Overview

Governor Carney recently signed into law certain amendments (the Amendments) to the Delaware General Corporation Law (the DGCL) that (i) clarify the powers of boards of directors in an emergency, (ii) enumerate the officers entitled to mandatory indemnification, (iii) confirm the ability of a corporation to execute and deliver documents and notices by electronic means, and (iv) facilitate both the conversion of for-profit Delaware corporations to public benefit corporations and the merger of Delaware corporations in connection with the creation of a holding company structure.

Emergency Powers of the Board of Directors

Under Section 110 of the DGCL, a board of directors has the power to adopt special bylaws during certain emergency conditions. As part of the Amendments, and as a response to the COVID-19 pandemic, emergencies under Section 110 of the DGCL will now expressly include pandemics and any declaration of a national emergency by the federal government. Emergency bylaws may be adopted by the board, or if a quorum cannot be readily convened, by a majority of the directors present. In addition, during any such emergency, the Amendments confirm that a board may take any actions that it determines to be practical and necessary to address the emergency, including, but not limited to (i) the postponement of any stockholder meeting (with the record date of such stockholder meeting applying to the postponed meeting), and (ii) for public companies, notifying stockholders of the postponement of any stockholder meeting by means of a filing with the Securities and Exchange Commission. The Amendments also provide that during any such emergency, a board may change the record and payment dates of a previously declared dividend if the record date has not yet passed, provided that the new payment date is not more than 60 days after the new record date.

Exculpation and Indemnification

Section 102(b)(7) currently provides that a director of a Delaware corporation will be exculpated from monetary damages for breaches of the duty of care pursuant to the inclusion of a provision to that effect in the corporation’s certificate of incorporation. The Amendments provide that any amendment, repeal or elimination of any such exculpatory provision will not affect the application of such clause with respect to any act or omission of a director occurring before such amendment, repeal or elimination, unless the provision provides otherwise.

Section 145 of the DGCL provides for mandatory indemnification for directors and officers who have been successful on the merits in defense of any action, suit or proceeding. Effective December 31, 2020, the Amendments provide that only the following types of officers will be entitled to mandatory indemnification under Section 145 of the DGCL: president, chief executive officer, chief operating officer, chief financial officer, chief legal officer, controller, treasurer or chief accounting officer. Under the Amendments, a corporation is given flexibility to specify other officers who will be entitled to mandatory indemnification. 

Electronic Transmissions and Notices

As part of the 2019 amendments to the DGCL, several sections were amended to facilitate the execution and delivery of transactions and notices (including statutory notices) by electronic means. Included in the Amendments are several clarifying changes intended to avoid any ambiguity from the 2019 amendments to the DGCL. Namely, Section 116 is being amended to eliminate a carve-out for board, stockholder and incorporator-written consents that had previously been included, because the sections of the DGCL dealing with those instruments themselves already included language regarding electronic transmission. In addition, Section 232 is being amended to eliminate any doubt that stockholders may, pursuant to the 2019 amendments to the DGCL, receive notice from the corporation by e-mail without any prior consent.

Public Benefit Corporations

The DGCL currently allows for the incorporation of, or conversion to, a public benefit corporation. A public benefit corporation is a for-profit corporation that is intended to produce a public benefit, and to operate in a responsible and sustainable manner. Directors of a public benefit corporation are under an explicit mandate to balance the interests of the stockholders of the corporation with the interests of those materially affected by the corporation, and the public benefit identified in its certificate of incorporation. The Amendments facilitate a for-profit corporation’s conversion to a public benefit corporation by: (i) reducing the stockholder approval threshold necessary for the conversion from two-thirds to a majority; and (ii) eliminating statutory appraisal rights for the corporation’s stockholders in connection with any such conversion.

Holding Company Mergers

Section 251(g) of the DGCL provides that a corporation may, without a vote of stockholders, merge with or into a single direct or indirect wholly-owned subsidiary if certain conditions are met. This type of merger is often referred to by practitioners as a holding company merger. The Amendments facilitate holding company mergers by removing the requirement that, following the merger, the organizational documents of the surviving entity must contain provisions identical to the certificate of incorporation of the parent corporation prior to the merger.