New Changes to Delaware Law

By Cydney Posner

A number of interesting changes to the Delaware General Corporation Law were signed into law on June 30. Most of the amendments will become effective on August 1. http://legis.delaware.gov/LIS/lis147.nsf/vwLegislation/HB+127/$file/1941470143.docx?open

Formula Consideration. Section 152 provides that the board of directors may authorize capital stock to be issued for consideration consisting of cash, any tangible or intangible property or any benefit to the corporation, or any combination thereof. The new amendment allows the board of directors to determine the amount of that consideration by approving a formula by which the amount of consideration is determined.

Fixing Mistakes. A safe harbor to warm the hearts of opinion committees everywhere. New section 204 provides a non-exclusive means of ratifying or validating defective acts or transactions by or on behalf of the corporation. To ratify a defective corporate act, the board of directors must adopt a resolution stating the following:

• the defective corporate act to be ratified;
• the time of the defective corporate act;
• if the defective corporate act involved the issuance of shares of putative stock, the number and type of shares of putative stock issued and the date or dates upon which the putative shares were purported to have been issued;
• the nature of the failure of authorization in respect of the defective corporate act to be ratified; and
• that the board of directors approves the ratification of the defective corporate act.

Stockholder approval is required only if otherwise required, unless the defective corporate act to be ratified resulted from a failure to comply with section 203 (business combinations with interested stockholders). A certificate of validation under Section 103 may be required in certain circumstances. Prompt notice to the stockholders of the adoption by the board of a resolution pursuant to this section is typically required. This is a long, complex section so it's worth a look if you need to rely on it. New Section 205 confers jurisdiction on the Court of Chancery to hear and determine the validity of any ratification effected pursuant to Section 204, the validity of any corporate act or transaction and any stock or rights or options to acquire stock, and to modify or waive any of the procedures set forth in Section 204.

No Merger Vote After Tender or Exchange Offer. New Section 251(h) permits a merger agreement to include a provision eliminating the need for a stockholder vote to approve certain mergers if a minimum number of shares (as defined by statute) is tendered in a tender or exchange offer consummated by an arms'-length third-party acquiror. For listed companies or companies with over 2,000 holders of record, under new Section 251(h), no vote of stockholders of a constituent corporation is required if

• the merger agreement expressly provides that the merger will be governed by this provision;
• the acquiring corporation consummates a tender or exchange offer for the outstanding stock of the constituent corporation; 
• following consummation of the offer, the acquiring corporation owns at least that percentage of stock of the constituent corporation that would otherwise be required to adopt the agreement of merger;
• no party to the agreement is an "interested stockholder" of the constituent corporation;
• the corporation consummating the offer merges with or into the constituent corporation pursuant to the agreement; and
• the merger consideration is the same as that paid in the tender or exchange offer.

No Aging of Shelf Corporations. Sections 312(b) and § 502(a) were amended to deter the practice of forming "shelf" corporations with no stockholders or directors with the intent of renewing or "aging" the entity for use several years in the future.

Public Benefit Corporations. New Subchapter XV authorizes the creation of public benefit corporations, which are for-profit corporations "intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner. To that end, a public benefit corporation shall be managed in a manner that balances the stockholders' pecuniary interests, the best interests of those materially affected by the corporation's conduct, and the public benefit or public benefits identified in its certificate of incorporation." (See my article of 5/29/13 regarding B-corps.)

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