On August 1, 2023, amendments to the Delaware General Corporation Law ("DGCL") went into effect, simplifying processes for Delaware corporations to take specific corporate actions. The changes focus on authorizing certain stock splits and altering a corporation's authorized shares.
Key points of the amendments:
Section 242 – Amendments to Certificate of Incorporation:
Stockholder approval is no longer required for a charter amendment implementing a forward stock split if the corporation has only one class of outstanding stock and that class is not divided into series.
The threshold for stockholder approval of a charter amendment for a reverse stock split is reduced to a majority of votes cast, provided specific conditions are met (e.g., listing on a national securities exchange).
Like reverse stock splits, the voting threshold for a charter amendment to increase or decrease the number of authorized shares may be approved by a majority of votes cast, under specified conditions.
Section 228(e) – Notice of Action by Consent:
The amendment clarifies the date for determining the stockholders entitled to notice when action is taken by written consent without a meeting.
Public corporations can now provide such notices online, simplifying administrative burdens.
Section 157 – Power to Delegate Authority to Issue Options:
Building on the 2022 amendments, Section 157 now allows boards to delegate authority to determine terms for acquiring shares through options or rights.
Technical changes include specifying parameters and empowering the delegate to decide significant terms.
Section 204 – Ratification of Defective Corporate Acts:
Amendment streamlines requirements for filing a certificate of validation upon ratification of defective corporate acts.
The information needed in the certificate has been simplified, reducing administrative burdens.
Section 272 – Mortgages or Pledges of Assets:
Clarifies that the vote of a majority-in-interest of stockholders is not required for certain transactions involving the exercise of secured party rights or alternative transactions authorized by the board.
Section 262 – Appraisal Rights:
Expands transactions triggering statutory appraisal rights to include transfers, domestications, and continuances.
Requires withdrawal of a demand for appraisal rights within 60 days after the effective date of the triggering transaction, with approval from the corporation after 60 days.
Additionally, there are clarifying changes to provisions governing the creation and issuance of stock, actions under a plan of conversion, and the authority of a corporation resulting from a conversion or domestication to issue bonds and other securities.
Key Takeaways: These changes allow Delaware corporations to streamline corporate actions and respond more swiftly in the capital markets. The amendments eliminate the impact of abstentions on stockholder votes, facilitating actions for publicly traded corporations, especially those with large retail stockholder bases and low voting participation. Corporations can now proceed with certain actions that previously required extensive stockholder outreach without being hindered by abstentions.
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