CLIENT ALERT: 2015 Amendments to the Delaware General Corporation Law
On June 24, 2015, Delaware Governor Jack Markell signed into law amendments to the General Corporation Law of the State of Delaware (8 Del. C. § 101 et seq.) (the "DGCL"), including notable amendments involving fee shifting and forum selection. The Governor also signed into law amendments to the statutes governing Delaware general and limited partnerships and Delaware limited liability companies. The amendments generally become effective on August 1, 2015.
Sections 102, 109(b) and 114(b) of the DGCL have been amended in response to the Delaware Supreme Court's decision in ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014). In that case, the Court upheld as valid a bylaw imposing liability for legal fees of a nonstock corporation on certain members of the corporation participating in the litigation. The amendments to Section 114(b) leave the Court's ruling untouched with respect to nonstock corporations, but a new subsection (f) of Section 102 and a new sentence added to Section 109(b) invalidate any provision in the charter or bylaws of a stock corporation that purports to impose liability on a stockholder for attorney's fees or expenses of the corporation or any other party in connection with an “internal corporate claim.” New Section 115 of the DGCL defines internal corporate claims to include claims of breach of fiduciary duty by current or former directors, officers or controlling stockholders or against persons who aid and abet such a breach. The amendments do not invalidate any such fee shifting provision in a stockholders agreement or other writing signed by the stockholder against whom the provision is to be enforced.
A new Section 115 has been added to the DGCL to confirm (as held in Boilermakers Local 154 Retirement Fund v. Chevron Corporation, 73 A.3d 934 (Del. Ch. 2013)), that the certificate of incorporation or the bylaws of a corporation may require, consistent with applicable jurisdictional requirements, that "internal corporate claims" may be brought solely and exclusively in any or all of the courts of the State of Delaware. New Section 115 further provides that the charter and bylaws may not prohibit such claims from being brought in Delaware courts. Section 115 does not address the validity of a charter or bylaw provision that selects a forum other than Delaware courts as an additional, non-exclusive forum in which internal corporate claims may be brought. The new Section does not invalidate non-Delaware forum selection provisions contained in a stockholders agreement or other writing signed by the stockholder against whom the provision is to be enforced.
Other DGCL Amendments
The Governor also signed into law various other amendments to the DGCL, including amendments to Section 204. These amendments clarify certain provisions and change some procedures relating to the ratification of defective corporate acts that would otherwise be void or voidable, including, without limitation, (1) confirming the requirements for a board of directors to adopt and ratify one or more defective acts, (2) addressing the situation where the initial board of directors was not named in the original certificate of incorporation, (3) clarifying the stockholder approval and voting standards required to adopt and ratify one or more defective acts, (4) addressing the voting standards applicable to the ratification of the election of a director where the original vote obtained was defective, (5) clarifying the requirements in respect of certificates of validation, including the information that must be included, (6) clarifying the requirements for providing notice of the ratification of defective acts, (7) confirming the scope of acts by the board of directors or officers that may constitute a defective corporate act susceptible to cure by ratification, (8) confirming and amending the term "validation effective time," and (9) confirming that certain "voidable" acts may be susceptible to cure by ratification under common law.
Other notable changes to the DGCL are found in Sections 152 and 157, which have been amended to provide that the formula used for determining the price at which shares of stock may be issued can be dependent on extrinsic facts, such as market prices.
The 2015 amendments to the DGCL were contained in Delaware State Senate Bill No. 75.
LLC and Partnership Amendments
The Governor also signed into law various amendments to the Delaware Limited Liability Company Act (6 Del C. § 18-101 et seq.) (the "LLC Act"), the Delaware Revised Uniform Limited Partnership Act (6 Del C.§ 17-101 et seq.) (the "LP Act"), and the Delaware Revised Uniform Partnership Act (6 Del. C. § 15-101 et seq.) (the "DRUPA"). The most noteworthy of these amendments eliminate the default "class" or "group" voting requirements applicable to member or limited partner votes, as applicable, for certain major transactions such as mergers, transfers, conversions, and dissolution. These changes are prospective only, applying solely to limited liability companies and limited partnerships formed on or after August 1, 2015.
The 2015 amendments to the LLC Act were contained in Delaware State Senate Bill No. 78.
The amendments to the LP Act were contained in Delaware State Senate Bill No. 77.
The amendments to the DRUPA were contained in Delaware State Senate Bill No. 76.