Delaware Governor John Carney recently signed into law several amendments (the “Amendments”) to provisions of the Delaware General Corporation Law (“DGCL”) under Senate Bill 313. The Amendments are retroactively effective beginning August 1, 2024, but the Amendments will not impact any completed or pending civil actions commencing before the effective date.

Delaware Governor Carney’s signing marks the end, at least for now, of a power struggle between the Delaware courts and the Delaware State Bar Association. The Delaware corporate law community was shaken by a recent Court of Chancery case holding that corporate stockholder agreements were invalid if they imposed certain restrictions on a corporation’s board, specifically if they required stockholder to consent to certain corporate actions. The ruling severely weakened stockholder influence in corporate decision making and empowered boards by granting them more control and autonomy over their decision-making process. It also called into question the validity of thousands of stockholder agreements for corporations incorporated in the State of Delaware.

The Court of Chancery’s position on stockholder agreements sparked a range of emotions from stakeholders across the country. While some stakeholders appeared to support the ruling, many groups, including the Delaware State Bar Association, quickly moved to oppose the decision. In just two months, the Delaware State Bar Association drafted legislation designed to shield stockholder agreements from similar rulings in Delaware. The draft legislation was approved by Delaware’s General Assembly in late June of this year, and with Governor Carney’s signing the Amendments into law on July 17, 2024.

The major implication of the Amendments is that the DGCL now makes clear that corporations are permitted to enter into agreements with stockholders to provide stockholders with a stronger voice in corporate governance and company interest. These agreements can establish specific approval requirements for particular actions or can dictate whether the board will or will not take a particular action. The DGCL now also specifies that a corporation’s power to contract with its stockholders need not be specified in its articles of incorporation in order to form a valid and enforceable agreement.

In addition to the above-described amendment, several other key amendments related to board governance, stockholders, and merger agreements were added to the DGCL, including:

• A board of directors can validly approve agreements, documents, and instruments that are in substantially final form.
• Any documents sent to stockholders along with notice are to be considered part of that notice.
• Neither the board of directors nor its stockholders are required to approve the articles of incorporation of a surviving corporation if merger consideration to a constituent corporation’s stockholders does not include shares in the surviving corporation.
• Directors and stockholders, unless otherwise specified, are not required to approve final or substantially final disclosure schedules of merger agreements. These schedules can be completed by officers or agents directed by the board.
• Parties to a merger agreement may contract for remedies in the event of a breach, and representatives can be appointed to enforce stockholder rights for stockholders of constituent corporations.

The Amendments appear to attempt to address several key underlying debates which have recently arose in Delaware corporate law, including: (1) the perception that Delaware courts have begun to overstep and make legal determinations more appropriately suited for legislatures to decide, (2)  recent Court of Chancery decisions that many practitioners considered inconsistent with market practice, and (3) various stakeholders who have sought clarification on when, how, and if boards of directors can or should provide approval for actions taken by a corporation. For now, Delaware’s General Assembly has addressed these debates with the passing of the DGCL’s new Amendments, but corporate owners and operators can likely expect further debates to arise around these issues.

If you have questions about the new Amendments to the Delaware General Corporation Law, please reach out to Dan Desmond, Charmaine Nyman, or any member of Barley Snyder’s Business Practice Group.

Summer Associate Timothy Azizkhan assisted in the drafting of this client alert. To learn more about our summer associate program, click here.