Significant changes to the Delaware General Corporation Law that took effect on August 1, 2023, sees a reduction in the need for shareholder votes on some corporate matters. The alterations that have garnered the most attention are those affecting requirements for shareholder votes, particularly initiating a reverse stock split and changing the number of outstanding shares for a public company. As reported in the Delaware Business Court Insider, this shift in corporate processes, while potentially attractive to litigators, is not likely to make a significant impact in the courts, at least not directly.
Previously, passing amendments for a reverse stock split or an increase/decrease in the number of outstanding shares required a majority of all outstanding shares voting in favor. However, the updated laws only require a majority vote from shares present and cast. In the case of forward stock splits, shareholder votes are no longer necessary. These updates aim to prevent changes, such as those that could dodge delisting, from being hindered by shareholders who lack engagement or awareness regarding a vote.
The revisions offer corporations increased flexibility as emphasized by Mike Schiffer, a partner at Venable. He anticipates minor susceptibility to negative manipulations that could harm shareholders.
While the reduced voting requirements won’t directly influence litigation like previous amendments to the Delaware General Corporation Law, they can potentially alter the effectiveness of shareholders approaching their boards with litigation demands. Sean Donahue, who heads the public company advisory and shareholder activism and takeover defense practices at Paul Hastings, stated that this may influence the strategies used by plaintiffs’ attorneys in shareholder litigation.
Other significant change cited is one that streamlines the process for validating ratifications and defective acts under Section 204. While not all are quick to be accomplished, these improvements aim to provide more efficient tools for corporations looking to ratify void acts.
The recent amendments are expected to reduce the litigation of issues clarified or resolved with the updated corporation law, according to Francis Pileggi, managing partner of Lewis Brisbois Bisgaard & Smith’s Wilmington office.