On March 13, 2017, the Council of the Corporation Law Section of the Delaware State Bar Association (Council) released its proposed amendments to the Delaware General Corporation Law (DGCL) and other related statutory provisions. If approved by the Delaware legislature, most of the amendments would become effective on August 1, 2017, except for the amendments relating to stockholder written consents for corporations or member written consents for nonstock corporations. The amendments for written consents are proposed to be effective for written consents with a record date, for determining the holders or members entitled to act by that consent, of August 1, 2017, or later.

The amendments address, among other things:

The most groundbreaking proposed amendments for 2017 involve a series of amendments to the DGCL that if adopted would pave the way for the implementation of shared electronic database recordkeeping (for example, by using blockchain or distributed ledger technology). A blockchain is a type of database that is "distributed" and "self-proving." Distributed means that copies of a blockchain can be kept and maintained by many people or organizations and no copy is the master or lead copy. Self-proving means that from merely looking at a blockchain, the user can tell whether the data in that blockchain is correct or whether it has been tampered with.

By enabling blockchain recordkeeping, which includes the corporation's stock ledger, these amendments provide the statutory authority for the potential replacement of the financial industry's longstanding, securities trading infrastructure that relies on third-party settlement and clearing. Blockchain recordkeeping could also potentially eliminate a lot of the complexity surrounding corporate voting by merging the concepts of beneficial ownership and record ownership and thereby potentially lead to more transparent and reliable voting results. For more information on blockchain technology and its potential impact on the capital markets, see Articles, Expert Q&A on Blockchain Technology in Banking and Financial Services and DTCC: Blockchain Could Revolutionize Financial Infrastructure.

Last year, Delaware's then Governor, Jack Markell, announced an outreach effort by the Governor's office and the Delaware Department of State called The Delaware Blockchain Initiative. The main goal of The Delaware Blockchain Initiative was to lay the groundwork for allowing Delaware corporations to use blockchain technology for recordkeeping. As part of that initiative, then Governor Markell asked the Council to begin exploring amendments to the DGCL that would statutorily enable the use of the blockchain technology. (See Press Release, Governor Markell Launches Delaware Blockchain Initiative (May 2, 2016).)

Vice Chancellor J. Travis Laster also called attention to the inherent problems in the existing stock trading and voting infrastructure in the US capital markets and called for reform by way of implementation of blockchain technology in his Keynote Speech to the Council of Institutional Investors on September 29, 2016 (see The Block Chain Plunger: Using Technology to Clean Up Proxy Plumbing and Take Back the Vote).

This call for reform has resulted in the blockchain proposed amendments. The proposed blockchain amendments if adopted would update the DGCL to allow for blockchain corporate recordkeeping by, among other things, amending:

One logistical impediment to the use of blockchain technology that is not addressed in the proposed amendments relates to the practical reality that in order to use blockchain stock ledgers corporations must already have uncertificated shares. Section 158 of the DGCL allows corporations to provide by resolution that the corporation can issue uncertificated shares. Nonetheless many corporations, including publicly traded corporations, still have at least some certificated shares outstanding today. Presently, under Section 158 of the DGCL the only way for a corporation to convert these outstanding certificated shares to uncertificated shares is for the corporation to wait until the applicable stockholder has surrendered the certificated shares. Particularly in the case of publicly traded corporations, which tend to have widely disbursed stockholder bases, it may not be practical to have to wait until all stockholders have surrendered their certificated shares before transitioning to blockchain stock ledger technology.

These amendments, if adopted, would become effective August 1, 2017.

The Council has proposed to eliminate the formality requirement that holders or members executing a written consent in lieu of a meeting must individually date that consent (rather than, for example, rely on a pre-printed date).

Section 228(c) of the DGCL presently provides that written consents in lieu of a meeting of the stockholders of a corporation or members of nonstock corporation "shall bear the date of signature of each stockholder or member who signs the consent." By deleting this language, the 2017 proposed amendments eliminate the written consent statutory validity concerns raised by the Delaware Chancery Court's decision in H-M Wexford LLC v. Encorp, Inc.

