Delaware has approximately 2 million active domestic business entities. A frequently cited reason for Delaware’s preeminent position as a formation state is its modern and flexible business entity statutes.
In order to keep the statutes up-to-date, and therefore able to meet the rapidly evolving needs of its entities and their stakeholders, the state’s lawmakers enact amendments to its business entity laws every year.
Keeping track of the changes to these laws is imperative for the people owning, managing, or investing in Delaware entities, as well as the in-house and outside counsel who advise Delaware entities and their management and owners. This article helps all of those people by highlighting some of the most significant changes made to Delaware’s corporation, limited liability company, partnership, and limited partnership laws during the 2024 legislative session.
I. Amendments to the General Corporation Law (GCL)
Senate Bill 313, effective August 1, 2024, enacted amendments to the GCL (Title 8, Sec. 101 et seq.) The amendments include the following:
(1) Specific Powers of a Corporation - Sec. 122 is amended in several respects including the following:
1. To provide that a corporation has the powers set forth in the section whether or not they are provided in its certificate of incorporation;
2. To provide that any contract or other appointment or delegation of authority that empowers an officer or agent to act on behalf of the corporation shall be subject to Sec. 141(a);
3. To add a new subsection (18) to provide that notwithstanding Sec. 141(a) a corporation has the power to make contracts with one or more current or prospective stockholders (or one or more beneficial owners of stock), in its or their capacity as such, in exchange for such minimum consideration as determined by the board of directors (which may include inducing stockholders or beneficial owners of stock to take, or refrain from taking, one or more actions); provided that no provision of such contract shall be enforceable against the corporation to the extent it is contrary to the certificate of incorporation or would be contrary to the laws of Delaware (other than Sec. 115 of the GCL) if included in the certificate of incorporation.
New Subsection (18) includes a non-exclusive list of contract provisions by which the corporation may agree to: (a) restrict or prohibit itself from taking actions specified in the contract, (b) require the approval or consent of one or more persons or bodies before the corporation may take actions specified in the contract (which persons or bodies may include the board of directors or one or more current or future directors, stockholders or beneficial owners of stock), and (c) covenant that the corporation or one or more persons or bodies will take, or refrain from taking, actions specified in the contract (which persons or bodies may include the board of directors or one or more current or future directors, stockholders or beneficial owners of stock).
New Subsection (18) also provides that for the purposes of applying the proviso stating that no provision of a contract shall be enforceable against the corporation to the extent it is contrary to the certificate of incorporation or laws if included in the certificate of incorporation, that a restriction, prohibition or covenant in any such contract that relates to any specified action shall not be deemed contrary to Delaware law or the certificate of incorporation by reason of a provision of Delaware law or the certificate of incorporation that authorizes or empowers the board of directors (or any one or more directors) to take such action.
With respect to all contracts made under Subsection (18), the corporation shall be subject to the remedies available under the law governing the contract, including for any failure to perform or comply with its agreements under the contract.
Note: The amendments to Sec. 122 are a response to the Delaware Court of Chancery’s decision in West Palm Beach Firefighters Pension Fund v. Moelis & Co., C.A. No. 2023-0309 (Del. Ch. 2/23/24) in which the court held that provisions in a shareholders’ agreement that gave a shareholder veto rights with respect to various corporate actions violated Sec. 141(a) of the GCL, which provides that the business and affairs of a corporation shall be managed by or under the direction of the board of directors unless otherwise provided in the certificate of incorporation.
(2) Authorization of Agreements and Other Instruments - A new Sec. 147 is added, providing that whenever the GCL expressly requires the board of directors to approve or take other action with respect to any agreement, instrument or document, such agreement, instrument or document may be approved by the board of directors in final form or in substantially final form.
New Sec. 147 also provides that if the agreement, instrument or document is required by the GCL to be filed with the Secretary of State or referenced in any certificate so filed, the board of directors may, at any time after providing such approval or taking such other action and prior to the effectiveness of such filing with the Secretary of State, adopt a resolution ratifying the agreement, instrument or document.
