Businesspeople, corporate law practitioners and commercial litigators take note: The Delaware legislature has amended the Delaware General Corporation Law (“DGCL”) to permit corporate boards to bind themselves with stockholder agreements, as described in an article authored by John Cromie, the co-chair of the Corporate and Business Law Group at Connell Foley LLP, and Amanda Kelly, an associate (pending admission to the bar) with the group, published in the Winter 2024 issue of USLAW Magazine.
In the piece, John and Amanda explain the impact of DGCL amendments controversially enacted by the Delaware legislature in response to the equally controversial Delaware Court of Chancery opinion in West Palm Beach Firefighters' Pension Fund v. Moelis & Company. There, the court struck down parts of a stockholder agreement that significantly constrained a company’s board of directors, even though market practice has generally given corporate boards leeway to restrict themselves with stockholder agreements.
The amendments that the Delaware legislature enacted in response to the opinion will likely be interpreted as permitting provisions in shareholder agreements that: (i) restrict or prohibit future corporate action specified in the agreement; (ii) require the approval or consent of third parties before an action can be taken; or (iii) require the corporation or its board of directors or shareholders to take or refrain from taking a specific action. Critics argue that these amendments weaken DGCL Section 141(a), which gives the board authority to manage the corporation.
Given Delaware’s significant influence in the world of corporate law, businesspeople and legal practitioners across the country “should stay alert to the possibility that other states will follow suit,” John and Amanda caution.
Read the full article here.