendments confirm that the 120-day period during which stockholders may challenge the ratification of a defective corporate act under Section 205 commences from the later of the validation effective time and the time at which the notice required by Section 204(g) is given. Section 10. The amendment to Section 245(c) clarifies that a restated certificate is not required to state that it does not further amend the provisions of the corporation's certificate of incorporation if the only amendment thereto is to change the corporation's name without a vote of the stockholders. Section 11. Section 11 deletes the requirement of a public benefit corporation specific identifier in the name of a public benefit corporation, but requires notification to purchasers of shares in public benefit corporations under certain circumstances. Section 12. Section 12 amends Section 363(a) to change the approval required under that Section. Section 13. Section 13 provides a market out to the provisions requiring appraisal in certain transactions involving public benefit corporations. Section 14. Section 14 amends Section 363(c) to change the approval required under that Section. Section 15. Section 15 amends Section 391(c) to confirm that in exchange for the fees described the Secretary of State may issue public records in the form of photocopies or electronic image copies and need not provide public records in any other form. Section 16. Section 16 provides that the effective date of Sections 1 through 7, 10 through 12 and 14 is August 1, 2015, that Sections 8 and 9 shall be effective only with respect to defective corporate acts and proposed issuances of putative stock ratified or to be ratified pursuant to resolutions adopted by a board of directors on or after August 1, 2015, that Section 13 shall be effective only with respect to mergers and consolidations consummated pursuant to agreements entered into on or after August 1, 2015, or in the case of amendments, amendments approved by the board of directors on or after August 1, 2015, and that Section 15 shall be effective upon its enactment into law. The effective date of Sections 8 and 9 is intended to provide certainty as to the notice and filing procedures applicable where a ratification under Section 204 has been commenced prior to August 1, 2015 but the validation effective time in respect thereof has not yet occurred. Nothing in Section 16 is intended to imply that the clarifying and confirmatory amendments to Section 204 are inapplicable in determining the proper interpretation of Section 204 with respect to ratifications that were commenced or became effective prior to August 1, 2015.
Title
An Act To Amend Title 8 Of The Delaware Code Relating To The General Corporation Law.
Sponsors
Roll Calls
2015-06-11 - House - House Third Reading (Y: 40 N: 0 NV: 0 Abs: 1) [PASS]
History
| Date | Chamber | Action |
|---|---|---|
| 2015-06-24 | Senate | Signed by Governor |
| 2015-06-11 | House | Passed by House of Representatives. Votes: Passed 40 YES 0 NO 0 NOT VOTING 1 ABSENT 0 VACANT |
| 2015-06-03 | House | Reported Out of Committee (JUDICIARY) in House with 11 On Its Merits |
| 2015-05-13 | House | Introduced and Assigned to Judiciary Committee in House |
| 2015-05-12 | Senate | Passed by Senate. Votes: Passed 16 YES 5 NO 0 NOT VOTING 0 ABSENT 0 VACANT |
| 2015-05-12 | Senate | Amendment SA 1 - Defeated by Senate. Votes: Defeated 7 YES 12 NO 2 NOT VOTING 0 ABSENT 0 VACANT |
| 2015-05-12 | Senate | Amendment SA 1 defeated |
| 2015-05-12 | Senate | Amendment SA 1 - Introduced in Senate |
| 2015-05-06 | Senate | Reported Out of Committee (JUDICIARY) in Senate with 4 On Its Merits |
| 2015-04-29 | Senate | Assigned to Judiciary Committee in Senate |
