Delaware Business Law
Transcript of Delaware Business Law
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DELAWARE’S
BUSINESS ENTITY LAWS
2015
PRESENTED BY:
TAMARA KLING, ESQ.
FEBRUARY 10, 2015
©2015, CT. ALL RIGHTS RESERVED.
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AGENDA
•Why Delaware remains the leading formation state
•Delaware General Corporation Law – Overview and Update
– Including the Public Benefit Corporation
•Delaware Limited Liability Company Act – Overview and Update
•Business Trust (if time permits)
• Annual Reports and Franchise Taxes
•Questions
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WHY IS DELAWARE THE LEADING FORMATION STATE?
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WHY DELAWARE?
•The Business Entity Statutes
•The Court System
•The Body of Case Law
•The Division of Corporations
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BY THE NUMBERS DELAWARE 2014
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PERCENT OF FORTUNE 500 COMPANIES ARE INCORPORATED IN DELAWARE
•65% of Fortune 500
•1,064,310 Active Entities in DE
– 291,000 Corporations
– 780,410 Alternative Entities
•169,000 New Entities formed in 2014 (4% growth over 2013)
•82% of all New US IPO's
•1.5B in franchise tax revenues
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DELAWARE’S BUSINESS ENTITY STATUTES
•Modern
•Flexible
•Liberal
•Non-restrictive
•Efficient
•Predictable
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GUIDING PRINCIPLES OF DE ENTITY LAW
•Allow management to act quickly
•Freedom of contract
•Bias against regulation
•Laws must be adaptable to new developments
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LAW ADAPTABLE TO BUSINESS CLIMATE
• Impetus
– Change in business environment
– Unpopular court decision
•Annual amendments drafted by Corporate Law Council
• Input from lawyers, professors, management, investors, etc. nationwide
•Requests from SOS (2012 amendments)
• Enacted by legislature
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DELAWARE’S COURT SYSTEM
Supreme Court
Court of Last Resort
Court of Chancery Superior Court
Equity and Law Courts
Justice of the Peace Courts Alderman’s Court
Court of Common Pleas Family Court
Courts of Limited Jurisdiction
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CHANCERY COURT
•Trial level equity court created in 1792
•No juries or punitive damages
•Chancellor and four Vice Chancellors appointed for 12 year terms
•Undisputed expertise in business matters
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THREE WAYS TO CHANCERY COURT
•Equitable Remedy
•Equitable Claim
•Statute confers jurisdiction
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MASS. MUTUAL LIFE INSURANCE CO. V. CERTAIN UNDERWRITERS AT LLOYDS OF LONDON
•C.A. No. 4791 (Chancery Court, 9/24/2010)
•Pl lost money entrusted to Bernie Madoff
•Filed suit in Ch Ct seeking equitable apportionment of defense costs between bond underwriters and D&O insurers
•All litigants wanted case heard by Ch Ct
•Ch Ct raised subject matter jurisdiction issue on its own
•Held that Ch Ct lacked jurisdiction
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MASS. MUTUAL LIFE INSURANCE CO. V. CERTAIN UNDERWRITERS AT LLOYDS OF LONDON
•Ct stated that at heart, claim is that defs did not fulfill obligations
under insurance policies
•Claim is fundamentally a breach of contract action for money
damages
•Such a claim is province of Superior Court
•Rejected argument that D&O coverage issue resembles
indemnification issue Ct can hear under Sec. 145 of GCL
– Sec. 145 authorizes DE corp to buy D&O insurance
– Does not give Ch Ct jurisdiction over enforcement of policies
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BENEFITS TO BUSINESS ENTITIES
•Expertise
•Speed
•Thoroughness
•Flexibility
•Consistency
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DELAWARE’S CASE LAW
•Largest body of corporate case law in US
•Most sections of GCL have been interpreted
•Extensive precedents
– fiduciary duties
– director liability
– takeover defenses
– merger fairness
•Now has extensive LLC case law too
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DELAWARE DIVISION OF CORPORATIONS
•Division of Secretary of State’s Office
•Processes all business entity filings
•Maintains official records
•Assesses and collects franchise taxes
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DELAWARE DIVISION OF CORPORATIONS
•Modern, technologically advanced filing systems
•Filings can be completed within half hour
•Generates 25-30% of state’s revenue
•Meets and works with user community
•Unique role of service companies
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FILING DOCUMENTS WITH DIVISION
•No “official” state forms
•One copy of document
•Effective date - upon filing or later date or time set forth in document
– Up to 90 days after filing for corporations
– Up to 180 days after filing for LLC, LP, LLP, ST (2011 amendment – effective
