This spring, the Delaware General Assembly, as part of the annual process of evaluating and updating the Delaware General Corporation Law (DGCL), passed several amendments to the DGCL. The amendments became effective on August 1, 2011. Outlined below is a summary of the 2011 amendments to the DGCL:
- Indemnification and Advancement Rights – Section 145(f): The DGCL was amended to clarify that corporations may not retroactively impair or eliminate indemnification or advancement rights by amending their certificate of incorporation or bylaws. The amendment makes clear that a right to indemnification or advancement of expenses conferred by the certificate of incorporation or bylaws cannot be eliminated or impaired by an amendment to the certificate of incorporation or the bylaws after the occurrence of the act or omission that gives rise to indemnification or advancement rights, unless the provision contains, at the time of the act or omission, an explicit authorization of such elimination or limitation.
- Filing Requirements for Domesticating and Converting Corporations – Sections 265(b), 388(b): The DGCL has been amended to specify that entities converting into a Delaware corporation must file the certificate of conversion and the certificate of incorporation with the Secretary of State simultaneously or provide for the same future effective date or time. Likewise, the DGCL amendments require non-U.S. entities domesticating to Delaware to file the certificate of domestication and the certificate of incorporation simultaneously or provide for the same future effective date or time.
- Requirements Upon Dissolution, Merger, Transfer, or Conversion – Section 277: The DGCL was amended to clarify that before a corporation is dissolved, merged, transferred, or converted, the corporation must pay all franchise taxes due to or assessable by the State of Delaware and file all annual franchise tax reports. The amendment also provides that if a corporation files an instrument to affect a dissolution, merger, transfer, or conversion with the Secretary of State and the Secretary of State certifies that such instrument has been filed, the corporation is dissolved, merged, transferred, or converted at the time of filing.
- Corporations’ Names in Certificate of Incorporation – Sections 102(a) and 395: The 2011 amendments grant certain entities and persons the discretion to waive specific requirements and restrictions related to naming particular types of corporations.
Section 102(a)(1) requires incorporators to set forth the corporation’s name in its certificate of incorporation containing one of the following words: “association,” “company,” “corporation,” “club,” “foundation,” “fund,” “incorporated,” “institute,” “society,” “union,” “syndicate,” “limited,” or abbreviations thereof. The Division of Corporations has the discretion to waive this requirement, however, for corporations that have executed, acknowledged, and filed a certificate with the Secretary of State stating that its total assets are equal to or greater than $10,000,000. As amended, Section 102(a)(1) grants the Division of Corporations further discretion to waive this requirement for corporations that are nonprofit, nonstock, and an association of professionals.
Section 395 mandates that corporations shall not include the word “trust” in their name unless the corporation is: regulated under the Bank Holding Company Act of 1956 or the Home Owners’ Loan Act; or reporting to and under the supervision of the State Bank Commissioner. The 2011 amendments grant the Director of the Division of Corporations and the State Bank Commissioner discretion to waive these requirements if the corporation’s name: does not clearly refer to a trust business; is not likely to mislead the public into believing that the corporation meets this section’s requirements; and would not otherwise lead to a pattern of abuse that might cause harm to the interests of the public or the state.
- Registered Office Address –Sections 102(a)(2), 103, 131, 374: The 2011 amendments modify the DGCL to provide that when filing any document with the Delaware Secretary of State, the address of the registered agent or registered office of the corporation must include the street, number, city and postal code. This requirement does not apply to any documents filed with the Delaware Secretary of State before August 1, 2011 other than for documents filed on or after August 1, 2011 to change the registered office of registered agent of the corporation.
- Exempt Corporations – Sections 313, 391(a)(3), 501: The 2011 amendments clarify that corporations that do not pay franchise taxes are “exempt corporations.” The definition of “exempt corporation” was also clarified to include captive insurance companies, religious corporations and purely charitable or educational associations.
- Reduced Fees and Taxes – Sections 391, 502, 503: The 2011 amendments make various changes to the fees associated with filings with the Delaware Secretary of State.