August 4, 2022

Big Week in Delaware: Changes to the DGCL Go Into Effect

Effective August 1, the Delaware General Corporation Law has been amended to reflect several significant changes. As this Wilson Sonsini memo notes, the changes will allow Delaware corporations to adopt charter provisions to exculpate officers from personal liability in certain contexts, and the amendments will also give corporations greater flexibility in delegating authority to officers and others to grant stock options and other rights to acquire stock. With regard to the exculpation provision, which John blogged about back in April, the memo notes:

In recent years, stockholder plaintiffs have increasingly named officers as defendants in fiduciary duty litigation. This is in part because officers have historically lacked certain protections that directors have—including insofar as the DGCL long provided that a corporation’s charter could exculpate directors from personal liability for breaches of the fiduciary duty of care but did not authorize such exculpation for officers. Effective August 1, Delaware corporations now can adopt charter provisions that will, in effect, allow officers to be exculpated from breaches of the fiduciary duty of care in certain contexts. Notably, under the amendments, officers now can be exculpated for direct claims by stockholders, which commonly arise in the M&A context. The new amendments will not permit such exculpation of directors in the context of derivative claims, brought by or in the right of the corporation. The statute further provides that the officers who may be exculpated in this manner are only officers who at the time of an act or omission as to which liability is asserted are deemed to have consented to service of process to the registered agent of the corporation as contemplated by 10 Del. C. § 3114(b) (generally, executive officers, officers identified in the corporation’s SEC filings as one of the corporation’s most highly compensated executive officers at the time of alleged wrongdoing, and officers that have agreed in writing to constitute an officer for this purpose). Despite these limitations, the incremental protection available under the amendments should be helpful for officers and in mitigating certain types of stockholder litigation.

On the equity award front, the DGCL amendments harmonize the statutory provisions for issuing stock and granting options and other rights. Under these amendments, the board or a board committee can now permit officers and other agents to have expanded authority in the context of granting options and rights, subject to certain parameters. These changes will provide increased flexibility in designing and implementing equity award plans.

Under the recently effective amendments to the DGCL, a corporation’s stockholder list will no longer need to be made available for inspection during a meeting of stockholders, but it will still need to be available for inspection for a 10-day period prior to the meeting. Further, the appraisal statute has been amended to allow a beneficial owner of stock to demand appraisal directly instead of relying on the record holder, and the stockholder approval required to convert a Delaware corporation to a foreign corporation or any other entity has been lowered from unanimous approval to majority approval. The DGCL amendments also make various adjustments to ease the process for non-United States entities to domesticate to Delaware.

– Dave Lynn