Tag: Delaware legislation


Amendments to the DGCL

Gregory P. Williams is chair of the Corporate Department at Richards, Layton & Finger. This post is based on a Richards, Layton & Finger publication, and is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Senate Bill 75, which contains several important amendments to the General Corporation Law of the State of Delaware (the “DGCL”), was signed by Delaware Governor Jack Markell on June 24, 2015. As described in this post, the 2015 legislation includes, among other things:

  • Prohibition on Fee Shifting. The legislation amends Sections 102 and 109 to prohibit “fee shifting” provisions in certificates of incorporation and bylaws of stock corporations.
  • Authorization of Delaware Forum Selection Clauses. The legislation adds new Section 115 to validate provisions in certificates of incorporation and bylaws that select the Delaware courts as the exclusive forum for “internal corporate claims.”
  • Flexibility in Stock and Option Issuances. The legislation amends Section 152 to provide greater flexibility in stock issuances, and makes corresponding amendments to Section 157 in respect of the authorization of rights and options to purchase stock.
  • Ratification of Defective Corporate Acts and Stock. The legislation amends Sections 204 and 205 to clarify and streamline the procedures for ratifying defective corporate acts and stock.
  • Public Benefit Corporations. The legislation amends Section 363 to loosen the restrictions on (x) an existing corporation becoming a “public benefit corporation” and (y) a public benefit corporation ceasing to be a public benefit corporation. It also adds a “market out” exception to the appraisal rights provided in Section 363(b) in connection with a corporation becoming a public benefit corporation.

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Does Pending Delaware Legislation Cover Fee Shifting in Securities Cases?

Neil J. Cohen is the publisher of the Bank and Corporate Governance Law Reporter. The article is part of a series of articles on the Delaware legislation regarding fee shifting, published in the June 2015 issue of the Bank and Corporate Governance Law Reporter (available here). This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The Delaware Senate by a 16-5 vote has passed Bill 75 banning fee-shifting provisions in charters and bylaws in stock corporations for “internal corporate claims”. The bill also contains a prohibition of bylaws or charter provisions that designate a forum other than Delaware as the exclusive forum. That provision would prevent corporations from designating forums that allow fee-shifting provisions.

The Senate resisted a lobbying effort by the Chamber of Commerce’s Institute for Legal Reform to insert a provision expanding the Court of Chancery’s discretionary authority to shift to include cases that “plainly should not have been brought but that do not satisfy the extremely narrow ‘bad faith’ or ‘frivolousness’ exceptions”.

The House is expected to approve the bill in June. If enacted, the amendments would become effective on August 1, 2015.

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“No Pay” Provisions: The Forgotten Middle Ground In The Fee-Shifting Battle

A. Thompson Bayliss is a partner at Abrams & Bayliss LLP. This post is based on a Abrams & Bayliss publication by Mr. Bayliss and Mark H. Mixon, Jr. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

If it becomes law, Delaware State Senate Bill 75 will prohibit Delaware stock corporations from adopting provisions in their bylaws or certificates of incorporation that would shift legal fees to the losing party in stockholder litigation. [1] The debate over these so-called “loser pays” provisions and the proposed legislation prohibiting them has generated controversy nationwide. Opponents of the legislation argue that abusive lawsuits impose a “merger tax” and that prohibiting “loser pays” provisions would “eliminate an important mechanism” that could “protect innocent shareholders against the costs of abusive litigation.” [2] Proponents of the legislation contend that “loser pays” provisions would “foreclose meritorious stockholder claims [and] render illusory the fiduciary obligations of corporate directors.” [3] Both sides of the public debate have overlooked the availability of “no pay” provisions, which could transform stockholder litigation without the effects that make “loser pays” provisions unpalatable to many. [4]

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Delaware Enacts New Rapid Arbitration Act

The following post comes to us from David J. Berger, partner focusing on corporate governance at Wilson Sonsini Goodrich & Rosati, and is based on a WSGR Alert memorandum. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The Delaware Rapid Arbitration Act (DRAA)—which provides a streamlined arbitration process that will allow for prompt, cost-effective resolution of business disputes—was passed by the Delaware House of Representatives on March 19, 2015, and the Delaware Senate on March 31, 2015, and was signed by Governor Jack Markell on April 3, 2015. The DRAA will become effective on May 4, 2015, and will be codified as new Chapter 58 of Title 10 of the Delaware Code. As summarized in more detail below, the DRAA offers a real alternative to the litigation process, providing companies with the chance to engage in a fast, relatively low-cost dispute resolution process without the burden of extensive discovery. The DRAA may be particularly beneficial to companies that are in commercial relationships with each other and that seek to avoid a lengthy, extensive, and public litigation process.

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Delaware Innovates to Create a World-Class Arbitration Regime

The following post comes to us from Greg Varallo, Director and Executive Vice President at Richards, Layton & Finger. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On March 11, 2015, the Delaware State Bar Association gave its formal approval to HB 49, which was filed yesterday in the Delaware Legislature. If passed by the Legislature, the bill, which bears the title the Delaware Rapid Arbitration Act, will establish Delaware as a cutting-edge seat for business arbitrations. Building on the best of the state’s earlier experiment with judicially annexed arbitration, the new legislation was crafted with extensive consultation and input from constituencies around the US and internationally. One thing became clear as a result of those consultations: businesses and their advisors are alarmed at the marked drift in arbitration practice away from timely, efficient dispute resolution.