for filings on or after 1/1/2012)
– Prior effective date not acceptable except for extraordinary condition
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FILING DOCUMENTS WITH DIVISION
•Expedited filing is available
•Five levels authorized by statute – 30 minutes, one hour, two hours,
same day, within 24 hours
•Correction filings allowed
– If document was inaccurate when filed
– If document was defectively executed
– Effective date - same as document being corrected
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EXECUTION OF DOCUMENTS
•Corporation - Generally, any officer
•LLC - Any authorized person
•LP - Some documents signed by one general partner; some by all
general partners
•LLP - At least one general partner or other authorized person
•ST - Some documents signed by one trustee; some by all trustees
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EXECUTION OF DOCUMENTS
•Signatures may be
– Facsimile
– Conformed
– Electronically transmitted
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DOCUMENT ORDERING
•Certificates of good standing
– Long form
– Short form
•Certified copies of documents
•Certificates in re
•Expedited or standard service
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SERVICE COMPANIES
•Access to state computer system
• Immediate filing capabilities
• Immediate document retrieval
•Public/private partnership
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TOP 10 FILING ERRORS
•Name and title of signer not indicated
•Registered agent’s name and address
•DCLA Section # missing
•Co. name does not agree with State’s computer
•Stock information incorrect
•SOP information missing or incorrect in mergers
•Failure to verify tax due prior to filing
•Failure to check names for availability
•Copy quality of document
•Attempts to assume Charter of Non-Survivor
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EXPEDITE OPTIONS
•30 Minute Expedite Service
– Effective October 1st, 2009
– Corporate Filings ONLY
• Excludes Preclearances & Bank Commissioner Approvals
– Cut Off of 8:45pm ET
– $1,500 Expedite Fee
•Global Filing Service
– Secure Future File Date
– Preparation Needed
– $1,000 Expedite Fee
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EXPEDITE OPTIONS
•Super Global Filing Service
– No Preparation Required
– $7,500 Expedite Fee
•Unexpected Closure Override
– Emergency SOS Closure
– 8:30am – 4:30pm ET
– Does NOT Apply to UCC Filings
– $2,500 Expedite Fee
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DELAWARE’S GENERAL CORPORATION LAW
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BRIEF HISTORY OF GCL
•GCL of 1899 based on NJ GCL
•1913 - NJ passed antitrust acts & DE became top incorporation
state
•July 3, 1967 - new statute effective
•Publicly traded DE corporations – subject to federal securities
laws
– Traditionally federal law did not govern internal affairs
– SOX, Dodd-Frank – regulate corps in areas formerly left to states
• Makeup and duties of board committees
• Prohibition on loans to executives
• Say on pay
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GENERAL CORPORATION LAW
•Formation
•Stockholders
•Directors & Officers
•Amendment, Merger, Conversion, Dissolution
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INCORPORATION FEES
• Incorporation fees consist of:
– Filing fee - based on authorized shares (minimum - $15, no maximum limit)
– $25 receiving & indexing fee
– $5 fee for entering into database
– $20 municipality fee
– County assessment - $6 plus $9 per page
• Certification page counts as one page
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FILING FEE TABLE
Stock With No Par Value Rate Per Share
First 20,000 shares 1 cent
Shares from 20,001 to 2 million 1/2 cent
Shares over 2 million 2/5 cent
Stock With Par Value (each $100 of capital stock = 1 share)
Rate Per Share
First 20,000 shares 2 cent
Shares from 20,001 to 200,000 1 cent
Shares over 200,000 2/5 cent
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PRACTICE POINTER
•Annual franchise tax - based on # of authorized shares
•Corporation with high # of authorized shares & low PV may owe
only the minimum filing fee but high annual tax
•Care should be taken in deciding on the capital structure of a new
Delaware corporation to avoid surprise on first annual report
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BYLAWS
•Provisions relating to conduct of affairs
•Typically address
– Size of board
– Election of directors
– Meetings
– Committees
– Officers
•2009 amendments permit bylaws to provide:
– Shareholder access to proxy solicitation materials
– Proxy expense reimbursement
•Stockholders may amend or repeal
•Directors may amend or repeal if Certificate of
Incorporation provides
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ATP TOUR, INC. V. DEUTSCHER TENNIS BUND
•No. 534, 2013, Del S Ct, decided 5/8/2014
• Issue – is a bylaw adopted by board shifting atty fees to
unsuccessful plaintiffs in intra-corporate litigation valid?
