Legislation to amend the General Corporation Law of the State of Delaware (the “DGCL”) and related sections of title 8 of the Delaware Code is currently before the Corporate Law Section of the Delaware State Bar Association for approval. If the amendments become effective, they would result in several significant changes to the DGCL, including adding a new subchapter to the DGCL authorizing benefit corporation status under Delaware law.
As discussed in earlier posts, benefit corporation legislation permits a corporation to state in its articles of incorporation that it intends to operate in furtherance of a specific public benefit (or benefits). The Delaware statute includes among permissible “public benefits” having a positive effect (or causing a reduction in negative effect) on persons, entities, communities or interests, including those of an artistic, charitable, cultural, economic, educational, literary, medical, religious, scientific or technological nature.
The legislation states that directors of a benefit corporation must balance the pecuniary interests of stockholders, the interests of those materially affected by the corporation’s conduct, and the identified public benefits, and make it clear that benefit corporation directors shall not have any duty to any person solely on account of any interest in the public benefit and would provide that, where directors perform the balancing of interests required of them, they will be deemed to have satisfied their fiduciary duties to stockholders and the corporation if their decision is both informed and disinterested and one that a person of ordinary, sound judgment would approve.
Stockholders in a Delaware benefit corporation may bring a derivative suit asserting that the directors are not advancing the stated public benefits adequately if they own at 2% of the corporation’s outstanding shares (or, in the case of listed companies, the lesser 2% of the outstanding shares or shares having at least $2 million in market value).
Additionally, the legislation sets limits on the ability of benefit corporations to amend their certificates of incorporation or effect mergers or consolidations if the effect would be to abandon their public benefit purpose. These limitations would be imposed through a 66 2/3% vote of each class of the public benefit corporation’s outstanding stock. It also restricts the ability of corporations that are not benefit corporations to amend their certificates of incorporation to become public benefit corporations or to effect mergers or consolidations that would result in their stockholders receiving shares in a public benefit corporation. This would be done by requiring a 90% vote of each class of the corporation’s outstanding stock to effect such a change, and grants appraisal rights to any stockholder of a corporation that is not a public benefit corporation that, by virtue of an amendment to the corporation’s certificate of incorporation or any merger or consolidation becomes such a corporation.
Benefit corporations would be subject to all other applicable provisions of the DGCL, except as modified or supplanted by the new benefit corporation legislation. We may see a groundswell of benefit corporations in Delaware if benefit corporation status becomes available (The B Corporation website currently states that there are a total of 720 benefit corporations in existence.) Opting into that status would overcome the general stance of Delaware corporate law, which while not mandating shareholder primacy certainly permits easy perpetuation of the myth that it is a legal mandate.