Recent Updates on Equity-Based Rights and Options Under Delaware Corporate Law

2024-09-24 10:43:44

Recent amendments to Section 157 of the Delaware General Corporation Law (DGCL) have expanded the scope of authority that Delaware corporations' boards of directors can delegate regarding the issuance of equity-based rights and options. Prior to these amendments, while Section 157 allowed boards to delegate the authority to issue equity-based rights and options to corporate officers, there were significant limitations, and the terms of such rights and options, including exercise prices, still had to be determined by the board. In contrast, the DGCL had different provisions for delegating the board's authority to issue shares. For example, under certain conditions, boards could delegate the authority to determine share prices to other parties. The recent amendments to Section 157 aim to harmonize the differences between the delegation of authority for issuing shares and issuing equity-based rights and options.

Specifically, the key amendments to Section 157 include the following:

• The board of directors may, by resolution, delegate the authority to grant equity-based rights and options to an individual or entity outside the board;

• Such delegation may be made on a one-time or multiple-time basis;

• The authorized individual or entity may determine the quantity, timing, and consideration for each grant of equity-based rights and options; and

• The board's resolution must specify the following:

• The maximum number of equity-based rights and options that may be granted under the delegation, as well as the maximum number of shares issuable upon exercise;

• The time period during which equity-based rights and options may be granted and exercised; and

• The minimum consideration (if any) for the equity-based rights and options, as well as the minimum consideration for shares issuable upon exercise.

These amendments provide corporations with greater flexibility in structuring internal procedures for equity incentive plans and help reduce inadvertent errors by boards. Prior to these amendments, there were instances where boards exceeded the scope of authority permitted under this section.