Delaware General Corporation Law Updates Tackle COVID-19, Proxy Information and Emergency ProvisionsJuly 27, 2020 – Alerts
Delaware adopted new amendments to its General Corporation Law (DGCL) on July 16, 2020. Amendments to sections 102, 110, 116, 145, 212, 228, 232, 251, 363, 365 and 367 appear to respond to the COVID-19 pandemic, while others modify proxy information exchange, emergency provisions for businesses and the rules regarding public benefit corporations.
We detail these amendments below.
Section 102 – Company Naming and Director Liability
Section 102(a) was amended to add “registered series of a limited partnership” to the list of names from which a corporate name must be distinguishable in the state of Delaware’s records.
Section 102(b)(7) allows a provision in a corporation’s certificate of incorporation to eliminate or limit the liability of directors for monetary damages for certain breaches of fiduciary duties. It also provides that any future amendment, repeal or elimination of such a provision shall not affect a corporation’s application to an act or omission by a director that occurred before the amendment, repeal or elimination, unless the provision states otherwise at the time of the act or omission.
Section 110 – Expanded Emergency Action Measures for Boards of Directors
Section 110(a) was amended to include additional circumstances under which a board of directors can take emergency action, specifically including an epidemic, pandemic or declaration of a national emergency by the U.S. government. The list of triggering events is not exhaustive and includes a catch-all provision for “other similar conditions.”
Additionally, Section 110 was amended to provide that if a quorum cannot readily be convened, a majority of directors present may adopt emergency bylaws. It also permits the board of directors to postpone or change the location of a stockholder meeting and postpone record dates and payment dates of dividends, subject to special rules for publicly traded corporations. Emergency bylaws may contain any provision “practical and necessary” to address the circumstances of the emergency, notwithstanding any different provisions in the DGCL or the corporation’s charter. A corporation that changes the record date or payment date pursuant to this provision is required to provide stockholders with a notice of the change as promptly as practicable (and, in any event, before the original record date). For corporations subject to the reporting requirements of the Securities Exchange Act of 1934, notice must be given by means of a Securities and Exchange Commission filing.
Section 110(i) tracks a prior order by the governor of Delaware permitting the postponement of annual meetings or the transition of annual meetings to remote means. It also allows corporations that had declared a dividend for which the record date had not yet occurred to postpone the dividend to a later date under certain circumstances.
The amendments to this Section 110 are effective retroactively as of Jan. 1, 2020.
Section 116 – Electronic Signatures
Section 116 broadens the definition of “electronic signature and eliminates the carve-out in Section 116(b) for electronic execution of board, stockholder and incorporator consents in lieu of a meeting unless the certificate of incorporation expressly provides otherwise.
Section 145 –Definition of Company “Officer”
Amended Section 145(c) redefines who is deemed an “officer” regarding any act or omission occurring after December 31, 2020. The new definition includes the president, chief accounting officer, chief executive officer, chief financial officer, chief legal officer, chief operating officer, controller and treasurer of a corporation.
The amendments to this section also add a new Section 145(c)(2), which permits a corporation to indemnify any other person who is not a present or former director or officer of the corporation against expenses (including attorneys’ fees) actually and reasonably incurred by such person when they successfully defend claims against them.
The amendments to Section 145(c) take effect after Dec. 31, 2020.
Section 212 – Electronic Execution/Transmission of Proxy Information
Section 212(c) was amended to allow for the electronic execution and transmission of proxy information provided it includes or is delivered with information enabling the corporation to determine the date of delivery and the identity of the stockholder granting the proxy.
Section 228 – Electronic Consent
Section 228 was amended to allow for electronic consent of stockholders or members in lieu of meeting.
Section 232 – Email Notices to Stockholders
Section 232(b) was revised to permit corporations to give notice under Section 232(a) to stockholders by electronic mail to the address of the stockholder set forth in the corporation’s records, without the stockholder’s prior consent.
Section 251 – Domestic Corporation Mergers
Amended Section 251 eliminates, with some limited exceptions, a requirement applicable to certain domestic corporation mergers, that immediately following the effective time of the merger, the organizational documents of the surviving entity contain provisions identical to the certificate of incorporation of the constituent corporation immediately prior to the effective time of the merger.
Section 363 – Voting Requirements for Converting Business to Public Benefit Corporation
The amendment to this section reduces the voting requirement from two-thirds to a simple majority for converting a regular business corporation to a public benefit corporation and vice versa. It also repeals Section 363(b)(2), which applies this change to certain mergers involving conversion of shares to or from a public benefit corporation.
The repeal of Section 363(b)(2) will be effective with respect to a merger or consolidation consummated pursuant to an agreement entered into (or, with respect to a merger consummated pursuant to Section 253, resolutions of the board of directors adopted) on or after July 16, 2020.
Section 365 – Balancing Decisions by Directors
The amended Section 365 clarifies that under Section 365(c), a director will not be considered “interested” for purposes of a balancing decision required by Section 365(a) based solely on his or her ownership of, or interest in, the stock of a public benefit corporation, except to the extent such ownership would create a conflict if the company were not a public benefit corporation. Also, absent a conflict of interest, a failure to satisfy the balancing requirement will not constitute an act or omission not in good faith for the purposes of Section 102(b)(7) or Section 145, unless the certificate of incorporation specifically provides otherwise. This eliminates the need to provide in the certificate of incorporation a provision to protect directors for breaches under Section 365(c) by making this the statutory default.
Section 367 – Pursuing Balancing Lawsuits
The amendment to Section 367 clarifies that any lawsuit to enforce the balancing requirement must be brought by plaintiffs owning at least 2% of the public benefit corporation’s outstanding shares or, in the case of certain listed companies, shares with a value of at least $2 million if that number is lower.
The attorneys of Fox Rothschild’s Corporate Department remain ready to assist companies in navigating these issues with regard to the new provisions of Delaware law and other pandemic- related issues. For questions about this client alert, please contact Jesse Fishman at [email protected] or 609-895-6729, or Ankita Patel [email protected] 609-844-3029 or any member of the firm’s national Corporate Department.