2022 Amendments to the Delaware General Corporation Law - Incorporating in Delaware
2024-09-24 10:44:42
Effective August 1, 2022, amendments to the Delaware General Corporation Law (DGCL) officially took effect, introducing several significant changes to the existing legal framework. Among these amendments, the DGCL now allows Delaware corporations to include exculpation provisions in their Certificates of Incorporation (COI) to limit the personal liability of certain corporate officers under specific circumstances. Additionally, the amendments provide greater flexibility for corporations to authorize officers and other individuals to grant stock options and other equity-based rights.
Personal Liability of Corporate Officers
Previously, Section 102(b)(7) of the DGCL permitted Delaware corporations to include provisions in their COI to exculpate directors from personal liability for breaches of fiduciary duty, but it did not extend this protection to corporate officers. This discrepancy often created issues when an individual served as both a director and an officer and was involved in litigation. In such cases, the individual could be exculpated from liability in their capacity as a director but still held liable in their capacity as an officer.
As of August 1, 2022, Delaware corporations may now include exculpation provisions in their COI to shield officers from personal liability in direct shareholder lawsuits for breaches of fiduciary duty (commonly arising in mergers and acquisitions). However, officers remain liable in the following scenarios: (1) lawsuits brought directly by the corporation, (2) shareholder derivative lawsuits, (3) breaches of the duty of loyalty, and (4) intentional acts or omissions.
Notably, the liability protections under Section 102(b)(7) of the DGCL apply only to officers who are deemed to have consented to service of process through the corporation's registered agent in Delaware. Typically, the following officers are considered eligible for these protections: (1) executive officers, (2) individuals identified in the corporation's SEC filings as among the highest-paid officers at the time of the alleged misconduct, and (3) officers who provide written consent.
Authorization of Stock Options and Other Rights
Previously, the DGCL allowed corporate boards of directors and board committees (collectively, "Boards") to delegate limited authority to officers to grant stock options or other equity-based rights, while reserving the determination of specific grant terms to the Board. The amendments expand this delegation authority, allowing Boards to authorize a broader group of individuals to grant equity-based rights and to modify specific grant terms. Specifically, any such delegation to officers or other individuals must specify certain details, including:
The maximum number of shares, rights, or options that may be granted (including the maximum number of shares issuable upon exercise of such rights or options);
The time period during which shares, rights, or options (including shares issuable upon exercise of such rights or options) may be issued; and
The minimum consideration to be received for the issuance of shares, rights, or options (and shares issuable upon exercise of such rights or options).