Delaware Corporate Law Update

Updates on Delaware Corporate Law by Evan O. Williford, Esq., Delaware Corporate Litigation Attorney.

2018 DGCL Amendments

Every year changes are typically made to the Delaware General Corporation law (the “DGCL”), and this year is no different.  This post will focus on several that seem particularly noteworthy.  The legislature has passed those changes, and they are currently pending approval by the governor.

Market-Out Exception For Intermediate-Form Mergers – Delaware law has long made available an “appraisal” cause of action for certain shareholders to require the Court of Chancery to value their shares under certain circumstances.  Delaware had previously amended that right in “long-form” mergers under 8 Del. C. § 262 by including a “market out” exception.  Under this exception, appraisal rights may not be available for shares that are listed on a national securities exchange or held of record by more than 2,000 holders (which shares the market already arguably values).

This amendment would extend the market-out exception to so-called “intermediate-form” mergers under 8 Del. C. § 251(h).  (In an intermediate-form merger, two companies’ boards approve a merger agreement under which one company offers to buy all of the other company’s voting stock; and enough shares are tendered to the first company that it owns more of the other company’s shares than would be needed to approve the merger, thus making a stockholder vote unnecessary.)

Amendments to Section 204 Governing Ratification – In 2013, the DGCL was amended to add a new provision, 8 Del. C. § 204, which formally allows corporations to ratify certain defective corporate acts and stock.  This most recent amendment would make certain changes to that statute.

First, corporations would be able to use Section 204 even in circumstances in which there is no valid stock outstanding.  (Section 204 generally requires approval by both the board and the stockholders, but in this circumstance only board approval would be required).

Second, Section 204 clarifies that any act or transaction within a corporation’s power under the DGCL would be subject to ratification.  In Nguyen v. View, Inc., the Delaware Court of Chancery had arguably adopted a narrower view, that an act was not within corporate power and therefore could not be ratified if not approved according to the corporation’s organizational documents and the DGCL.  This amendment therefore would clarify that Section 204 has a broader application.

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Filed under: Appraisal, Ratification

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Disclaimer

Delaware Corporate Law Update solely reflect the views of Evan Williford of The Williford Firm, LLP. Its purpose is to provide general information concerning Delaware law; no representation is made about the accuracy of any information contained herein, and it may or may not be updated to reflect subsequent relevant events. This website is not intended to provide legal advice. It does not form any attorney-client relationship and it is not a substitute for one.