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Delaware Amends Corporate Laws After Court Rulings in 2024
By Eric Geringswald | CSC
Lawmakers in Delaware passed new legislation in June 2024 in response to two recent Delaware Court of Chancery rulings: West Palm Beach Firefighters’ Pension Fund v. Moelis & Co., which addressed limitations on a board of directors’ ability to grant governance rights by contract, and Sjunde Ap-Fonden v. Activision Blizzard Inc., which addressed statutory requirements regarding board and stockholder approval of merger agreements. The legislation was signed by Governor John Carney in July and became effective August 1, 2024.
The new legislation sets forth certain types of provisions that may be included in contracts between a corporation and current or prospective stockholders or beneficial owners of its stock, even if those provisions are not set forth in, or referenced as a fact ascertainable in, the certificate of incorporation pursuant to Section 141(a) of the Delaware General Corporation Law (“DGCL”).
In Moelis, the Court of Chancery found that provisions in a stockholder agreement that required a stockholder’s approval before the corporation could act constituted internal governance restrictions that violated Section 141(a) of the DGCL. The Court ruled that to be valid, those approval rights should have been included in the certificate of incorporation.
The legislature responded with new Section 122(18), which specifically authorizes a corporation to enter contracts with one or more of its stockholders or beneficial owners of its stock in exchange for such minimum consideration as approved by its board of directors. It also provides a non-exclusive list of contract provisions to which a corporation may agree.
In Activision, the Court ruled that a draft agreement of the company’s acquisition by Microsoft approved by Activision’s board of directors failed to comply with the DGCL’s statutory requirements governing mergers.
In response, Delaware lawmakers added several new provisions to the DGCL. New Section 147 allows a board of directors to approve any agreement, instrument, or document if, at the time of board approval, all the material terms are either set forth in the agreement or are determinable through other information presented to or known by the board.
Under new Section 268(a), if a merger agreement provides that all of the constituent corporation’s shares of capital stock issued and outstanding immediately before the effective time of a merger are to be converted into or exchanged for cash, property, rights or securities (other than stock of the surviving corporation), then the board-approved agreement doesn’t need to include any provision regarding the surviving corporation’s certificate of incorporation in order to be considered to be in final or “substantially final” form.
New Section 268(b) provides that a disclosure letter, disclosure schedule, or any similar document delivered with the merger agreement that modifies, qualifies, supplements or makes exceptions to the representations, warranties, covenants or conditions in the agreement aren’t deemed part of the agreement for DGCL purposes (unless otherwise expressly provided by the agreement).
Finally, Section 232 was amended to add a new subsection (g) providing that information in any document included with or attached to a notice to stockholders is considered to be part of the notice for purposes of compliance with the DGCL’s notice procedures.
The new provisions and other legislative changes are captured in the Fall 2024 edition of CSC’s Delaware Laws Governing Business Entities Annotated. The Fall 2024 edition is current through Chapter 319 of the 152nd General Assembly, with over two dozen sections added to the DGCL or amended since the Spring 2024 edition, including new provisions concerning merger of a partnership or LP, pass-through voting for statutory trusts, and revocation of termination of a protected series or dissolution of a registered series or LLC.
In-depth legal analyses by noted Delaware attorneys Michael P. Maxwell, Matthew J. O'Toole, and Alyssa G. Frank of Potter Anderson & Corroon LLP explore the impact of the legislation coming out of the 2024 Session, while blackline amendment notes following each amended section illustrate the exact text that was added and deleted.
More than 60 new case notes from Delaware courts and courts in other jurisdictions applying Delaware business entity law have been added since the Spring 2024 edition. Volume 2 includes the full text of six significant Delaware cases focusing on the latest legal developments involving partnership agreements, conversion, breach of fiduciary duty, forfeiture-for-competition provisions, stockholder agreements, and judicial dissolution. The Table of New Annotations lists added cases and gray bars in the body of the book indicate where they’ve been added.
A comprehensive Fee Schedule provides up-to-date information for calculating annual franchise taxes and other related business entity fees. The book also includes online access to more than 150 forms for incorporation, formation, qualification, mergers, dissolution, and name reservation for all business entity types in Delaware via the LexisNexis® Store download center. A listing of the forms and contact information for Delaware’s Division of Corporations can be found in the book’s appendix.
The Fall 2024 edition of Delaware Laws Governing Business Entities Annotated is available as a two-volume softbound book or as an eBook, compatible with dedicated eReader devices, computers, tablets, and smartphones that use eReader software or applications. It is also available on the LexisNexis Digital Library.
Voss on Delaware Contract Law
Delaware contract law frequently governs the formation, interpretation, and enforcement of high-stakes commercial agreements throughout the United States; it also underpins the nation’s predominant corporation and business entities laws.
Citing more than 3,500 authorities spanning more than 100 years, Voss on Delaware Contract Law provides an unparalleled review of that immense body of law.
Transactional attorneys and litigators will benefit from easy access to thousands of thoughtfully selected and organized quotations of cases, statutes, and rules, as well as harder-to-find court orders and transcripts, covering subjects from contract interpretation to contract-related torts, remedies, and comparative law. To further streamline research, this resource contains an innovative “Contract Typology” section, which surveys authorities by type of contract, clause, and phrase, to help identify type-specific considerations and interpretations pertinent to contract drafting and dispute resolution.
Symonds & O’Toole on Delaware Limited Liability Companies
More Delaware limited liability companies are formed each year than any other Delaware business entity. Symonds & O’Toole on Delaware Limited Liability Companies—referred to in a Delaware Court of Chancery decision as “the leading Delaware LLC treatise”—offers workable solutions for even the most complex transactions and practical insight into case law interpreting the statute, to help practitioners provide the best possible representation and advice to clients looking to make the most of their Delaware LLCs.
Co-author Matthew J. O’Toole is a partner, and co-author Robert L. Symonds, Jr. is a retired partner, at Potter Anderson & Corroon LLP in Wilmington Delaware. Mr. Symonds is one of the original drafters of the Delaware Limited Liability Company Act. Mr. O’Toole is a past chair of the Delaware State Bar Association committee responsible for proposing amendments to that statute and to Delaware’s limited partnership and general partnership laws.
To learn more about Delaware Laws Governing Business Entities Annotated, Voss on Delaware Contract Law, and Symonds & O’Toole on Delaware Limited Liability Companies, call 1.800.533.1637 or visit us online at www.lexisnexis.com/csc.