Delaware Enacts Electronic Database Legislation for Recordkeeping

By: Clare Oliva, COGENCY GLOBAL INC. on Jul 24, 2017 12:48:20 PM

On July 21, 2017, Delaware Governor John C. Carney signed into law Senate Bill No. 69, which amends the Delaware General Corporation Law, Title 8, Chapter 1, Sections 101-398. Section numbers cited below refer to sections in the Delaware General Corporation Law, unless otherwise indicated. The bill generally takes effect on August 1, 2017. Senate Bill No. 69 sets the stage for domestic corporations to use electronic networks or databases for recordkeeping. Examples of such databases include blockchain or distributed ledgers. The bill also makes other important changes to the Delaware General Corporation Law.

Here are the highlights of the bill:

Voting Lists and Stock Ledgers

Section 219 deals with stockholder voting lists and stock ledgers. Section 219(c) is amended to include a definition of stock ledger which contains reference to records which are recorded in accordance with Section 224. Section 224 deals with forms of records and, as amended, provides the option of maintaining them in one or more electronic networks or databases (including one or more distributed electronic networks or databases) so long as they can be converted into paper form within a reasonable time. With respect to the stock ledger, these records can be used to (i) prepare the list of stockholders specified in sections 219 and 220, (ii) record the information specified in Sections 156, 159, 217(a) and 218 and (iii) record transfers of stock as governed by Article 8 of Subtitle I of Title 6. When records are kept in such manner, a clearly legible paper form prepared from the electronic source shall be valid under the new amendatory legislation.

Electronic Notice Option

Sections 151, 202 and 364 are amended to make it clear that an electronic transmission option is available for notice to holders of uncertificated shares.

Business Combinations and Shareholders

Section 203, dealing with certain shareholder business combinations, is amended to make it clear that an amendment to a Certificate of Incorporation or bylaws electing not to be governed by the section’s limitations, must be adopted by the affirmative vote of a majority of the outstanding stock entitled to vote. The section, as amended, specifies varying effective dates for amendments to Certificates of Incorporation and bylaws.

Consent

Section 228 is amended to provide that written consents to take corporate action, signed by enough holders or members, become effective within 60 days of the first date on which a written consent is so delivered to the corporation. The exact specification as to where the consents were to be delivered has been eliminated. The requirement for the date of the signature to a consent has also been removed. The amendments to Section 228 are effective only for actions taken by consent having a record date for the purpose of determining the stockholders or members entitled to consent on or after August 1, 2017.

Mergers and Consolidations

Sections 252, 253, and 258,are amended to include the specific term “foreign corporation “ with respect to mergers and consolidations unless the laws of the jurisdiction or jurisdictions prohibit such merger or consolidation. Instead of “foreign corporation”, the previous reference was to a corporation of any other state or of the District of Columbia whose laws permitted the merger or consolidation. Section 267 is also amended to include a reference to the term “foreign corporation”.

Sections 254, 263, and 264 are amended to make clear that mergers or consolidations can be accomplished by domestic corporations with entities formed or organized under the laws of Delaware or any other jurisdiction unless prohibited.

In Section 254, the term “joint stock association” is amended to include reference to certain associations whether formed or organized under the laws of Delaware or any other jurisdiction.

Sections 255 and 257 are amended to make it clear that any two or more nonstock corporations of Delaware, whether or not organized for profit, or domestic stock and nonstock corporations, may merge into a single surviving corporation which may be one of the constituent corporations, or they may consolidate into a new resulting corporation-nonstock or stock, as applicable.

Annual Reports

Section 374 deals with foreign corporations’ annual reports and is amended to eliminate certain previously required information pertaining to stock - shares, number, par value etc., the amount of capital invested in real estate and other property in Delaware and the tax paid thereon, as well as exemption from taxation and the reasons for being exempt. The term and expiration date of officers and directors is also no longer required. As amended, Section 374 asks for the name and addresses of all the directors as of the filing date of the report and the name and address of the officer who signs the report. Previously the names and addresses of all the officers was required.

Delaware Code, Title 8, Chapter 5, Section 502(a) (domestic corporations annual franchise tax report) is amended to specifically state that the street, number, city and postal code is to be included as part of the location of the registered office. The location of the principal place of business is expanded to include a listing of states and foreign countries in addition to inclusion of other information.

For more information, review the full text of Senate Bill 69.

Topics: Delaware Corporate, UCC and Compliance