•Del S Ct says it is valid
– No provision of GCL, other DE law, common law prohibits it
– Enforceable even if board’s intention is to deter legal challenges to
corporate action as that is not an improper purpose
•Decision led to introduction of bill to prohibit fee shifting bylaws
for stock corporations
– Bill proponents say decision will make stockholders reluctant to bring
legitimate derivative suits and undermine limited liability
– Opponents say corporation should be able to deter derivative suits
brought to obtain settlement or attorney fees
– Bill was tabled until 2015
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ISSUANCE OF STOCK
•Consideration for stock
– Cash or any property or benefit to the corporation
•Shares may not be issued for less than par value
•No par value shares may be issued for any consideration determined
in good faith by board
•Corporation may issue uncertificated stock
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ITEMS OF INTEREST
•GCL retains “legal capital” concepts of par value, stated capital,
surplus
•MBCA and most state acts abolished these concepts
•These concepts affect the issuance of shares, sources of dividends,
the initial filing fee tax and annual franchise tax
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TERMS DEFINED
•Legal Capital - aggregate amount of par value of all shares,
couldn’t use to pay dividends, “financial cushion”
•Par Value Par - dollar value of shares per the articles of
incorporation, not market value
•Stated Capital - amount of consideration determined to be capital
in shares without par value
•Surplus - Excess net assets over capital
• Payment of dividends out of net profit is a nimble dividend
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STOCKHOLDERS: MEETINGS, VOTING AND OTHER RIGHTS
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STOCKHOLDER MEETINGS
•Annual meeting required
•Special meetings may be called by board or any authorized person
•Meetings may be held by “means of remote communication”
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ACTION BY CONSENT
•Action may be taken without a meeting, notice or vote
•Voting requirements same as meeting
•May be denied in Certificate of Incorporation
•Election of directors requires unanimous consent
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VOTING
•One vote per share
•Classes or series may have greater, lesser or no voting rights
•Cumulative voting may be authorized
•Most voting in publicly traded corporations done by proxy
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DIVIDENDS
•Payable if and when declared by board
•May be paid out of surplus or net profits
•Stockholder approval not needed
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INSPECTION OF BOOKS AND RECORDS
•Stockholders may inspect
•Written demand and proper purpose required
•Burden of proof for proper purpose
– Stockholder list - on corporation
– Other records - on stockholder
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KING V. VERIFONE HOLDINGS, INC.
•No. 330, 2010 (DE. Supreme Ct. 1/28/2011)
•Pl filed deriv suit after co announced it was restating earnings
and income. Three other suits were then filed.
•Counsel wanted to be 1st to file to be named lead pl
•Fed Ct dismissed for failure to meet pleading burden. Granted
leave to amend and suggested pl seek an inspection in DE
•Ch Ct dismissed inspection complaint on grounds that pl’s
purpose – to seek information to show that making a demand in
previously filed derivative suit was futile, not proper
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KING V. VERIFONE HOLDINGS, INC.