A ratification under this section shall be deemed to be effective as of the time of the original approval or other action by the board of directors and to satisfy any requirement under the GCL that the board of directors approve or take other action with respect to such agreement, instrument or document in a specific manner or sequence. Ratification under this section shall be in addition to any ratification or validation that may be available under Secs. 204 and 205 or under the common law.
Note: The addition of Sec. 147 is a response to the Delaware Court of Chancery’s opinion in Sjunde AP-Fonden v. Activision Blizzard, Inc., C.A. No. 2022-1001 (Del. Ch. 2/29/24) in which the court held, based on the allegations of the complaint, that the board of directors violated Sec. 251(b) when it approved a version of the merger agreement that was not essentially in final form because it failed to include several essential terms.
(3) Delivery of Notice; Notice by Electronic Transmission - Sec. 232 is amended to provide that if a notice is given pursuant to Sec. 232(a)(1) or (a)(2) each document enclosed with the notice or annexed or appended to the notice shall be deemed part of the notice solely for purposes of determining whether notice was duly given under the GCL, the certificate of incorporation, or bylaws.
(4) Remedies; Appointment of Stockholder Representatives – Sec. 261 is amended to provide that any agreement of merger or consolidation, other than a merger effected pursuant to Sec. 251(g) may provide:
1. That parties to an agreement of merger or consolidation may, through express provision in the agreement, specify the penalties or consequences of a party's failure to perform its obligations under, or comply with the terms and conditions of the agreement before the effective time of the merger, or to consummate the merger or consolidation contemplated by the agreement.
The penalties or consequences may include an obligation to make payments to the other party if the merger or consolidation is not consummated, including damages based on the lost premium that stockholders of a constituent corporation would be entitled to receive if the merger becomes effective in accordance with the terms of the agreement and reverse termination fees. In the event a corporation is entitled to receive such payment, the corporation may enforce the other party's payment obligation, and, upon receipt of any such payment, the corporation is entitled to retain the amount of any such payment.
2. That parties to an agreement of merger or consolidation may, through express provision in the agreement, appoint one or more persons to serve as the representative of stockholders of any constituent corporation, including stockholders whose shares shall be cancelled, converted or exchanged in the merger or consolidation, and to delegate to such person(s) the exclusive authority to enforce the rights of such stockholders, such as rights to receive payments and enforce stockholders' rights under an escrow or indemnification arrangement, and to enter into settlements with respect thereto.
Such appointment of a representative of stockholders may be made effective as of, or at any time following, the time at which the agreement of merger or consolidation is adopted by stockholders, and thereafter shall be binding on all stockholders of the constituent corporation.
Note: The amendments to Sec. 261 are a response to the Delaware Court of Chancery’s decision in Crispo v. Musk, C.A. No.8 2022-0666 (Del. Ch. 10/31/23) in which the court brought into question the enforceability of provisions in a merger agreement vesting in the target company the right to recover damages for the stockholders’ lost premiums upon a party’s failure to perform or consummate the merger.
(5) Amendments to certificate of incorporation of the surviving corporation; disclosure schedules – A new Sec. 268 is added to provide:
1. That if an agreement of merger (other than one entered into under Sec. 251(g)) provides, with respect to a constituent corporation, that all of the shares of capital stock issued and outstanding immediately before the effective time of the merger are converted into or exchanged for cash, property, rights or securities (other than stock of the surviving corporation), then (i) the merger agreement approved by the board need not include any provision relating to the certificate of incorporation of the surviving corporation, (ii) the board of directors or any person acting at its direction may approve any amendment or amendment and restatement of the certificate of the surviving corporation, and (iii) no alteration or change to the certificate of incorporation of the surviving corporation will be deemed to constitute an amendment to the merger agreement.
