On July 17, 2023, the Delaware governor signed into law amendments to the Delaware General Corporation Law (DGCL), which will go into effect on Aug. 1, 2023. Highlighted below are the most important changes and an overview of minor changes to these statutes.

Changes to the DGCL

Default voting standard for certain charter amendments lowered to “majority of votes cast” standard (Section 242):

The changes to Section 242 lowered the default stockholder vote required for certain charter amendments from the “majority of outstanding shares” standard (found in Section 242(b)) to a “majority of votes cast” standard (i.e., neither abstentions nor broker non-votes would be counted as votes cast). Under this new Section 242(d), beginning Aug. 1, 2023, unless otherwise expressly required by the certificate of incorporation, an amendment to a certificate of incorporation to effect a reverse stock split or increase or reduce the number of authorized shares of a class of capital stock may be made and effected if:

• at a meeting duly called, a vote of the stockholders entitled to vote on the amendment is taken, with such stockholders voting as a single class, and the votes cast in favor exceed the votes cast against the amendment; and

• the shares of such class are listed on a national securities exchange immediately before the amendment’s effective date, and all listing requirements of the national securities exchange are met related to the minimum number of holders immediately after the amendment’s effective date.

Importantly, Section 242(d) permits corporations to “opt in” to the stricter “majority of outstanding shares” standard found in Section 242(b) for the types of charter amendments described above. Notably, the inclusion in a certificate of incorporation of the vote generally required under Section 242(b) without a specific reference to the type of charter amendments described above (i.e., to effect a reverse stock split or increase or reduce the number of authorized shares) will not be considered an opt-in.

As amended, Section 242 no longer requires stockholder approval for certain amendments to the certificate of incorporation, such as amendments to (i) effect a forward stock split, as long as the corporation has only one class of stock that is not divided into series, and (ii) increase the number of authorized shares proportionate to the forward stock split.

Additionally, Section 242 now requires that reclassifications through forward or reverse stock splits must apply to all issued shares, including shares held in treasury.

Amendments related to the issuance of rights and options to acquire stock (Section 157):

• Clarify that Section 157(c) is the exclusive means for a board to delegate authority to issue rights or options to acquire stock.

• Permit board resolutions that delegate authority to issue rights or options to fix the terms pursuant to which shares may be acquired upon the exercise of such rights or options.

• Eliminate the requirement to specify the maximum number of rights or options that may be issued in a board resolution that delegates authority to issue such rights or options to a person or body other than the board.

• Add a requirement that a board resolution authorizing delegation to issue rights or options must specify a separate time period for the issuance of shares on the exercise of the rights or options so issued (in addition to the requirement to specify a time period for the issuance of the rights or options). Both time periods may be expressed as a time horizon (e.g., companies can provide that stock options may be issued under an incentive plan for the duration of the plan, and shares may be issued upon exercise under the plan for a specified number of years following the exercise).

Other Notable Amendments to the DGCL:

The adopted amendments include numerous other changes to the DGCL including to:

• Section 152 to clarify that a corporation’s issuance of stock is required to meet the minimum consideration requirements under Section 153, if any.

• Sections 153 and 160 to clarify that (i) the 2022 DGCL amendment regarding the minimum consideration requirements for stock does not apply to the disposition of treasury shares, and (ii) treasury shares obtained by corporations from stock repurchases or redemptions can be resold by the corporation under Section 153 unless the certificate of incorporation requires the shares to be retired, along with other technical clarifications.

• Section 204 to (i) eliminate the requirement to file a certification of validation in certain specified circumstances and (ii) simplify the required contents of a certificate of validation, among other changes.

• Section 228 to (i) clarify the stockholders entitled to notice of nonunanimous action by consent of stockholders in lieu of a meeting and (ii) provide that the notice requirement may be satisfied by a notice of internet availability of proxy materials under rules promulgated under the Securities Exchange Act of 1934.

• Section 262 to (i) expand the availability of statutory appraisal rights to include transfers, domestications, and continuances; and (ii) require that withdrawal of a demand for appraisal rights be made within 60 days following the effective date of the transaction triggering such appraisal rights, and that after 60 days, the withdrawal must be approved by the corporation in writing.

• Section 265 to permit an entity converting to a Delaware corporation to adopt a plan of conversion.

• Section 272 to create a safe harbor for a sale, lease, or exchange of property or assets securing a mortgage or a pledge to a secured party without stockholder consent under Section 271 if (i) the secured party can sell the collateral without the corporation’s consent, or (ii) the board of directors of the corporation authorizes an alternative sale, lease, or exchange of the property or assets that eliminates or reduces the corporation’s liability or obligations to the secured party, as long as the total value of the property or assets sold, leased, or exchanged is less than or equal to the liabilities or obligations that were eliminated or reduced by such transaction.

• Section 390 to (i) permit a corporation to adopt a plan of transfer, domestication, or continuance; and (ii) lower the voting threshold for a transfer, domestication, or continuance to the majority of outstanding stock entitled to vote (from unanimous vote of all voting and nonvoting stockholders), as well as other technical changes.

Changes to Delaware Alternative Entity Statutes

Additionally, on July 17, 2023, the Delaware governor signed into law amendments to the Delaware alternative entity statutes, including Delaware’s Limited Liability Company Act, Revised Uniform Partnership Act, and Revised Uniform Limited Partnership Act, which amendments related to, among other ministerial and clarifying changes, revocation of termination of a protected LLC or LP series and revocation of dissolution of a registered LLC or LP series. These amendments will go into effect on Aug. 1, 2023.

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Please note that this alert contains information regarding only some of the amendments to the DGCL and Delaware alternative entity statutes. The amendments in their totality are complex; therefore, companies are encouraged to seek guidance from counsel regarding the details of the aforementioned changes as well as information regarding additional changes to the DGCL and the various Delaware alternative entity statutes.