2024 Amendments to Delaware’s General Corporation Law and Alternative Entity Statutes

In its current session, the Delaware legislature passed a number of amendments to the Delaware General Corporation Law (the “DGCL”), the Delaware Limited Liability Company Act (the “DLLCA”), the Delaware Revised Uniform Limited Partnership Act (“DRULPA”), and the Delaware Revised Uniform Partnership Act (“DRUPA” and, together with the DLLCA and DRULPA, the “alternative entity statutes”). Delaware Governor John Carney recently signed these bills into law. The amendments become effective on August 1, 2024.

Details regarding certain of the more substantive amendments are as follows. In addition, other clarifying, confirming and technical changes have been made to the statutes.

Amendments to the DGCL

Several substantive amendments have been made to the DGCL in response to recent Delaware case law.

Specific Powers (DGCL Section 122). Section 122 of the DGCL sets forth a list of certain specific powers that a Delaware corporation possesses whether or not included in the corporation’s certificate of incorporation. A new Section 122(18) has been added which specifically authorizes a corporation to enter into contracts with one or more of its stockholders or beneficial owners of its stock, for such minimum consideration as approved by its board of directors, and provides the following non-exclusive list of contract provisions that a corporation may agree to therein: (i) provisions restricting or prohibiting future corporate actions specified in the contract (even if those actions require approval by the board of directors under the DGCL); (ii) provisions requiring the approval or consent of one or more persons or bodies (including the board of directors or one or more current or future directors, stockholders or beneficial owners of stock) before the corporation may take actions specified in the contract; and (iii) covenants that the corporation or one or more persons or bodies (including the board of directors or one or more current or future directors, stockholders or beneficial owners of stock) will take, or refrain from taking, future actions specified in the contract.

New Section 122(18) does not authorize a corporation to enter into contracts with stockholders that impose remedies or other consequences against directors if they take, or fail to take, specified actions as required by the contract or that purport to bind the board of directors or individual directors as parties to the contract. Instead, new Section 122(18) authorizes contracts that impose remedies only against the corporation.

New Section 122(18) also does not relieve directors, officers or stockholders of any fiduciary duties they owe to the corporation or its stockholders, including with respect to deciding to cause the corporation to enter into a contract with a stockholder or beneficial owner of stock and with respect to deciding whether to cause the corporation to perform, or to breach, the contract.

In addition to the addition of a new Section 122(18) as discussed above, Section 122(5) has been amended to clarify that management contracts and other arrangements appointing or delegating authority to an officer or agent to act on behalf of the corporation continue to be subject to Section 141(a) and the related common law addressing an over-delegation of duties and authority by a board of directors.

Authorization of agreements and other instruments (DGCL Section 147). A new Section 147 has been added to the DGCL which provides that whenever the DGCL expressly requires a board of directors to approve or take other action (such as making an advisability determination or a recommendation to stockholders) with respect to an agreement, instrument or document, the agreement, instrument or document may be approved in final form or substantially final form. This new section is intended to enable a board of directors to approve an agreement, instrument or document if, at the time of board approval, all of the material terms are either set forth in the agreement, instrument or document or are determinable through other information or materials presented to or known by the board. Section 147 also provides that, if the board of directors has acted to approve or take other action with respect to an agreement, instrument or document that is required to be filed with the Delaware Secretary of State or referenced in any certificate so filed, the board may, after providing such approval or taking such action and before making such filing, ratify the agreement, instrument or document at any time before such filing is made, and such ratification will satisfy any requirement under the statute relating to the board’s authorization, whether in terms of the manner or sequence in which it is provided. Ratification under Section 147, where available, is an alternative to ratification under Sections 204 and 205 of the DGCL.

Delivery of notice; notice by electronic transmission (DGCL Section 232). A new Section 232(g) has been added to the DGCL which provides that a notice given to stockholders is deemed to include any document enclosed with, or appended or annexed to, the notice (such as a proxy statement provided along with a notice of a stockholder meeting to approve an agreement of merger).

