Delaware Amends its Business Entity Laws
ComplianceJuly 17, 2015

Delaware amends its business entity laws

If you are the owner, manager, compliance officer, or counsel for one of the more than one million Delaware domestic corporations, limited liability companies, or partnerships, it should interest you to know that important amendments to the state’s corporation and alternative entity laws are going into effect on August 1. Here are some highlights.

Changes to the corporation law

Use of indistinguishable names – The Division of Corporations is authorized to waive the requirement that a corporation’s name must be distinguishable, provided the corporation previously made substantial use of the name, the corporation made a reasonable effort to secure written consent to use the name, and the waiver is in the state’s interests.

Fee shifting provisions – A corporation is prohibited from having a provision in its certificate of incorporation or bylaws that would impose liability on a stockholder for the attorney’s fees or expenses of the corporation or any other party in connection with an internal corporate claim.

Forum selection provisions – A corporation can provide in its certificate of incorporation or bylaws that internal corporate claims must be brought in a Delaware court. In addition, a corporation cannot have a provision in its certificate of incorporation or bylaws that prohibits bringing internal corporate claims in a Delaware court.

Definition of internal corporate claims – "Internal corporate claims" means claims, including derivative claims, (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which the corporation law confers jurisdiction upon the Court of Chancery.

Ratification of defective acts – The section of the corporation law which sets forth the procedures through which a corporation may ratify a defective stock issuance or corporate act was amended in several respects in order to clarify and streamline the procedure.

Public benefit corporations – (a) The name of a public benefit corporation is no longer required to contain the words “public benefit corporation” or abbreviations “P.B.C” or “PBC”, (b) a corporation that is not a public benefit corporation may become one with the approval of two-thirds of the outstanding stock entitled to vote, and a public benefit corporation may cease being one with the approval of two-thirds of the outstanding stock entitled to vote. (Formerly 90% was required), (c) no appraisal rights are available where the shares of a corporation that becomes a public benefit corporation were listed on a national securities exchange or held of record by more than 2,000 stockholders.

Changes to the limited liability company (LLC) and limited partnership (LP) laws

Proxies – The laws were amended to clarify when a proxy will be irrevocable and the effects of that irrevocability and to confirm that these provisions will not be construed to limit the enforceability of a proxy or power of attorney that is part of an LLC agreement or partnership agreement.

Class or group voting – The default requirement for a class or group vote in connection with mergers and consolidations, conversions, dissolution and certain other transactions was eliminated. (However, the default class or group vote will continue to apply to an LLC or LP formed before July 31, 2015 unless its LLC agreement or LP agreement provides otherwise.)

Delegation of management – Unless otherwise provided in the LLC agreement or partnership agreement a delegation of the rights and powers to manage and control the business and affairs of an LLC or LP by a member, manager, or general partner is irrevocable if it states that it is irrevocable.

For additional information on services CT provides to Delaware's business entities, see our Delaware Registered Agent services.

Sandra Feldman
Publications Attorney
Sandra (Sandy) Feldman has been with CT Corporation since 1985 and has been the Publications Attorney since 1988. Sandy stays on top of the most pressing and pertinent business entity law issues that impact CT customers of all sizes and segments.