•Del S Ct reversed Ch Ct
•Held that Ch Ct’s bright line rule, barring stockholders from
pursuing inspection solely because they filed a derivative action
first, did not comport with DE law or sound policy
•Held that it is a proper purpose under DE law to inspect books
to aid Pl in pleading demand futility where derivative action
was dismissed with leave to amend and w/o prejudice
•S Ct stated it was sensitive to Ch Ct’s concerns about wasting
resources repeatedly litigating issue of demand futility
•But bright line rule was overly broad. Narrower remedies are
available to address concerns
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DERIVATIVE SUITS
•Contemporaneous ownership required
•Procedural rules - found in Chancery Court Rule 23.1 and case law
•Demand may be excused if futile
•Plaintiff must be adequate representative
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LOUISIANA MUNICIPAL POLICE V. PYOTT
•No. 380, 2012 (Del. Supr. 4/4/2013)
•Addresses issue of “fast filers” – stockholders rushing to court
to file derivative suit to control litigation before investigating if
demand is futile
•Allergan pled guilty to promoting “off-label” uses of Botox
•Derivative suits filed first in Cal Fed Ct, then in Del. Ch.Ct.
•Fed Ct dismissed for failure to plead demand futility
•Del. Ch. Ct denies defendants’ motion to dismiss on collateral
estoppel grounds
– Under DE law Cal pls lack privity until DE ct dismisses
– Cal pl were inadequate reps bec they filed suit shortly after
settlement without reviewing bks and records under Sec. 220
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LOUISIANA MUNICIPAL POLICE V. PYOTT
•DE Supreme Court reversed
•Cal law applied to determine preclusive effect of the Cal federal
ct’s dismissal
– Required by Full Faith and Credit Clause
– Federal ct’s judgment satisfied requirements of collateral estoppel
under CA law
•Cal plaintiffs were adequate representatives
– Rejected Ch Ct’s irrebutable presumption against pls who file
derivative suits shortly after a corporate trauma without first
demanding inspection of books and records
– No record support for such a presumption
– Remedies for fast-filer problems should be directed at the lawyers,
not the stockholder plaintiffs
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CHANCERY RULE 23.1
•Plaintiff in a derivative action must allege
– Corporation failed to enforce a right
– Plaintiff was a stockholder at the time of the transaction and
– With particularity, efforts were made to obtain action from the board
or it would have been futile to make the effort
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WHEN DEMAND IS EXCUSED
•Demand can only be excused when facts allege board’s decision not
entitled to the protections of the business judgment rule
•Purpose of demand requirement is to give corporations ability to
rectify an alleged wrong prior to litigation
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DIRECTORS & OFFICERS
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BOARD OF DIRECTORS
•Manages business and affairs
•May have one or more members
•Term - one year unless staggered
•May be removed by majority vote of stockholders
•May be removed by Chancery Court
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ELECTION OF DIRECTORS
•Elected by plurality of votes cast by stockholders
– Director with most votes is elected w/o regard to votes withheld, not
cast or voted against
•“Plurality plus” bylaw may be adopted
– Requires director receiving less than majority of votes to resign
– Bylaw may give board discretion to reject the resignation
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DIRECTORS’ FIDUCIARY DUTIES
•Defined by case law, not GCL
•Owe duty of loyalty
– May not be on both sides of transaction
– May not compete with corporation
– Corporate opportunity doctrine
– Good faith is not an independent duty but part of the duty of
loyalty (Stone v. Ritter, 911 A.2d 362 (Del. 2006))
•Owe duty of care
– Must make informed decisions
•Actions protected by business judgment rule
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AMERICAS MINING CORP. V. THERIAULT
•51 A.3d 1213 (Del Supr. 2012)
•DE SCt affirms awards of $2 billion in damages and $300 million in
attorneys’ fees
•Southern Peru (SP) buys Minero for $3 billion from its controlling
stockholder Groupo Mexico
•Stockholders claim price too high; sue for breach of duty
•Ch Ct finds SP special committee breached duty of loyalty
– Was controlled by Groupo
– Only wanted to find way to approve Groupo deal
– Was not free to negotiate or look for other strategies
– Changed financial analysis to make Groupo bid look better
