Enter to open, tab to navigate, enter to select
DGCL Amendments on Ratifying Defective Corporate Acts Effective April 1, 2014
Practical Law Legal Update 1-562-3578 (Approx. 4 pages)
DGCL Amendments on Ratifying Defective Corporate Acts Effective April 1, 2014
by Practical Law Corporate & Securities
| Published on 26 Mar 2014 • Delaware |
New Sections 204 and 205 of the Delaware General Corporation Law (DGCL) will be effective on April 1, 2014.
On April 1, 2014, new Sections 204 and 205 of the Delaware General Corporation Law (DGCL) will be effective. Section 204 provides a safe harbor procedure for ratifying corporate acts or transactions and stock that would otherwise be void or voidable due to a "failure of authorization." Section 205 confers jurisdiction on the Delaware Court of Chancery to hear actions brought under Section 204.
Under Section 204 (8 Del. C. § 204), the board of directors may ratify a defective corporate act by adopting a resolution stating the following:
- The defective corporate act to be ratified.
- The time of the defective corporate act.
- If the act involved the issuance of shares of putative stock (shares that would have been valid stock but for the failure of authorization), the number and type of shares of putative stock issued and the date or dates upon which those shares were purported to have been issued.
- The nature of the failure of authorization regarding the defective corporate act to be ratified.
- That the board of directors approves the ratification of the defective corporate act.
Section 204 is only available if there is a valid board to adopt the ratifying resolutions and, if stockholder approval is required, the outstanding shares are entitled to vote on the resolutions and are not shares of putative stock.
If there is no valid board or if the board determines that some or all of the outstanding shares are putative shares not entitled to vote on the resolutions, an action may be brought under Section 205 in the Delaware Court of Chancery by:
- The corporation.
- Any member of the board.
- Any record or beneficial holder of valid or putative stock.
Section 205 (8 Del. C. § 205) grants the Court of Chancery jurisdiction to:
- Determine the validity and effectiveness of any defective corporate act ratified under Section 204.
- Determine the validity and effectiveness of the ratification of any defective corporate act under Section 204.
- Determine the validity and effectiveness of any defective corporate act not ratified or not ratified effectively under Section 204.
- Determine the validity of any corporate act or transaction and any stock, rights or options to acquire stock.
- Modify or waive any of the procedures in Section 204 to ratify a defective corporate act.