The Court of Chancery examined the broad scope of recently amended Sections 204 and 205 of the Delaware General Corporation Law. In Knoll Capital, the plaintiff company (“KCM”) brought suit seeking to enforce an oral agreement pursuant to which the defendant company (“Advaxis”) offered to sell 1.66 million shares of its unregistered common stock to KCM. In dismissing Advaxis’s motion to dismiss the claim, the Court determined that the lack of a written instrument evidencing the share purchase and Advaxis’s failure to obtain board approval to issue stock was a “defective corporate act” under Section 204. Thus, it could be ratified by the Court under Section 205.
Bottom Line: Although DGCL Sections 204 and 205 provide the Delaware courts with broad authority to ratify a corporate defective act, including invalid oral agreements to issue corporate stock, no purchaser should rely upon an oral stock-purchase agreement.