News
Delaware Statutory Trust Act
A. Pools of Assets. Amending § 3806(b)(2) of the Statutory Trust Act to:
- Confirm that pools of assets may constitute series.
B. Continuance of Statutory Trust in the Absence of a Trustee. Amending § 3808(b) to:
- Confirm that a statutory trust will not be void for lack of a trustee.
C. Cancellation of a Certificate of Trust. Amending § 3810(d) and § 3810(e) to clarify:
- The time of dissolution of a statutory trust that is not the surviving entity in a merger or consolidation or has transferred to another jurisdiction and/or converted to another entity.
- The effective time of a certificate of correction.
- The fact that the Secretary of State may not issue a certificate of good standing for a statutory trust once the certificate of trust has been cancelled.
D. Merger and Consolidation. Amending § 3815 to:
- Provide increased flexibility with respect to amendment of an existing governing instrument or the adoption of a new governing instrument by, among other things, no longer requiring a specific reference to § 3815(f) of the Statutory Trust Act in the governing instrument agreement. This amendment does not apply to statutory trusts formed prior to the effectiveness of this amendment unless the governing instrument of such statutory trusts provide otherwise.
- Clarify that a statutory trust that is not the surviving or resulting entity in a merger or consolidation is not considered to have dissolved and is not required to wind-up its affairs.
- Clarify that appraisal rights can be extended to series of beneficial interests.
- Add a new subsection (i) to §3815, which clarifies that a governing interest may provide that a statutory trust does not have the power to merge or consolidate.
E. Conversion of a Statutory Trust. Amending § 3821 to:
- Add a new subsection (i) to §3821, which clarifies that a governing interest may provide that a statutory trust does not have the power to convert to another business entity.
F. Transfer or Continuance of a Statutory Trust. Amending § 3823 to:
- Add a new subsection (h) to §3823, which clarifies that a governing interest may provide that a statutory trust does not have the power to transfer, domesticate or continue.
G. Construction and Application of Statutory Trust Act and Governing Instrument. Amending § 3825 to:
- Add a new subsection (c) to § 3825, which clarifies that the doctrine of “independent legal significance” applies to statutory trusts.
H. Foreign Statutory Trusts. Amending § 3852 to:
- Mandate that a foreign statutory trust 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.
- Require that a foreign statutory trust organized in series provide notice of that fact when registering with the Secretary of State and disclose whether there is a limitation on inter-series liability.
“The Uniform Statutory Trust Entity Act: A Review”
By: Thomas E. Rutlege and Ellisa Opstbaum Habbart
Abstract:
The Uniform Statutory Trust Entity Act, the most recent product of the National Conference of Commissioners on Uniform State Laws in the area of business entity legislation, is intended to render uniform the statutory (i.e., “business”) trust across the various states. Currently, business trust legislation is widely disparate across the various states, and many of the existing statutes are at best skeletal. This Act has the objective of rendering the business trust more effective as a form of organization by addressing many issues that are typically seen in other business entity laws, while at the same time seeking to minimize both unexpected and, in certain places, undesirable results otherwise dictated by applicable trust law. This Article both reviews the workings of this new uniform act and identifies issues and deficiencies therein.
Click here to view the full article in PDF format.
Posted: July 14th, 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.
Did You Know?
Since the much publicized decision of the U.S. Bankruptcy Court for the Southern District of New York in the General Growth Properties, Inc. matter, rating agencies and lenders are now requiring significant changes to the terms of the governing document (i.e. LLC agreement) with respect to the role of independent directors/managers in special purpose entities (‘SPEs’). One such change is to make clear that an Independent Director/Manager consider the interests of the creditors as opposed to the equity holders. In order to effect this change, you must delete any provision which purports to impose on the Independent Directors (or Managers) a fiduciary duty similar to that of a director or officer of a Delaware corporation.
Posted: April 2010Did You Know?
Effective February 1, 2010, The Delaware Court of Chancery Can Arbitrate Your Disputes.
New Court of Chancery rules — Rules 96, 97 and 98 — have been adopted that authorize the Court of Chancery to arbitrate disputes on an expedited basis. The arbitration would be handled by either a sitting judge or master and is a confidential proceeding.
The requirements:
1. The monetary amount in controversy must be in excess of $1 million;
2. At least one party to the arbitration must either be a business entity formed
under Delaware law or have its principal place of business in Delaware; and
3. All parties must consent to the process.
The procedure is initiated by the filing of a petition to arbitrate by one party and, in general, is to occur within 90 days after the filing.
Posted: March 2010100 South Rockland Falls Road, P. O. Box 4175, Wilmington, DE 19807 - (302) 576 - 9600
