Delaware General Assembly

Signed 7/17/13

The General Assembly has ended, the current status is the final status.

4/18/13

Sokola

Rep. B. Short

Sen. Henry, Lavelle, Townsend
Reps. M. Smith, Walker, Baumbach, Q. Johnson, Bennett, Peterman

AN ACT TO AMEND TITLE 8 OF THE DELAWARE CODE RELATING TO THE GENERAL CORPORATION LAW.

New Subchapter XV, for which Sections 8 and 9 of this legislation provide, authorizes the creation of public benefit corporations. A public benefit corporation is a for-profit entity which is managed not only for the pecuniary interests of its stockholders but also for the benefit of other persons, entities, communities or interests. Delaware General Corporation Law Sections 362(a) and 365(a) create and impose on directors of public benefit corporations a tri-partite balancing requirement. Public benefit corporations must be managed in a manner that balances (i) the stockholders’ pecuniary interests, (ii) the interests of those materially affected by the corporation’s conduct, and (iii) a public benefit or public benefits identified in the corporation’s certificate of incorporation. Section 362(a) requires a public benefit corporation to identify in its certificate of incorporation the specific public benefit or public benefits the corporation will promote. Section 366(b) requires public benefit corporations, at least every two years, to issue to stockholders statements that contain certain prescribed information. Section 366(c) permits the corporation in its certificate of incorporation or bylaws to impose additional specified requirements to facilitate stockholders’ ability to evaluate the public benefit corporation’s achievement of its purposes. Sections 362(a) and (c) require that both the certificate of incorporation and the name of the corporation clearly indicate that a corporation is a public benefit corporation. Section 364 and 366(a) require that all stock certificates and notices of meetings contain statements acknowledging that the corporation is a public benefit corporation. Section 363 requires a ninety percent vote of stockholders for an existing corporation to become a public benefit corporation and grants appraisal rights to any dissenting stockholder of a corporation that is not a public benefit corporation and becomes a public benefit corporation. Sections 6 and 7 of this legislation are amendments to DGCL Sections 262(b)(1) and 262(b)(4) to implement this appraisal right. The amendments to Section 262 shall be effective only with respect to transactions consummated pursuant to agreements entered into after August 1, 2013 (or, in the case of mergers pursuant to Section 253, resolutions of the board of directors adopted after August 1, 2013), and appraisal proceedings arising out of such transactions. Section 363(c) imposes a two-thirds vote requirement for actions that would terminate the public benefit status of the corporation. Sections 365 (b) and (c) provide broad protection to directors of public benefit corporations against claims based on interests other than those of stockholders. Directors are not liable as to claims asserted on account of any claimed interest (i) in the public benefits identified in the certificate of incorporation, or (ii) of those materially affected by the corporation’s conduct. Directors also receive significant protections against claims by stockholders challenging disinterested decisions. Section 365(b) deems directors of public benefit corporations to have satisfied their fiduciary duties to balance the tripartite purposes if the director’s decision is informed and disinterested and not such that no person of ordinary sound judgment would approve. Public benefit corporations may include a provision in their certificates of incorporation that any disinterested decision by directors shall not constitute an act or omission not in good faith, or breach of the duty of loyalty for purposes of imposing monetary liability pursuant to any provision adopted pursuant to § 102(b)(7) or determining indemnification rights pursuant to § 145. Section 367 authorizes stockholders of public benefit corporations to sue derivatively to enforce the directors’ duties under § 365 but only if at the time suit is filed those stockholders individually or collectively own (i) at least two percent of the corporation’s outstanding shares, or (ii) as to corporations with shares listed on a national securities exchange, the lesser of two percent of the outstanding shares or shares with a market value of at least two million dollars. Section 368 makes clear that the rules applicable to public benefit corporations do not and will not impact or alter any laws that are applicable to corporations that are not public benefit corporations. The only exceptions are the provisions of § 363 which govern transactions in which a corporation converts either to or from a public benefit corporation. Sections 3, 4 and 5 of this legislation are amendments to DGCL Sections 114(b)(2), 114(b)(3) and 114(c)(3) to correspond DGCL provisions regarding nonstock corporations to the benefit corporation provisions in this legislation. Sections 1, 2, 9, 10 and 11 of this legislation redesignate existing DGCL Subchapters XV, XVI and XVII as Subchapters XVI, XVII and XVIII and correspondingly change cross references to permit proper placement of the benefit corporation provisions in the DGCL. Section 12 provides that Sections 1 through 5 and 8 through 11 shall be effective on August 1, 2013; and that Sections 6 and 7 shall be effective only with respect to transactions consummated pursuant to agreements entered into after August 1, 2013 (or, in the case of mergers pursuant to Section 253, resolutions of the board of directors adopted after August 1, 2013), and appraisal proceedings arising out of such transactions.

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Takes effect upon being signed into law

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