The 2020 Amendments to the General Delaware Corporations Act | Man’s pepper with trout

Overview

Governor Carney recently enacted certain amendments (the Amendments) to the Delaware General Corporation Law (DGCL) which (i) clarify the powers of boards of directors in an emergency, (ii) list officers entitled to a compulsory indemnification, (iii) confirm a company’s ability to perform and deliver documents and notices electronically, and (iv) facilitate both the conversion of for-profit Delaware corporations to public benefit corporations and the merger of Delaware companies as part of the creation of a holding company structure.

Emergency powers of the board of directors

Under article 110 of the DGCL, a board of directors has the power to adopt special regulations in certain emergency situations. As part of the changes and in response to the COVID-19 pandemic, emergencies under Article 110 of the DGCL will now expressly include pandemics and any national emergency declarations by the federal government. Emergency regulations may be adopted by the board of directors or, if a quorum cannot easily be met, by a majority of the directors present. Further, during such an emergency, the Amendments confirm that a board may take any action it considers practical and necessary to deal with the emergency, including, but not limited to (i) the postponement of any meeting of shareholders (with the recording date of that meeting of shareholders applying to the postponed meeting), and (ii) for public limited companies, notify shareholders of the postponement of any meeting of shareholders by means of a filing with the Securities and Exchange Commission. The amendments also provide that during such an emergency, a board may change the registration and payment dates of a previously declared dividend if the registration date has not yet passed, provided that the new payment date is not more than 60 days after the new registration date. .

Exoneration and compensation

Section 102 (b) (7) currently provides that a director of a Delaware corporation will be exonerated from pecuniary damages for breach of duty of care pursuant to the inclusion of a provision to this effect in the certificate of incorporation of the company. The modifications provide that any modification, repeal or elimination of such an exculpatory provision will not affect the application of this clause with regard to any act or omission of a director occurring before such modification, repeal or elimination, unless than the provision otherwise provides.

Article 145 of the DGCL provides for compulsory compensation for directors and managers who have won their case on the merits in the defense of any action, suit or procedure. As of December 31, 2020, the changes provide that only the following types of executives will be entitled to compulsory compensation under article 145 of the DGCL: president, chief executive officer, chief operating officer, chief financial officer , chief legal officer, controller, treasurer or chief accounting officer. Under the amendments, a company has the option of specifying other officers who will be entitled to mandatory compensation.

Electronic transmissions and notifications

Within the framework of 2019 amendments to the DGCL, several sections have been amended to facilitate the execution and delivery of transactions and notices (including regulatory notices) electronically. The changes include several clarifying changes intended to avoid any ambiguity compared to the 2019 changes to the DGCL. Namely, article 116 is amended to remove an exception for written consents of the board of directors, shareholders and founders which had already been included, as the articles of the DGCL dealing with these instruments themselves already included a wording regarding electronic transmission. In addition, section 232 is amended to remove any doubt that shareholders may, in accordance with the 2019 changes to the DGCL, receive a notice from the company by email without any prior consent.

Public utility companies

The DGCL currently allows incorporation or conversion into a public utility company. A public benefit corporation is a for-profit corporation that aims to generate public interest and operate in a responsible and sustainable manner. Directors of a public benefit corporation have an explicit mandate to balance the interests of the corporation’s shareholders with the interests of those materially affected by the corporation, and the public interest identified in its certificate of incorporation. The Amendments facilitate the conversion of a for-profit corporation to a public benefit corporation by: (i) reducing the shareholder approval threshold required for the conversion from two-thirds to majority; and (ii) eliminate the statutory valuation rights for the shareholders of the company in connection with such a conversion.

Mergers of holding companies

Article 251 (g) of the DGCL provides that a company may, without the vote of the shareholders, merge with or into a single wholly-owned direct or indirect subsidiary if certain conditions are met. This type of merger is often referred to by practitioners as a holding merger. The amendments facilitate holding company mergers by removing the requirement that, following the merger, the organizational documents of the surviving entity must contain identical provisions to the certificate of incorporation of the parent company prior to the merger.