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AMERICAS MINING CORP. V. THERIAULT
•Del SCt holds that burden of proving entire fairness of deal
stayed with defs because special committee was not well
functioning
•Holds $2 billion award was reasonable estimate of difference
between price paid and what price would have been had
process been fair
•Approves Ch’s use of “percentage of common fund” to
determine attorneys’ fee award
•Holds that 15% of fund awarded in this case was reasonable
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FREEDMAN V. ADAMS
•58 A.3d 414 (Del Supr. 2013)
•Derivative suit alleging board of directors committed waste by
failing to adopt a plan that would have made its executive bonus
payments tax deductible
•Chancery Court - complaint did not adequately allege that a
demand on the board of directors would have been futile
•Delaware Supreme Court affirmed
– To state a claim for waste a stockholder must allege with
particularity that the board authorized an action no reasonable
person would consider fair
– Board’s decision to sacrifice some tax savings to retain flexibility in
compensation decisions was a classic exercise of business
judgment and not unconscionable or irrational
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STATUTORY PROTECTIONS
•Sec. 102(b)(7) - Eliminate liability for breach of duty of care
•Sec. 141(e) - Directors protected if they rely in good faith on expert
opinions
•Sec. 144 - “Safety harbor” for conflict transactions
•Sec. 122 - Corporation may renounce interest in business
opportunities
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OFFICERS
•Titles and duties stated in bylaws or board resolution
•Any number of offices may be held by same person
•Chosen as prescribed in bylaws or as determined by board
•Owe same fiduciary duties as directors
– Gantler v. Stephens, 965 A.2d 695 (Del. 2009)
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INDEMNIFICATION
•Sec. 145(a) - Permissive indemnification
– Pays expenses, attorney’s fees, judgments, amounts paid in
settlement
– Person must have acted in good faith & in corporation’s best
interests
•Sec. 145(b) - Indemnification not permitted in derivative suit if
defendant found liable
•Sec. 145(c) - Mandatory indemnification
– Director or officer must be successful on merits in defense of
claim
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ADVANCEMENT OF EXPENSES
•Sec. 145 (e)
•Attorney fees and other expenses incurred by officer or director in
defending him or herself may be paid by corporation in advance of
final disposition
•Conditioned upon receipt of undertaking by officer/director to
repay if determined he or she is not entitled to indemnification
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ITEMS OF INTEREST
•Sec. 145 is nonexclusive
•Corporations may have bylaws and agreements providing
indemnification and advancement, rather than relying on statutory
scheme
•Many Delaware corporations include a provision in their bylaws
making indemnification and advancement mandatory under
circumstances where they would only be permissive under Sec. 145
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BENEFIT CORPORATIONS
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BENEFIT CORPORATIONS
•Senate Bill 47 – Effective August 1st, 2013
– Public Benefit Corporation or PBC
– Must state a Public Benefit Purpose
– Changes the fiduciary duties of the directors
•Must “balance” the economic interests with the public benefit
purpose
– Can be Formed, Amended, or Converted/Merged (from non-DE)
– Beneficial Purpose will not be “policed”
• Cannot be obscene or hateful
– Existing Corporations need 90% shareholder vote to become B Corps
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BENEFIT CORPORATIONS (CONT.)
•The Delaware Difference
– Fiduciary requirements are unique
• Balance three items:
– Pecuniary/economic, benefit purpose, & community impact
– Does NOT require a “Benefit Director”
– No public reporting
– “Reasonably Objective” Standard instead of “Independent”
Standard
– 90% shareholder vote to become B Corp
– 66% shareholder vote to change beneficial purpose or discontinue
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BENEFIT CORPORATION QUESTIONS
•First, a little bit about Ben and Jerry's
•Why not just form a regular non-profit corporation?
– NP can make a profit but earnings go back to NP
– IRS must grant tax exempt statutes
– Possible exemptions for sales, property and income tax
– May be more appealing to donors
– Tax exempt donations
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ADDITIONAL QUESTIONS
•Are donations accepted by PBC? Why Not?
•Any examples?
