The Delaware General Corporation Law (DGCL) is reviewed and amended regularly, and they impact numerous public and private companies that are incorporated or do business in Delaware. There are several important amendments that business leaders, managers, and executives need to know about this year.
Stockholder Appraisal Rights
Stockholder appraisal rights refer to statutory rights that a company must offer minority shareholders. This allows them to receive the fair value of their shareholdings in certain circumstances. For example, if a merger transaction takes place and the shareholder does not want to participate in the transaction, they can be cashed out at a fair value of their holdings instead of being forced to participate in the transaction.
Section 262 of the Delaware General Corporation Law states that corporations need to notify shareholders that they are allowed to vote on the merger or consolidation. They also need to inform shareholders of any appraisal rights they have. The notice has to be given at least 20 days before the shareholder meeting, and the notice has to include a copy of Section 262, which allows shareholders to review the document ahead of time.
The law states that, for stockholders to exercise their appraisal rights, they must meet the following criteria:
Notify the company in writing that they intend to exercise their rights
Not vote in favor of the merger or consolidation on the table
Hold their shares from the day of the written notice through the date of the closing or the consolidation or merger.
Now, this section has been amended, establishing appraisal rights for stockholders in direct connection with a conversion related to a Delaware corporation to a foreign corporation, meaning a corporation with another state. Appraisal rights are not required if there is a “market out” exception on the table. This eliminates the need for shareholder approval to complete a merger, under section 251(h), which eliminates unnecessary time and costs related to a vote on a merger if certain conditions are met. These conditions include that the merger must be completed as quickly as possible and that the offer must be for all of the outstanding stock except for that held by the acquirer.
Senior Officer Exculpation
In Section 102(b)(7), corporations are allowed to include provisions that limit directors’ personal liability for damages related to a breach of fiduciary duty. Amendments in 2022 now allow senior officers to enjoy a similar level of exculpation. There are some exceptions, such as intentional misconduct or known violations of the law, but they do provide some added protection for senior officers. In addition, the amendment is limited only to class actions or direct claims brought by stockholders. Directors are protected against derivative claims as well. A few examples of senior officers who are protected include the president, chief executive officer, chief financial officer, chief operating officer, chief legal officer, controller, treasurer, and chief accounting officer.
Expiration of Corporate Existence
Corporations are allowed to limit the duration of their certificate of incorporation. In 2022, corporate entities are required to file a certificate of dissolution within 90 days of the expiration date.
Signature Certifications Under Section 103
Section 103 has also been amended, indicating that if a document is filed with the Delaware Secretary of State, the person signing the document is affirming that the information in the document is accurate under penalty of perjury.
It is critical to work with a compliance team who can help you with changes in Delaware. Through our transfer agent services, we can help advise you with changes to stock transfer and cap table requirements, as this is included in our full transfer agent services.