Amendments to Delaware corporate law are poised to reach Governor John Carney’s desk, following their passage in the House by a decisive 34 to 7 vote. This legislative move aims to counteract a recent notable court decision that invalidated certain agreements between corporations and influential investors, thereby affecting the management control vested in founders, preferred shareholders, or activist investors.
The bill, known as S.B. 313, sped through the legislative process with minimal resistance. After clearing the House on Thursday, it was swiftly passed by the Senate without debate or opposition on June 13 (Bloomberg Law reports). Despite its fast-tracked approval, the amendments have generated criticism, particularly from the academic legal community. More than 50 law professors have publicly opposed the revision, contending that the issues demand thoughtful judicial scrutiny rather than quick legislative fixes. Their arguments are detailed in a publicly accessible letter.
The Delaware Chancery Court’s February decision that led to these amendments focused on the invalidation of extensive veto rights in shareholder agreements, specifically citing a case involving Moelis & Co. and its billionaire founder. Vice Chancellor J. Travis Laster’s ruling on February 23 challenged traditional private equity arrangements, impacting how future board nominations and investments are managed. This decision has since been echoed by the court’s chief judge in another pivotal case, which has broader implications for merger and acquisition negotiations.
The bill was sponsored by Delaware Senate Majority Leader Bryan Townsend, a corporate attorney with Morris James LLP, and crafted by the Corporation Law Council, a significant committee of the Delaware State Bar Association. The council argued that these changes are necessary to restore certainty to contractual frameworks within the state. Given Delaware’s status as a central hub for business incorporation—with over 70% of Fortune 500 companies registered there due to its sophisticated legal infrastructure—the amendments are particularly consequential.
For further information, see the full article on Bloomberg Law.