– Method Cleaning Products - eco-friendly, sold at Target, bought by a
European company, 2012 Revenue 100M
– Plum Organic Baby Food – 2012 93M in gross sales, bought by Campbell
Soup
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2014 AMENDMENTS TO GCL
•HB 329, effective August 1, 2014
• Incorporator unavailability (Secs. 103, 108)
– Person for whom unavailable incorporator was acting may sign documents or take
certain other actions regardless of reason for unavailability
•Escrowed consents by directors, stockholders (Sec. 141, 228)
– Person, not yet a director or stockholder may sign a consent to act that will be
effective up to 60 days in the future and the consent will be effective as long as
the person is then a director or stockholder and has not revoked the consent
– Overturned Ch Ct decision in AGR Halifax Fund, Inc. v. Fiscina invalidating consent
by person signed before becoming a director
•Voting trust agreements (Sec. 218)
– May be delivered to ppb or registered office
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2014 AMENDMENTS TO GCL
•Amendments to certificate of incorporation (Sec. 242)
– May be made by board without stockholder approval to
• Delete names of incorporators, initial directors, original
subscribers
• Delete provisions of an amendment necessary to effect change,
exchange, reclassification, subdivision, combination, cancellation
of stock
– Repeal requirement that notice of stockholder meeting set forth
amendment or summary of changes if notice constitutes notice of
Internet availability
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CERTIFICATE OF VALIDATION
•Effective April 1st, 2014
•Ratification of defective corporate acts and stock errors
•$2,500 base filing fee + tax increases
•Three dates noted on document
– File date
– Effective date
– Corporate act effective date
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NEW IN 2014 – RATIFICATION OF DEFECTIVE ACTS
•New Sec. 204
– Establishes procedure for corp to ratify an over issue of stock, election of
directors or act or transaction that due to a lack of compliance with GCL,
cert of inc., bylaws, or other agreement is void or voidable
– Board of directors adopts resolution
– Stockholders approve (if act being ratified required approval)
– File certificate of validation with SOS (if act being ratified would have
required a filing)
•New Sec. 205
– Ch Ct can ratify if Sec. 204 not available
– Ch Ct can rule on the validity of a Sec. 204 ratification
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HB 127 – RATIFICATION OF DEFECTIVE ACTS
•Demonstrates how DE legislature responds to needs of business
community
•Will discuss case that demonstrates response of Chancery Court to
new legislation
• In Re Trupanion – first petition for relief under GCL 205
– Law effective 4/1/14
– Petition filed 4/1/14
–Chancery Court issued final order on 4/28/14
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IN RE: TRUPANION
•Facts:
– Incorporated in DE in 2006
– Employee in accounting unilaterally reincorporated in AZ to reduce
franchise taxes
– Actions taken without vote of board or stockholders
– Employee realized his error and reincorporated in DE
– As a result, corporation was unable to determined validity of board
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IN RE: TRUPANION (CONT.)
•Actions failed to meet provisions of DCL, written consents were not
strictly dated
•No notice as required by code
•Potentially invalid acts included issuance of common and preferred
stock
•Left doubt in the election of 9 of 10 directors
•Did not think section 204 (DIY remedy available)
•Sought relief under 205
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IN RE: TRUPANION - FINAL ORDER OF COURT
•Described as seeking correction of an innocent error that resulted
in serious consequences
1. Disregarded reincorporation and recognized initial corp as a valid
and existing entity
2. Confirmed stock issuances were valid
3. Determined Board of Directors valid
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DELAWARE’S LIMITED LIABILITY COMPANY ACT
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DLLC ACT - AN OVERVIEW
•Effective October 1, 1992
•Modeled after LP Act, not GCL
•Mostly default provisions
•Policy of Act - “give the maximum effect to the principle of
freedom of contract and the enforceability of LLC agreements”
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PRACTICE POINTER
•Far fewer default provisions in the DLLCA than in GCL
•LLC Agreement must be carefully drafted to provide for those issues
not provided for in the Act
• Issues include place and time of meetings, quorum, notice and
voting requirements
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GATZ PROPERTIES, LLC V. AURIGA CAPITAL CORP.
