Is Delaware’s General Corporate Law really a modern corporate law? | Allen Matkins
I often hear that Delaware has modern corporate law. Reading a recently filed proxy statement, for example, I came across the following statement:
Our Board of Directors believes that Delaware has one of the most modern corporate statutory codes, which is revised regularly in response to the changing legal and business needs of corporations.
I agree that Delaware regularly modifies the DGCL, but I wonder if the DGCL is really modern code. After all, is company law that still uses the archaic concepts of capital and surplus really modern?
The DGCL, in fact, traces its lineage back to the late 19th century, when the Delaware Legislature enacted a “general” corporate law. Law of March 9, 1899, c. 273, 21 LEDs. Laws 445. The law was considered “general” because it deviated from the previous practice of incorporation by special law of the legislature. The 1899 law draws heavily on New Jersey corporate law, then considered the most popular. It wasn’t until New Jersey enacted the “Seven Sisters” anti-corporate laws in 1913 that Delaware began its endorsement as a leading state for incorporations. In the years that followed, Delaware amended its general corporate law several times. In 1953, the Delaware Legislature undertook a codification of all state statutes (you will notice that many of the statutory references at the end of the DGCL articles date from 1953). Accordingly, the General Companies Act has been reorganized but not substantially amended. The current layout and numbering date from 1953. In 1967, the legislator enacted a draft law revising the General Companies Act. Thereafter, the Delaware Legislature continued to amend the law. As the foregoing very brief history suggests, the DGCL is in fact a 19th century law that has been revamped, revised and amended over more than a century.
Because the DGCL has been the product of continuous evolution, it is not as well organized as other state corporation statutes. The California General Corporations Act, for example, defines terms at the beginning of the statute and then uses them throughout the statute. The DGCL, on the other hand, tends to define terms in specific sections and limit those definitions to those sections (for example, section 220).