Effect of merger upon pending actions (DGCL Section 261). A new Section 261(a)(1) has been added to the DGCL which clarifies that parties to an agreement of merger or consolidation may, through express provision in the agreement, specify the penalties or consequences of a party’s failure to perform its obligations under, or comply with the terms and conditions of, such agreement before the effective time of the merger, or to consummate the merger or consolidation contemplated by such agreement. Such penalties or consequences may include an obligation to make payments to the other party if the merger or consolidation is not consummated, including damages based on the lost premium that stockholders of a constituent corporation would be entitled to receive if the merger becomes effective in accordance with the terms of the agreement and reverse termination fees. Section 261(a) provides that in the event a corporation is entitled to so receive such payment, the corporation may enforce the other party’s payment obligation, and, upon receipt of any such payment, the corporation is entitled to retain the amount of any such payment.

Amendments to certificate of incorporation of the surviving corporation; disclosure schedules (DGCL Section 268). A new Section 268(b) has been added to the DGCL which provides that a disclosure letter or disclosure schedules or any similar documents or instruments delivered in connection with an agreement of merger or consolidation that modify, qualify, supplement, or make exceptions to representations, warranties, covenants or conditions in the agreement will not, unless otherwise provided by the agreement of merger or consolidation, be deemed part of the agreement for purposes of the provisions of the DGCL. The new section reflects the fact that disclosure schedules and similar documents frequently operate as extrinsic facts incorporated by reference into the agreement but are not themselves part of the agreement and, as such, may be negotiated and prepared by officers and agents at the direction of the board of directors without the need, as a statutory matter, for formal approval by the board of directors.

Amendments to the DLLCA

Merger and Consolidation (DLLCA Section 18-209) and Merger and Consolidation of Registered Series (DLLCA Section 18-221). Related amendments were made to the merger statutes appearing in Sections 18-209 and 18-221 of the DLLCA to permit a certificate of merger or a certificate of ownership and merger to state any amendments to the certificate of formation of a surviving domestic limited liability company in a merger as are desired to be effected by the merger and to permit a certificate of merger of registered series to state any amendments to the certificate of registered series of a surviving registered series in a merger as are desired to be effected by the merger.

Series of Members, Managers, Limited Liability Company Interests or Assets (DLLCA Section 215), Registered Series of Members, Managers, Limited Liability Company Interests or Assets (DLLCA Section 218) and Revocation of Dissolution (DLLCA Section 18-806). Related amendments were made to the revocation provisions appearing in Sections 18-215(d), 18-218(f) and 18-806 of the DLLCA. The amendments to Section 18-215(d) confirm and clarify the mechanisms for revoking termination of a protected series by specifying that the reference to “other persons” in Section 18-215(d)(1) and (2) is a reference to other persons whose approval is required for such termination of the protected series pursuant to the limited liability company agreement. The amendments to Section 18-218(f) confirm and clarify the mechanisms for revoking dissolution of a registered series by specifying that the reference to “other persons” in Section 18-218(f)(1) and (2) is a reference to other persons whose approval is required for such dissolution of the registered series pursuant to the limited liability company agreement. The amendments to Section 18-806 confirm and clarify the mechanisms for revoking dissolution of a limited liability company by specifying that the reference to “other persons” in Section 18-806(1) and (2) is a reference to other persons whose approval is required for such dissolution of the limited liability company pursuant to the limited liability company agreement.

Amendments to DRULPA

Execution (DRULPA Section 17-204); Merger and Consolidation (DRULPA Section 17-211) and Merger and Consolidation of Registered Series (DRULPA Section 17-224). Sections 17-211 and 17-224 were amended in a manner parallel to the amendments discussed above to Section 18-209 and 18-221. In connection with those amendments, Section 17-204 was also amended to require each new general partner to sign the certificate of merger or certificate of ownership and merger and to require each new general partner to sign the certificate of merger of registered series.

Series of Limited Partners, General Partners, Partnership Interests or Assets (DRULPA Section 218), Registered Series of Limited Partners, General Partners, Partnership Interests or Assets (DRULPA Section 221) and Revocation of Dissolution (DRULPA Section 17-806). These provisions were amended in a manner parallel to the amendments discussed above to Sections 18-215(d), 18-218(f) and 18-806 of the DLLCA.

Amendments to DRUPA

Section 15-902 of DRUPA was amended in a manner parallel to the amendment discussed above with respect to Section 18-209 of the DLLCA. The amendment to Section 15-902 also requires a domestic partnership to file a statement of partnership existence in certain circumstances.