•59 A.3d 1206 (Del Supr. 2012)
•Case creating split over default fiduciary duties
•Minority members sued manager alleging breach of fiduciary duties
after he bought them out for price well below market value
•Ch Ct holds that managers owe default fiduciary duties of care and
loyalty
•S Ct states that Ch Ct’s ruling that managers owe default fiduciary
duties was dicta and had no precedential value
– Where there is a contractual provision imposing fiduciary duties there is
no need to decide if there are default duties
– No party asked the Ch Ct to decide the issue
– Reasonable minds can differ so it is up to General Assembly to clarify
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2014 AMENDMENTS TO LLCA
•HB 327, effective August 1, 2014
•Sec. 18-104 – requires LLC to provide communications contact with
name and address of person with access to LLC books and records
•Secs. 18-302, 18-404 – person not yet a member or manager can
consent to any matter with consent to take effect in future; consent
will be effective as long as person is a member or manager at that
future date
•Sec. 18-305 – member’s attorney or other agent may inspect books and
records on members’ behalf; demand must contain proof of
authorization. Also requires LLC to maintain record of names and
addresses of members and managers
•Sec. 18-806 – provides additional means by which LLC may revoke
dissolution
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2014 AMENDMENTS TO DRULPA
•HB 328, effective August 1, 2014
•Sec. 17-104 – requires LP to provide communications contact with
name and address of person with access to books and records
•Secs. 17-302, 17-405 – person not yet a partner can consent to any
matter with consent to take effect in future; consent will be effective
as long as person is a partner at that future date
•Sec. 17-305 – partner’s attorney or other agent may inspect books and
records on partner’s behalf; demand must contain proof of
authorization. Also requires LP to maintain record of names and
addresses of partners
•Sec. 17-806 – provides additional means by which LP may revoke
dissolution
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DELAWARE’S STATUTORY TRUST ACT
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STATUTORY TRUST ACT - AN OVERVIEW
•Enacted in 1988
•Title 12, Ch. 38, Sec. 3801 et seq.
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DEFINITION OF STATUTORY TRUST
•Unincorporated association created by a governing instrument
under which property is held, managed, administered, controlled,
invested and/or operated or business or professional activities
carried on by a trustee for the benefit of persons entitled to a
beneficial interest in the trust property
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FORMATION
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FORMATION
•File Certificate of Trust
•Executed by all trustees
•Contents
– Statutory Trust’s name
• Entity indicator not required
• Must be distinguishable
• Check availability; reserve name
– Name and address of resident trustee
•$200 filing fee
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FORMATION
•Must have a governing instrument
– Creates the trust
– Governs business & affairs
•Must have at least one trustee who is an individual DE resident or has
its principal place of business in DE
– Exception-registered investment company that maintains registered
agent and office in DE
•A statutory trust is managed by or under the direction of its trustees,
unless the governing instrument provides otherwise
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POST-FORMATION
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LIABILITY OF OWNERS & TRUSTEES
•Beneficial owners - have same limitation of liability as stockholders
of DE corporations
•Trustees, officers, managers or employees - when acting in official
capacities are not liable for ST’s acts, omissions, or obligations
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DISSOLUTION & CANCELLATION
•ST is dissolved and wound up at the time and in the manner
specified in governing instrument
•Upon completion of winding up, file Certificate of Cancellation that
– Is executed by all trustees,
– Sets forth name and filing date of Certificate of Trust
– Terminates ST’s existence
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PAYING ANNUAL FRANCHISE TAXES
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ANNUAL FRANCHISE TAX - CORPORATIONS
•Significant revenue producer for DE
•March 1 due date
•Electronic filing is mandatory
•Charter voided if tax not paid within 1 year of due date
•Charter voided if complete report not filed within 1 year of due date
•Two methods provided for calculating tax; lesser tax is payable
•Minimum tax – Method 1 -$175 (increased from $75 effective July 1,
2014); Method 2- $350
•Maximum tax -$180,000
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CALCULATING FRANCHISE TAX
•Method 1 - Based on authorized shares
– 1 to 5,000 shares = $175 (increased from $75 effective July 1, 2014)
– 5,001 to 10,000 shares = $150
– For each additional 10,000 or part thereof add $175 (increased from
$75 effective July 1, 2014)
•Method 2 - Based on assumed par value capital
– Tax = $350 per $1 million or portion thereof of assumed par value
capital
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QUESTIONS?
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THANK YOU FOR ATTENDING DELAWARE’S BUSINESS ENTITY LAWS 2015