Yearly Archives: 2023

Several changes to the Delaware General Corporation Law (DGCL) took effect on August 1, 2023. While perhaps less significant than the 2022 amendments to the DGCL and Delaware Statutory Trust Act, which permitted exculpation of executive officers for violations of the duty of care and mandated that Delaware closed-end mutual funds be covered by a control share acquisition statute, respectively, a few of the 2023 changes are likely to have an impact on shareholder meetings in 2024 and beyond.

The most important amendments this year are to the vote requirements for forward and reverse stock splits. Going forward, Delaware companies will not be required to seek shareholder approval for any forward stock split, as long as the class of stock being split is the only class issued by the company. Reverse stock splits and increases or decreases in the number of authorized shares will now require approval by a majority of votes cast, rather than a majority of shares outstanding; provided that the class of stock in question is listed on a national securities exchange and the company would continue to meet listing requirements as to the minimum number of holders following the reverse split. Companies can choose to maintain the higher vote standards if they affirmatively opt out of the new provisions by specifying in the charter that forward or reverse splits require approval by a majority of outstanding shares.

Forward stock splits are typically carried out by relatively large companies, which tend to have high levels of institutional ownership, and such companies rarely have difficulty in obtaining approval for a forward split. By contrast, reverse stock splits are most often employed by microcap companies as a way to raise the share price and thereby avoid delisting for failure to meet the stock exchange minimum bid price requirement. Despite the obvious benefits to shareholders of maintaining the company’s listing, and the lack of any significant active opposition to a reverse split proposal, many such companies have struggled to obtain the necessary approval, due to low turnout by retail investors that has prevented them from garnering the affirmative vote of a majority of the voting power of outstanding shares. Over the past year and a half, more than 50 such companies – mostly incorporated in Delaware – have issued preferred shares with enhanced voting rights applicable only to a reverse split proposal, as a way to clear the hurdle imposed by the previous vote standard. Such workarounds should no longer be necessary at Delaware companies thanks to the change in the vote requirement.

READ MORE »