2. Unless otherwise expressly provided by an agreement of merger or consolidation, any disclosure letter, disclosure schedules or similar documents or instruments delivered in connection with the agreement that modify, supplement, qualify, or make exceptions to representations, warranties, covenants or conditions contained in the agreement shall not be deemed part of the agreement for purposes of any provision of the GCL but shall have the effects provided in the agreement.
Note: New Sec. 268 is a response to allegations in the Activision case regarding the board of directors’ failure to approve the certificate of incorporation of the survivor or approve final or substantially final disclosure schedules.
(6) Applicability of Amendments – The amendments apply to all contracts made by a corporation, all agreements, instruments or documents approved by the board of directors and all agreements of merger and consolidation entered into by a corporation, in each case whether or not the contracts, agreements, instruments, documents or agreements of merger or consolidation are made, approved or entered into on or August 1, 2024, except that these amendments shall not apply to or affect any civil action or proceeding completed or pending on or before such date.
II. Amendments to the Delaware Limited Liability Company Act (DLLCA), Delaware Revised Uniform Limited Partnership Act (DRULPA), and Delaware Revised Uniform Partnership Act (DRUPA)
House Bill 336 enacted amendments to DLLCA (Title 6, Sec. 18-101 et seq.). House Bill 337 enacted amendments to DRULPA (Title 6, Sec. 17-101 et seq.). House Bill 339 enacted amendments to DRUPA (Title 6, Sec. 15-101 et seq.). All amendments are effective August 1, 2024.
(1) Mergers and Consolidations – Secs. 18-209, 17-211, and 15-902 are amended to permit a certificate of merger or a certificate of ownership and merger to state any amendments to the certificate of formation of a surviving LLC, certificate of limited partnership of a surviving LP, statement of qualification of a surviving LLLP, statement of partnership existence of a surviving partnership, or statement of qualification of a surviving LLP as are desired to be effected by the merger or to restate such document of the survivor in its entirety.
Sec. 15-902 is also amended to require a domestic partnership that is a causing a merger under Sec. 15-902(m) to file a statement of partnership existence if it has not already done so.
(2) Termination of Protected Series – Secs. 18-215 and 17-218 are amended to confirm and clarify that the references to "other persons" in the subsection governing the revocation of the termination of a protected series refers to other persons whose approval is required for such termination of the protected series pursuant to the LLC agreement or partnership agreement.
(3) Dissolution of Registered Series – Secs. 18-218 and 17-221 are amended to confirm and clarify that the references to "other persons" in the subsection governing the revocation of the dissolution of the registered series refers to other persons whose approval is required for such dissolution of the registered series pursuant to the LLC agreement or partnership agreement.
(4) Merger and Consolidation of Registered Series – Secs. 18-221 and 17-224 are amended to permit a certificate of merger of registered series to state any amendments to the certificate of registered series of a surviving registered series in a merger as are desired to be effected by the merger.
(5) Revocation of Dissolution – Secs. 18-806 and 17-806 are amended to confirm and clarify that the references to "other persons" in the subsection governing the revocation of the dissolution of the LLC or LP refers to other persons whose approval is required for such dissolution of the LLC or LP pursuant to the LLC agreement or partnership agreement.
(6) Execution of Certificates – Sec. 17-204 is amended to provide:
1. That a certificate of merger or certificate of ownership and merger that amends the certificate of limited partnership of the surviving limited partnership to reflect the admission of one or more new general partners of the surviving domestic limited partnership, must be signed by each new general partner.
2. That a certificate of merger or consolidation of a registered series that amends the certificate of registered series of the surviving registered series to reflect the association of one or more new general partners with the surviving registered series, must be signed by each new general partner
Conclusion
This article has provided a summary of the amendments to Delaware’s corporation, LLC, LP, and GP laws enacted during the 2024 legislative session. Please see the bills, which can be accessed from the links below, to view the full text of the amendments.
House Bill 313
House Bill 336
House Bill 337
House Bill 339