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Delaware (Again) Proposes Sledgehammering Fee-Shifting Bylaws

The following post comes to us from John L. Reed, chair of the Wilmington Litigation group and a partner in the Corporate and Litigation groups at DLA Piper LLP, and is based on a DLA Piper Corporate Governance Alert by Mr. Reed and Ed Batts. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

As part of the annual update cycle for Delaware’s General Corporations Law (DGCL), the Delaware Bar has returned to last year’s controversy on fee-shifting provisions in bylaws and certificates of incorporation to propose, yet again, destroying the ability of Delaware corporations to, in their organizing documents, have the losing party in an intra-company (i.e. fiduciary duty) lawsuit pay the prevailing party’s legal fees.

The proposal is among several 2015 legislative changes to the DGCL proposed by the Council of the Corporation Law Section of the Delaware State Bar Association, which is the working-level body that, historically through consensus, creates changes to the DGCL.

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Delaware’s Choice

Guhan Subramanian is the Joseph Flom Professor of Law and Business at the Harvard Law School and the H. Douglas Weaver Professor of Business Law at Harvard Business School. The following post is based on Professor Subramanian’s lecture delivered at the 29th Annual Francis G. Pileggi Distinguished Lecture in Law in Wilmington, Delaware. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In November 2013 I delivered the 29th Annual Francis G. Pileggi Distinguished Lecture in Law in Wilmington, Delaware. My lecture, entitled “Delaware’s Choice,” presented four uncontested facts from my prior research: (1) in the 1980s, federal courts established the principle that Section 203 must give bidders a “meaningful opportunity for success” in order to withstand scrutiny under the Supremacy Clause of the U.S. Constitution; (2) federal courts upheld Section 203 at the time, based on empirical evidence from 1985-1988 purporting to show that Section 203 did in fact give bidders a meaningful opportunity for success; (3) between 1990 and 2010, not a single bidder was able to achieve the 85% threshold required by Section 203, thereby calling into question whether Section 203 has in fact given bidders a meaningful opportunity for success; and (4) perhaps most damning, the original evidence that the courts relied upon to conclude that Section 203 gave bidders a meaningful opportunity for success was seriously flawed—so flawed, in fact, that even this original evidence supports the opposite conclusion: that Section 203 did not give bidders a meaningful opportunity for success.

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Recent Amendments to the DGCL and DLLCA

James C. Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. The following post is based on a Sullivan & Cromwell publication by Mr. Morphy, Alexandra Korry, and Joseph Frumkin. The complete publication, including footnotes, is available here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here. The amendments discussed in this post were previously discussed on the Forum here.

The State of Delaware recently enacted several significant changes to the Delaware General Corporation Law (“DGCL”) and the Delaware LLC Act (“LLC Act”).

Section 251(h); Back-end Mergers. The most significant amendment to the DGCL is new Section 251(h) that, subject to certain exceptions, permits parties entering into a merger agreement to “opt in” to eliminate a target stockholder vote on a back-end merger following a tender or exchange offer in which the acquiror accumulates sufficient shares to approve the merger agreement (a majority unless the target has adopted a higher vote requirement) but less than the 90% necessary to effect a short-form merger. DGCL Section 251(h) will eliminate in many cases the time and cost associated with a stockholder vote on a back-end merger; however, where regulatory or other constraints impose significant delays, DGCL Section 251(h) is unlikely to be helpful. DGCL Section 251(h) also facilitates the financing of two-step private equity-sponsored acquisitions because the tender offer and the merger can be closed substantially concurrently (generally, on the same day). It also will eliminate the need in most cases for targets to issue “top-up” options to friendly bidders who, before DGCL Section 251(h), needed to “top-up” the number of shares they were able to purchase in the tender offer to reach the 90% target share ownership needed to effect a short-form merger. DGCL Section 251(h) does not apply to transactions in which a party to the merger agreement is an “interested stockholder” of the target under DGCL Section203(c) at the time the merger agreement is approved by the target board. In addition, there are a number of other possible limitations, outlined below, to the utilization of new DGCL Section 251(h).

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DGCL Amended to Authorize Public Benefit Corporations

The following post comes to us from Frederick H. Alexander, partner in the Delaware Corporate Law Counseling Group at Morris, Nichols, Arsht & Tunnell LLP. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Beginning on August 1, 2013, the Delaware General Corporation Law will authorize the formation of public benefit corporations. The new provisions will allow entrepreneurs and investors to create for-profit Delaware corporations that are charged with promoting public benefits. These provisions modify the fiduciary duties of directors of PBCs by requiring them to balance such benefits with the economic interests of stockholders. In addition, the new provisions will require public benefit corporations to report to their stockholders with respect to the advancement of such non-stockholder interests.

Below are a few of the more salient elements of Delaware’s public benefit corporation legislation:

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2013 Amendments to the DGCL and DLLCA

The following post comes to us from Ariel J. Deckelbaum, partner and deputy chair of the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP, and is based on a Paul Weiss client memorandum. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The Delaware General Assembly has adopted, and Delaware’s governor has signed into law, several important amendments to the State’s General Corporation Law (the “DGCL”) and Limited Liability Company Act (the “DLLCA”). Of particular interest to corporate and M&A practitioners are the following provisions:

  • New DGCL Section 251(h), which eliminates the need for stockholder approval of second-step mergers following tender offers if certain conditions are met, thus eliminating the need for workarounds such as top-up options and dual-track structures;
  • New DGCL Sections 204 and 205, which delineate a procedure to ratify defective corporate actions and to vest the Court of Chancery with jurisdiction over disputes regarding such actions;
  • New DGCL Sections 361 through 368 (Subchapter XV), which permit the creation of public benefit corporations (i.e., for-profit corporations formed for the benefit of constituencies other than stockholders, such as categories of persons, entities, communities or interests); and
  • Amended DLLCA Section 18-1104, which amendments confirm the default rule that fiduciary duties exist in the case of Delaware limited liability companies unless otherwise provided in the LLC agreement.

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