In its most recently completed session, the Delaware state legislature adopted amendments to various provisions of the Delaware General Corporation Law (DGCL). These amendments became effective August 1. While many of the amendments were technical in nature (e.g., amendments to the merger provisions of DGCL §§ 252, 253, 258 and 267 to consistently use the term “foreign corporation” when referring to corporations organized under the laws of any jurisdiction other than the State of Delaware), others are of more significance to practitioners.
Blockchain Amendments. Sections 219 and 224 of the DGCL (relating to stockholder lists and forms of corporate records, respectively) were amended to permit the use of distributed ledger or “blockchain” technology (i.e., a growing list of shared, linked and continuously verified records to which new records are continuously added in a linear, chronological order) in maintaining stock ledgers and other corporate records. The amendments permit (but do not require) Delaware corporations to opt to use blockchain technology to maintain their stock records rather than using a centrally located stock registry. Specifically, DGCL § 219(c) was amended to define a ‘‘stock ledger’’ as ‘‘one or more records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each such stockholder, and all issuances and transfers of stock of the corporation are recorded in accordance with § 224 of this title.’’ Section 224 of the DGCL, in turn, has been amended to permit the maintenance of corporate records in one or more electronic databases, with the important caveat that the database chosen must permit the records to be reduced to paper form within a “reasonable” (presumably short) period of time. The amendments to DGCL § 224 also require that the technology used to maintain a stock ledger must permit the preparation of the lists of stockholders specified in DGCL §§ 219 and 220 (related to stockholder meetings and inspection of books and records, respectively) and be capable or recording the information required by DGCL §§ 156, 159, 217(a) and 218 (relating to partially paid shares, collateral transfers, voting rights of fiduciaries, and voting trusts and voting agreements, respectively) and recording transfers of stock as contemplated by the Delaware Uniform Commercial Code.
Similarly, notices required under DGCL §§ 151(f), 202(a) and 364 (relating to notices to holders of uncertificated stock and restrictions on transfers of securities) are now permitted to be given by electronic transmission. The term “electronic transmission” is defined in DGCL § 232, which section has been amended to permit the use of electronic networks or databases including ‘‘any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof . . . ” Importantly, DGCL § 232, as amended, requires that such communication be capable of being directly reproduced in paper form by its recipient through an automated process.
These changes were driven in part by the “Delaware Blockchain Initiative,” an effort championed by Delaware’s former governor to promote the use of blockchain technology. While potentially very powerful and having broad long-term implications for everything from the maintenance of stockholder and other corporate records to the clearing of stock trades, in the short term, this technology will likely require the development of new systems and tools by vendors to exploit its potential before being broadly adopted.
Stockholder Written Consents. In a move to simplify the lives of practitioners, DGCL § 228 was amended to eliminate the requirement that stockholder written consents be individually dated at the time of signing by the signatory stockholder. As amended, DGCL § 228 also clarifies that written consents with future effective dates must be effective within 60 days of the delivery of the first consent to the corporation, marking a slight change from the previous rule measuring the 60-day period from the earliest dated consent delivered.
DGCL § 203 Opt-Out. Section 203 of the DGCL, the Delaware control share acquisition statute, was amended to clarify when opt-outs permitted by the statute become effective. Delaware corporations may opt out of DGCL
- 203 by expressly doing so in their original charter or by a subsequent amendment to their certificate of incorporation or bylaws approved by their stockholders in accordance with DGCL § 203. Pursuant to the amendments to DGCL § 203(b)(3), opt-outs effected by an amendment to a corporation’s charter now become effective upon filing with the Delaware Secretary of State in accordance with DGCL § 103 (in the case of a corporation that has never had a class of voting stock listed on a national securities exchange or held of record by more than 2,000 stockholders, and has not elected in its original charter to be treated otherwise) or 12 months from such filing (in the case of all other corporations). Previously, such opt-outs became effective upon adoption or 12 months after adoption, depending upon which of the two categories the corporation fit into. In contrast, the effectiveness of opt-outs effected by bylaw amendments remains tied to the date of the adoption of the amendment.
Merger Amendments. A number of highly technical amendments were made to the merger provisions of the DGCL. Among the most significant are the changes to DGCL §§ 252, 253, 254, 256, 258, 263, 264 and 267 to bring consistency to the types of foreign entities with which Delaware corporations are permitted to merge or consolidate. As amended, mergers with foreign entities will be permitted if the foreign jurisdiction does not “prohibit” such merger. This uniform standard replaces various previous standards with minor variations in language requiring the merger to be “permitted “ or that the foreign statute “not forbid” the merger. The revised language is intended to be both be permissive and impose consistency across types of legal entities. In addition, the amendments to DCGL §§ 254, 263 and 264 make clear that mergers with foreign entities of the types covered by such sections (joint stock or other association, partnership and limited liability companies) are now expressly permitted.