In its last 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 signed these bills into law. The amendments become effective on August 1, 2019.
The amendments include a number of substantive, technical and clarifying changes. Most notably, they include changes to both the DGCL and the alternative entity statutes that establish non-exclusive safe-harbor methods to reduce certain acts or transactions to a written or electronic document and to sign and deliver a document manually or electronically. Details regarding the various amendments are as follows.
Amendments to the DGCL
Electronic Documents and Signatures (DGCL Section 116). New Section 116 of the DGCL establishes non-exclusive safe-harbor methods to reduce certain acts or transactions to a written or electronic document and to sign and deliver a document manually or electronically. Under the new section, electronic transmissions are deemed the equivalent of a written document, and signatures may be manual, facsimile, conformed or electronic. The new section is partially based on the Delaware Uniform Electronic Transactions Act (“UETA”), and permits corporate transactions including agreements of merger, voting agreements and statutory voting trusts that are not otherwise governed by UETA to be documented, signed and delivered through “DocuSign”® and similar electronic means that comply with the safe harbor. The safe harbor defines an “electronic signature” as a symbol or process that is attached to or logically associated with a document and executed or adopted by a person with the intent to authenticate or adopt the document, and provides that an electronic transmission is deemed delivered when it enters an information processing system that has been designated for the purpose of receiving such electronic transmissions, even if no person is aware of its receipt. The certificate of incorporation or bylaws of a corporation may contain provisions that expressly restrict the application of the safe-harbor provisions. Moreover, documents filed with the State, the stock ledger, stock certificates, and certain other categories of documents are not covered by the safe harbor.
Electronic Notice (DGCL Section 232). Section 232 of the DGCL was amended to allow stockholder notices to be sent by electronic mail unless the stockholder has notified the corporation in writing or by electronic transmission of an objection to receiving notice by electronic mail. Section 232 previously required that stockholders specifically consent to receiving notices by electronic mail. Any notice by electronic mail must include a prominent legend indicating that the communication is an important notice regarding the corporation. The amended statute still provides that notices cannot be given by electronic transmission if the corporation’s secretary or assistant secretary has become aware that two consecutive electronic notices have not been successfully delivered.
Resignation of Registered Agent (DGCL Section 136(a)). Section 136(a) of the DGCL was amended to permit the registered agent of a corporation which has become void for failure to pay franchise taxes to resign, without appointing a successor, upon 30 days’ notice after providing the State with the last known contact information for the corporation, which information will not be deemed public or be subject to freedom-of-information-act requests.
Other Amendments. Several other revisions were made in order to allow for electronic transmission of notices and to conform to the new provisions regarding electronic documents and signatures. In addition, Section 108 of the DGCL was amended to allow for a person who is not yet an incorporator or director to take action as the incorporator or director effective at a later effective date, not to exceed 60 days from the date such instruction is given, so long as such person will be an incorporator or director on such later effective date and does not revoke such action prior to the effective date.
Amendments to the DLLCA
Electronic Documents and Signatures (DLLCA Section 18-113). New Section 18-113 of the DLLCA establishes non-exclusive safe-harbor methods to reduce certain acts or transactions to a written or electronic document and to sign and deliver a document manually or electronically. This Section is substantially similar to DGCL Section 116 discussed above.
Resignation of Registered Agent (DLLCA Section 18-104(d)). Section 18-104(d) of the DLLCA was amended to permit the registered agent of a limited liability company which has become void for failure to pay annual taxes to resign, without appointing a successor, upon 30 days’ notice after providing the State with the last known contact information for the limited liability company, which information will not be deemed public or be subject to freedom-of-information-act requests. This Section is substantially similar to DGCL Section 136(a) discussed above.
Other Amendments. Several other revisions were made in order to allow for electronic transmission of notices and to conform to the new provisions regarding electronic documents and signatures. In addition, Section 18-210 of the DLLCA was amended to provide that a plan of division may provide for contractual appraisal rights and that contractual appraisal rights may be made available in connection with any merger or consolidation in which a registered series is a constituent party, any division of a limited liability company, any conversion of a protected series to a registered series, and any conversion of a registered series to a protected series. Section 18-217 of the DLLCA was amended to make certain clarifying and technical changes regarding divisions of limited liability companies.
Amendments to DRULPA
Electronic Documents and Signatures (DRULPA Section 17-113). New Section 17-113 of DRULPA establishes non-exclusive safe-harbor methods to reduce certain acts or transactions to a written or electronic document and to sign and deliver a document manually or electronically. This Section is substantially similar to DGCL Section 116 discussed above.
Resignation of Registered Agent (DRULPA Section 17-104(d)). Section 17-104(d) of DRULPA was amended to permit the registered agent of a limited partnership which has become void for failure to pay annual taxes to resign, without appointing a successor, upon 30 days’ notice after providing the State with the last known contact information for the limited partnership, which information will not be deemed public or be subject to freedom-of-information-act requests. This Section is substantially similar to DGCL Section 136(a) discussed above.
