Overview of Significant 2010 Amendments to the Delaware LLC Act, the Delaware Revised Uniform Limited Partnership Act (DRULPA), the Delaware Revised Uniform Partnership Act (DRUPA), and the General Corporation Law of the State of Delaware (DGCL)
Posted : June 15th, 2010I. LLC Act, DRULPA and DRUPA
A. Inapplicability of Statute of Frauds. Amending § 18-101(7) of the LLC Act, §17-101(12) of DRULPA and §15-101(12) of DRUPA to:
• Explicitly provide that limited liability company agreements, limited partnership agreements and partnership agreements are not subject to any statute of frauds in light of the Delaware Supreme Court’s decision in Olson v. Halvorsen, C.A. No. 1884 (Del. Dec. 15, 2009).
B. Irrevocable Power of Attorney. Amending § 18-106(d) and § 18-204(c) of the LLC Act, § 17-106(d) and 17-204(c) of DRULPA and § 15-123 and §15-202(f) of DRUPA to:
• Explicitly provide that limited liability companies, limited partnerships and general partnerships generally have the authority to grant, hold or exercise a power of attorney, including an irrevocable power of attorney as well as powers of attorney relating to the organization, internal affairs or termination of such entities, unless the applicable governing documents provide otherwise.
C. Electronic Service of Process. Amending several statutory provisions, including § 18-105(b) of the LLC Act, § 17-204(c) of DRULPA and § 15-112(b) of DRUPA to:
• Add language indicating that in circumstances where service of legal process against the entity is permitted by the applicable statute, process may be served upon the Secretary of State by means of electronic transmission, but only as prescribed by the Secretary of State. Similar changes were also made to several sections of the DGCL and the Statutory Trust Act.
D. Short Form Mergers with Delaware Corporations. Amending various provisions of the LLC Act, DRULPA and DRUPA to:
• Add language making these statutes compatible with new § 267 of the DGCL, which permits non-corporate parent entity to effect a short-form merger with a Delaware corporation as described below.
E. Information Demands. Amending § 18-305(f) of the LLC Act, § 17-305(e) of DRULPA and § 15-403 of DRUPA to:
• Clarify that the time period for responding to an information demand may be varied by a limited liability company/partnership agreement, but may not be made longer than 30 days.
F. Foreign Limited Liability Companies and Partnerships: Amending §18-902 of the LLC Act, § 17-902 of DRULPA and § 15-1102(a) of DRUPA to:
• Require that foreign limited liability companies, limited partnerships and partnerships registering with the Secretary of State must file a certificate, as of a date not earlier than 6 months prior to the filing date, issued by an authorized officer of the jurisdiction of its formation evidencing its existence, along with, if applicable, a translation thereof under oath.
G. Assignment of Interests: Amending § 18-702(a) of the LLC Act and § 17-704(a) of DRULPA to:
• Confirm the circumstances in which an assignee of a limited liability company/partnership interest may participate in the management of the business and affairs of a limited liability company/become a limited partner of a limited partnership.
II. DGCL Provisions addressing nonstock corporations.
A. Although the DGCL already contained many provisions that differentiated between corporations authorized to issue capital stock and corporations not authorized to issue stock (nonstock corporations), there were many significant issues involving nonstock corporations that were not adequately addressed by the statue. This comprehensive series of amendments has filled in the gaps by creating a new “translator” provision (Section 114) that provides guidance as to which provisions of the DGCL apply to nonstock corporations generally, which provisions contain special provisions that apply only to non-stock corporations, and which provisions are expressly inapplicable to nonstock corporations, and also amends many other provisions of the DGCL in order to create a cohesive statutory scheme for governing nonstock corporations.
B. While most of the nonstock amendments do not make significant substantive changes to the law, several changes are noteworthy, including the following:
• The DGCL now expressly requires that all nonstock corporations have members, although the failure to comply with this requirement shall not result in the corporation being invalidated. If a nonstock corporation has not set forth the conditions for membership in its certificate of incorporation or bylaws, its members are deemed to be those who voted for the members of the corporation’s governing body.
• The DGCL now specifically defines a “charitable nonstock corporation” as “any non-profit nonstock corporation that is exempt from taxation under § 501(c)(3) of the United States Internal Revenue Code or any successor provisions” and contains several provisions prohibiting the taxing of certain otherwise permissible corporate actions (i.e. mergers and entity conversions) where doing so would cause the entity to no longer qualify for § 501(c)(3) exempt status.
• By clarifying the procedures for setting record dates, the calling of special meetings of members and the required vote that must be obtained, the DGCL now makes it easier for nonstock corporations to effect mergers (including short-form mergers with subsidiary corporations) and address other corporate governance matters.
• Finally, there are several provisions which provide for disparate treatment for nonstock non-profit corporations, as opposed to nonstock corporations that may be for-profit entities. One example of this dichotomy is an express provision that makes § 144(a)(2) inapplicable to nonstock non-profit corporations in order to comply with the Delaware Supreme Court’s holding in Oberly v. Kirby, 592 A.2d 445, 467-68 (Del. 1991) that members of a non-profit nonstock corporation may not ratify interested transactions because they have no financial interest in the corporation.
IV. Other Significant Amendments to the DGCL:
A. Short-Form Mergers with Non-Corporate Entities. Adding a new Section 267 and making corresponding changes to other sections of the DGCL to:
• Provide a mechanism for a short-form merger of a Delaware corporation with a non-corporate parent entity where the parent entity owns 90% or more of the outstanding stock of the corporation. As noted above, amendments have also been made to the alternative entity statutes in order to make those statutes compatible with the new Section 267.
B. Indemnification and Advancement. § 145 (d) and (e) are being amended to:
• Clarify that the requirement that indemnification decisions be made by certain specified decision making bodies and the statutory procedural requirements and prerequisites associated with advancement of expenses only apply when the potential indemnitee/recipient of advanced funds is serving as a director or officer of the corporation, but do not apply in connection with a person serving at the request of the corporation as a director or officer of another corporation or alternative entity.
C. Amendment and Restatement of Certificate of Incorporation in Connection with Merger. Minor additions to §§ 251, 252, 254, 263 and 264 are being made in order to:
• Expressly provide that in a merger, the certificate of incorporation of a surviving corporation may be amended and restated in its entirety.
D. Dissolution of time-limited corporations. § 278 is being amended to:
• Clarify that the dissolution procedures set forth in the DGCL must be adhered to notwithstanding the fact that a corporation’s (including special purpose acquisition companies) certificate of incorporation contains a provision indicating that the corporation expires after a specified term.
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