Proposed Delaware Law Would Extend Liability Protection to Corporate Officers
Delaware’s General Assembly soon will be considering a package of amendments to the Delaware General Corporation Law, including one that would permit corporations to shield Officers from certain types of stockholder damage claims.
Under Delaware law, fiduciaries owe a loyalty duty (an obligation to act in the stockholders’ best interest) and a care duty (an obligation to make informed judgments). DGCL §102(b)(7) currently authorizes certificate of incorporation provisions eliminating directors’ personal liability to stockholders or the corporation for money damages for breach of fiduciary duty, unless the director violates the loyalty duty; acts without good faith, engages in intentional misconduct or knowingly violates a law or receives an improper personal benefit. The amendment would extend the same protection to Officers, although unlike the current protection afforded directors, Officers would not be shielded from damage claims brought by or on behalf of the corporation (i.e. derivative claims). The term "Officer" is defined in §142 of the DGCL as someone whose "titles and duties [are] stated in the bylaws or in a resolution of the board of directors." The provision would be subject to stockholder approval.
The proposed amendments also include a technical adjustment to the statute permitting stockholders to demand an appraisal of their interest where the corporation participates in certain types of mergers. Currently, only the record owner is authorized to demand appraisal, but the amendment would permit a beneficial owner to do so.
Another change would clarify the statute permitting actions by written consent—stockholder votes taken without a meeting. The measure provides a consent is effective if the stockholder owned shares on the record date, even if she did not own shares when the consent was executed.
Ballard Spahr attorneys advise on the full range of governance issues arising in corporations and alternative entities (such as partnerships, limited partnerships and limited liability companies), including transactions, investigations and state-of-the-art corporate governance documents.
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