In keeping with Delaware’s annual tradition of updating state code to stay at the forefront of business entity needs, Governor Carney signed House Bill 341 into law on July 16th, 2020, amending Delaware’s General Corporation Law (Title 8, Delaware Code, Chapter 1, Sections 101 et. seq.), with both technical and substantive changes. Except for a section on emergency board powers, retroactively effective to January 1st, 2020, HB 341 amendments took effect on July 16th, 2020.
Below are a few key highlights of HB 341 amendments.
Emergency Bylaws and Other Powers in Emergency
Section 110(a) of Delaware’s General Corporation Law allows any corporation’s board of directors to adopt emergency bylaws during any emergency resulting from an attack on the United States or on a locality in which the corporation conducts its business or customarily holds meetings of its board of directors or its stockholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe.
HB 341 bill amends the criteria for which a board of directors can take emergency action under Section 110(a) to include an epidemic or pandemic, and a declaration of a national emergency by the United States Government. Notably, amendments to Section 110 are effective retroactively to January 1st, 2020 and appear to address the COVID-19 pandemic.
The bill clarifies that if a quorum cannot readily be convened, a majority of directors present may adopt emergency bylaws. It adds that the board of directors (or a majority of directors present, if a quorum cannot be readily convened) is authorized to take actions necessary to address any emergency condition in Section 110 (a) with respect to stockholders, including postponing or changing the location of a stockholder meeting and postponing record dates and payment dates of dividends, subject to special rules for publicly traded corporations.
Directors and Officers – Exculpatory and Indemnity Provisions
Section 102(b)(7) allows for a provision in the certificate of incorporation to eliminate or limit the liability of directors for monetary damages for certain breaches of duties. HB 341 amends this section to add that any future amendment, repeal, or elimination of such a provision shall not affect its application to an act or omission by a director that occurred before the amendment, repeal or elimination, unless the provision states otherwise at the time of the act or omission.
HB 341 also amends Section 145(c), which gives officers and directors the right of indemnification when they successfully defend claims brought against them related to their conduct as officers and/or directors. The amendment defines who is an “officer” for this purpose regarding any act or omission occurring after December 31, 2020. It also adds Section 145(c)(2), which states that the corporation may indemnify any other person who is not a present or former director or officer of the corporation against expenses (including attorneys’ fees) actually and reasonably incurred by such person when they successfully defend claims against them, referred to in Section 145(a) and (b).
Among the amendments to the document signature and delivery provisions in Section 116 is clarification that the definition of "electronic signature" includes the intent to "execute" the document along with the existing language to “authenticate or adopt the document.” A person may also execute a document with their signature. HB 341 also clarifies that Section 232(b) permits corporations to give notice by electronic mail to stockholders under Section 232(a) without prior consent. HB 341 also adds language in Section 212(c) allowing electronic transmission of certain proxy information and amends Section 228 to allow for electronic consent of stockholders or members in lieu of meeting.
Holding Company Mergers
This amendment to Section 251 addresses holding company mergers. HB 341 eliminates a requirement, applicable to certain domestic corporation mergers, that immediately following the effective time of the merger, the organizational documents of the surviving entity contain provisions identical to the certificate of incorporation of the constituent corporation immediately before the effective time of the merger, with some limited exceptions.
Public Benefit Corporation
Included in the amendments to Section 363, HB 341 reduces the voting requirement from two-thirds to a majority for conversion from a regular business corporation to a public benefit corporation and vice versa. This also applies for certain mergers involving conversion of shares to or from a public benefit corporation.
Section 102(a) is amended to add "registered series of a limited partnership" to the list of names from which a corporate name must be distinguishable upon the state’s records.
Please refer to the full text of HB 341 for additional details and effective date information.
A Note on Amendments to Delaware’s LLC, Partnership and Statutory Trust Acts
In addition to HB 341’s amendments to the General Corporation Law, amendments to the Delaware Limited Liability Company law (HB 344) and the Partnership laws (HB 342 and HB 343) became effective on July 16th, 2020.
SB 244, amendments to statutory trust law, effective August 1st, 2020, adds some content conforming with Delaware’s other business entity statutes, such as a communications contact requirement.
We did not cover these bills in detail as they contain mostly technical changes, with similar amendments to some of the categories discussed above. To determine any impact that these bills may have on your entities and/or transactions, please refer to the full text of the bills shared below:
- House Bill 342 (Domestic Partnerships and Foreign Limited Liability Partnerships)
- House Bill 343 (Limited Partnerships)
- House Bill 344 (Limited Liability Companies)
- Senate Bill 244 (Statutory Trusts)
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.