In H-M Wexford, the court refused to dismiss a claim that a written consent was invalid because the court found that the individual dating requirement of Section 228(c) of the DGCL must be strictly enforced and that therefore factual allegations that the consent had not been individually dated by the signers would render the consent invalid if found to be true. (832 A.2d 129, 151-152 (Del. Ch. 2003) (compare to Ravenswood Inv. Co., L.P. v. Winmill, , at *3 (Del. Ch. Nov. 27, 2013) (denying a motion for partial summary judgment based on a finding that although a written consent was only dated with a single pre-printed “as of” date, rather than individually dated by the signing stockholder, compliance with formalities aside there was no question as to technical compliance with Section 228(c) of the DGCL because there was no dispute as to when the stockholder had actually signed the written consent).

The 2017 proposed amendments also clarify that written consents with future effective dates must be effective within 60 days of the delivery of the first consent to the corporation (as opposed to the current law which measures the 60 days from "the earliest dated consent delivered").

These amendments, if adopted, would become effective only with respect to written consents with a record date, for purposes of determining the holders or members entitled to act by that consent, of August 1, 2017 or later.

The vast majority of the 2017 proposed amendments measured by quantity of revisions relate to provisions related to mergers and consolidations and are primarily technical, clarifying, or conforming (but not in many cases substantive) in nature. These 2017 proposed amendments relate to and further facilitate mergers and consolidations of Delaware corporations with non-Delaware entities, including entities or organizations formed or organized under the laws of a non-US jurisdiction.

The proposed merger amendments if adopted would, among other things:

These amendments, if adopted, would become effective August 1, 2017.

Section 203 of the DGCL is Delaware's interested stockholder statute. This anti-takeover statute imposes certain restrictions on business combinations with "interested stockholders," including under certain circumstances the imposition of a supermajority stockholder vote requirement to approve transactions with an interested stockholder. Interested stockholders generally include holders of 15% or more of the corporation's stock, for a period of three years after becoming an interested stockholder, unless certain conditions are met. However, Delaware law permits a Delaware corporation to opt-out, or choose not to be governed by, this anti-takeover statute by expressly stating so in its original certificate of incorporation (or a subsequent amendment to its certificate of incorporation or by-laws approved by its stockholders). For additional information on Delaware's interested stockholder statute, see Standard Document, Merger Agreement (All-Stock, Pro-Buyer): Drafting Note, DGCL Section 203.

Section 203(b)(3) of the DGCL presently provides that opt-out amendments implemented by either an amendment to a Delaware corporation's bylaws or certificate of incorporation are effective either immediately or 12 months "after [their] adoption" depending on the type corporation. Specifically, these opt-out amendments are presently effective:

The 2017 proposed amendments to Section 203(b)(3) of the DGCL are meant to clarify that the effective date of a corporation's opt-out amendment if implemented through a certificate of incorporation amendment should be calculated by reference to (either immediately after, or 12 months after, depending on the type of corporation) the effective date and time of the corporation's certificate of incorporation amendment under Section 103 of the DGCL, not the date of adoption. Specifically, under the proposed amendments, opt-out certificate of incorporation amendments would be effective:

While the wording is slightly different, the 2017 proposed amendments do not generally change the meaning and therefore the mechanics for calculating when an opt-out bylaw amendment is effective.

The 2017 proposed amendments to the last sentence of Section 203(b) of the DGCL if adopted would also clarify that the "effective date" of an opt-in certificate of incorporation amendment is determined "in accordance with Section 103 of [the DGCL]."

These amendments, if adopted, would become effective August 1, 2017.

In an effort to make the Delaware annual reporting process more efficient, to among other things potentially allow for electronic integration, the 2017 proposed amendments:

These amendments, if adopted, would become effective on August 1, 2017.