Changes and Comments When the new Delaware General Corporation Law was adopted in 1967, the revisers contemplated keeping the statute under constant surveillance so that it would be fully and currently responsive to the constantly changing needs of the business world. Only thus would it be possible to maintain the excellence of a statute under which American corporations have been more frequently organized than under any other state law. In 1968, a number of technical amendments were adopted.1 In 1969, the General Assembly of Delaware enacted further amendments which polish and perfect a statute already acclaimed for its flexibility and capacity to handle corporate problems of widely varying character. The amendments did not alter the broadly liberal character of the statute nor introduce unsettling changes. The basic structure of the statute, including such popular features as the broad indemnification law and the flexible merger procedures, are preserved, but with some helpful clarifying changes in the latter. The purpose of this pamphlet is to describe and explain the principal 1969 amendments. They will be examined, under broad headings rather than in the numerical sequence of the statute, with initial attention to amendments of greatest current interest to the business community. I. "FUNDAMENTAL CORPORATE CHANGES" A. Mergers and Consolidations Vote: The most important change made by the new amendments is to reduce the vote necessary for stockholder approval of a merger with another corporation. Previously, section 251(c) required approval by "two-thirds of the total number of the outstanding shares of the capital stock" of the corporation. The new amendment requires only "a majority of the outstanding stock of the corporation entitled to vote thereon." 2 Whether or not stock is entitled to vote on the merger is determined by the certificate of incorporation; ordinarily only common stock will have such voting rights. 1. See the Technical Amendments Act Section, infra at p. 11 for a brief summary of the principal changes made by the Technical Amendments Act (Delaware Senate Bill 273, Chapter 186, Laws of 1967) effective January 2, 1968. 2. Amended section 251 (c) (emphasis supplied) p. 25. Merger without Stockholder Approval: The 1967 revision provided that a surviving corporation could consummate a merger without obtaining the approval of its stockholders if it did not amend its certificate of incorporation or issue or deliver shares of any class of its stock in excess of 15% of the number of shares of that class outstanding immediately before the merger.3 The 1969 amendment leaves this untouched, except to require that the surviving corporation execute and file with the Delaware Secretary of State a certificate reciting the facts which, under the statute, excuse any vote by the surviving corporation's shareholders.+ 5 Consideration: Another significant amendment to the basic merger provision enlarges the permissible types of consideration available for use in a merger. The new amendment now provides that in a merger "property" and "rights" may be used as consideration, as well as cash or shares or securities of the surviving or new or of any other corporation (as originally provided). Thus, the flexibility of choice for corporations is markedly enhanced. Conforming changes to enlarge permissible types of consideration have been made in the statutory provisions permitting merger of Delaware and non-Delaware corporations, and for short-form mergers between parent and subsidiary.7 Other Changes: Several housekeeping changes, not altering substance, were made in the provisions governing mergers between Delaware and non-Delaware corporations. See the discussion under "Appraisal Rights" for changes in the law relating to ap praisal rights which, in Delaware, are available only in certain cases of merger.9 B. Sale of Assets Delaware law has long permitted a corporation to sell all or substantially all of its assets with approval only of a majority of the shares of stock entitled to vote. Without changing the sub 3. Section 251 (f) p. 25. 4. Amended section 251 (f) p. 25. 5. Amended section 251 (b) (4) p. 24. 6. Amended section 252 (b) (3) pp. 26-27. 7. Amended section 253 (a) pp. 27-28. 8. Thus, the amendments make a consistent linguistic change more precisely specifying that when Delaware and non-Delaware corporations merge, one condition of the merger is that the statutes of the other juris diction "permit a corporation of such jurisdiction to merge or consolidate with a corporation of another jurisdiction." Amended section 252 (a) (rewording last sentence) p. 26; Id., similarly rewording section 253 (e) p. 28: Id., similarly rewording section 256 (a) p. 28; and Id., similarly rewording section 258 (a) p. 28. 9. Text, infra at p. 4. to express this principle more clearly and to achieve uniform language with other provisions.10 Thus, the merger and sale-of-assets vote requirements are on a parity, i.e., a majority of the voting shares, whereas prior to the amendments discussed above, merger required a much higher vote.11 C. Dissolution Vote: The amendments now permit a corporation to be dissolved by a vote of "a majority of the outstanding stock of the corporation entitled to vote thereon." 12 Previously, section 275(b) required a vote of "two-thirds of the voting stock" of the corporation. The new amendment thus achieves uniformity with the merger and sale of assets provisions, so that all fundamental corporate changes now require only the approval of a majority of the voting stock. Whether or not stock is entitled to vote on dissolution is determined by the certificate of incorporation, and ordinarily only common stock will have such voting rights. The change is important since a favored alternative (clearly approved by the Delaware Courts) to a statutory merger is a sale of assets followed by dissolution of the selling corporation and distribution to its stockholders of the consideration received from the purchasing corporation. Under the new amendments both the sale of assets and the dissolution require only a majority vote of the voting stock of the seller. Other Changes: The amendments add a new provision permitting a corporation to dissolve if all stockholders entitled to vote on dissolution consent in writing and take appropriate steps to file with the Secretary of State.13 Also, in the unusual case where a dissolution is revoked, the amendments permit such action by a vote of a majority of the voting stock, rather than, as under prior law, action by a two-thirds vote of the voting stock.14 A few minor nonsubstantive housekeeping changes were also made.15 10. Amended section 271 (a) p. 30. 11. Incidentally, the amendment to section 271 (a) deleted the former provision authorizing a sale of assets by the "written consent of the holders of a majority of the voting stock issued and outstanding." This effects no change of substance. There is now available for all forms of corporate action, including, of course, sales of assets, a general procedure for written consents in lieu of meetings. See Amended section 228, discussed, infra at p. 7. 12. Amended section 275 (b) p. 30. 13. Amendment adding new section 275 (c) pp. 30-31. 14. Amended section 311 (a) (3) p. 31. 15. Amended section 275 (a), p. 30, Id., section 311 (a) (2) p. 31 and 311 (a) (3) (iv) p. 31 (formerly 311 (a) (4) (iv)). |