Division (DRULPA Section 17-220). New Section 17-220 of DRULPA enables a limited partnership to divide into two or more limited partnerships with the dividing partnership continuing or terminating its existence, as the case may be. If the limited partnership agreement of the dividing partnership does not specify the manner of adopting a plan of division and does not prohibit a division of the partnership, the plan of division must be adopted in the same manner provided in the agreement for authorizing a merger or consolidation or, if the agreement does not so provide, then by limited partners owning more than a 50 percent interest.
The debts and liabilities of the dividing partnership are allocated among the resulting partnerships (referred to in the statute as “division partnerships”) in the manner specified in the plan of division, and, after the division goes into effect, no other division partnership is responsible for those debts and liabilities so long as the plan of division does not constitute a fraudulent transfer. The certificate of division filed with the Delaware Secretary of State must name a “division contact” who shall, upon request of any creditor (for six years after the division), provide such creditor with the name and business address of the company to which the claim of such creditor was allocated pursuant to the plan of division.
The division process contemplated in Section 17-217 provides limited partnerships with another, more direct, tool for effecting reorganizations that might otherwise have been effected by a spin-off structured as a sale of assets to a subsidiary and a distribution of the equity of such subsidiary.
Formation of Registered Series (DRULPA Section 17-221). New Section 17-221 of DRULPA authorizes the formation of a “registered series”. Registered series are associations formed by the filing of a certificate of registered series and, therefore, have the attributes required to be “registered organizations” under the Uniform Commercial Code. Registered series also have the same rights and powers and the same inter-series limitation on liability as series established under Section 17-218(b), with Section 17-218(b) series having been redubbed as “protected series” under the amendments.
The formation of a registered series by filing of a certificate of registered series may prove beneficial to some limited partnerships in structuring financing transactions that depend on creation and perfection of security interests in the assets held by the series.
Statutory Public Benefit Limited Partnerships (DRULPA Sections 17-1201 to 17-1207). New Subchapter XII of DRULPA allows for the formation of statutory public benefit limited partnerships which, like public benefit corporations, are for-profit but are intended to produce a public benefit and to operate in a responsible and sustainable manner.
Subchapter XII is an elective regime. If a limited partnership elects to become a statutory public benefit limited partnership, then it must comply with the requirements of Subchapter XII, which may not be altered by the limited partnership agreement. To elect into Subchapter XII, the certificate of limited partnership of the limited partnership must state within its heading that the limited partnership is a statutory public benefit limited partnership, and must set forth one or more specific public benefits to be promoted by the limited partnership.
A limited partnership that has elected to be governed by Subchapter XII shall be managed in a manner that balances the partners’ pecuniary interests, the best interests of those materially affected by the limited partnership’s conduct, and the public benefit set forth in the certificate of limited partnership. The general partners of the limited partnership do not, by virtue of Subchapter XII, owe any duty to any person on account of such person’s interest in the public benefit sought by the limited partnership. And, in managing the required balance, the general partners are deemed to satisfy any fiduciary duties to partners and to the limited partnership if decisions are both informed and disinterested and not such that no person of ordinary, sound judgment would approve.
The statutory public benefit limited partnership must, no less than biennially, provide its limited partners with a statement as to the limited partnership’s promotion of the public benefit set forth in its certificate of limited partnership and as to the best interests of those materially affected by the limited partnership’s conduct.
In some ways, Article XII is superfluous, in that DRULPA is a permissive statute, and, unlike a Delaware corporation, a balancing of interests between partners and others could have been provided for in the limited partnership agreement without express statutory authority. Section 17-1208 makes clear that such non-statutory public benefit arrangements remain permissible. But some limited partnerships may choose to take the further step of complying with Article XII and thus becoming a statutory public benefit limited partnership so that they can better position themselves to obtain third-party certifications of their public benefit nature.
Other Amendments. While voluminous, the remainder of the amendments to DRULPA adopted by the Delaware legislature in its last session consist largely of conforming, clarifying and enabling amendments to other Sections of DRULPA that relate to the amendments described above. Among those changes are new Section 17-222, enabling a protected series of a limited partnership to convert to a registered series of such limited partnership; Section 17-223, enabling a registered series of a limited partnership to convert to a protected series of such limited partnership; and Section 17-224, providing that registered series of a limited partnership may merge or consolidate with one another.
Amendments to DRUPA
A new Section 15-124 of DRUPA was added, relating to electronic signatures and documents, which is substantially similar to DGCL Section 116 discussed above. Changes were also made to certain Sections in order to provide specific statutory authority for partnerships to use networks of electronic databases (examples of which are described currently as “distributed ledgers” or a “blockchain”) for the creation and maintenance of partnership records and for certain “electronic transmissions”.
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