The Corporation Law Section of the Delaware State Bar Association recently published its proposed amendments to the Delaware General Corporation Law (DGCL) for 2019.¹

The amendments reflect a broad effort to modernize the DGCL’s provisions addressing electronic documentation of actions and electronic transmissions of items such as notices and consents. The most significant changes contemplated by the proposed amendments are: (i) the introduction of safe harbor procedures for electronic documentation, execution and delivery of various acts and transactions; (ii) revisions to the default provisions for the delivery of stockholder notices; and (iii) revisions to the provisions governing delivery of stockholder consents by electronic submission. The proposed amendments also include important clarifying changes to the provisions of Section 141(f) with concern to board actions by written consent.

Electronic Documentation, Signature, and Transmission

While the DGCL currently includes various provisions allowing electronic transmission of various notices and consents, the proposed amendments insert a new section, Section 116, introduces comprehensive safe harbor methods for electronically documenting, signing and delivering a broad range of acts and transactions.

The amendments provide that a range of acts or transactions that are “contemplated or governed by” the DGCL – such as voting agreements and proxies – may be documented electronically and that an electronic transmission ² “shall be deemed the equivalent of a written document” for such purposes. In addition, any document governed by the DGCL may be signed by electronic signature. An “electronic signature” is defined as an electronic symbol or process that is attached to, or logically associated with, a document and executed or adopted by a person with an intent to authenticate or adopt the document. Under the proposed amendments an electronic submission is deemed delivered when it enters an information processing system that the recipient has designated for receiving electronic submissions. A document submitted accordingly would be deemed delivered even if no person is aware of its receipt.

The application of the safe harbor provisions in the proposed Section 116 is limited to the DGCL and the corporation’s governing documents. As a result, they would not preempt any statute of frauds or other law requiring actions to be documented in a particular form, or signing and delivering documents.

Moreover, the proposed amendments specifically exclude a series of actions and documents from the electronic safe harbor, such as: (i) documents filed with the Secretary of State, other governmental body or court; (ii) a certificate representing a security; and (iii) ballots to vote on actions at a meeting of stockholders. The proposed amendments clarify that there is no presumption that the excluded items are prohibited from being documented and executed electronically, but merely that the Section 116 safe harbors cannot be relied on as a basis for documenting the excluded items. It should be noted that many of the excluded items are governed by different provisions of the DGCL that permit electronic execution and delivery.

Notices to Stockholders

The proposed amendments also include changes to the provisions governing the form and delivery of stockholder notices under Section 232.

The amendments modify the statutory defaults by allowing a corporation to deliver notice to stockholders by (i) U.S. mail, deemed given as of the time when the notice is placed in the mail; (ii) courier service, deemed given as of the earlier of when received by the stockholder or left at the stockholder’s address; or (iii) email, deemed given as of the time when it is directed to the stockholder’s email address. Although the DGCL currently allows delivery of notices to stockholders by electronic transmission, including email, such manner of notice can only be directed to an email address at which a stockholder has affirmatively consented to receive notice. The proposed amendments, however, invert that default position – a corporation would be permitted to send notices to a stockholder’s email address unless the stockholder affirmatively notifies the corporation in writing that it objects to receipt of notices via email.

The revised default notice provisions would apply to all types of notices under the DGCL or the corporation’s governing documents and the synopsis to the proposed amendments makes clear that “no provision of the certificate of incorporation or bylaws may prohibit the corporation from giving notice in the form or manner permitted” by the amended Section 232. Thus, under the revised Section 232, a corporation would be able to give a notices of meetings, for example, by email regardless of any preexisting conflicting requirements in the corporation’s certificate of incorporation or bylaws requiring that such notices be delivered by U.S. mail. The amended Section 232 would not, however, alter notice requirements promulgated in other laws, rules or regulations applicable to a corporation or its securities.

Stockholder Consents

Consistent with the approach to delivery of electronic transmissions utilized in Section 116, the proposed amendments revise the provisions of Section 228(d) governing stockholder consents delivered by electronic transmission.

As currently enacted, Section 228(d) provides that a stockholder consent submitted by electronic transmission is not deemed delivered until it is reduced to paper form and delivered to the corporation’s registered office, principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of stockholders are recorded. The proposed amendments, in contrast, would consider stockholder consents to be deemed delivered upon the earliest of (i) when the consent enters the information processing system designated by the corporation for receiving consents and is in a form capable of being processed by the system; (ii) when a paper reproduction of the consent is delivered to the corporation’s principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of stockholders are recorded; (iii) when a paper reproduction of the consent is delivered to the corporation’s registered office by hand or certified mail; or (iv) when delivered in such other manner provided by resolution of the board. Notably, this eliminates the requirement that consents delivered by electronic transmission be reduced to paper form and physically delivered.

As with electronic submissions under proposed Section 116, a consent submitted electronically under Section 228(d) would be deemed delivered even if no person is aware of its receipt.

Director Consents

The proposed amendments include changes to Section 141(f) to clarify that action by unanimous consent of directors may be treated as effective before such consents are filed in a minute book. Section 141(f) currently provides that board actions may be taken without a meeting if all the members consent in writing or by electronic transmission and all such consents are filed with the minutes of proceedings of the board. In order to avoid an implication that actions are not treated as taken until they are filed with the minutes, the proposed amendments eliminates the phrase “and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board” and adds language at the end of Section 141(f) providing that consents shall be filed with the minutes “[a]fter an action is taken.”

If approved by the Delaware State Bar Association, the amendments would be introduced in the General Assembly for consideration. If ultimately enacted, the amendments would become effective August 1, 2019 (with the amendments addressing appraisal notices and demands becoming effective for mergers entered into on or after August 1, 2019).

[1]  The Corporation Law Section approved similar proposed amendments to the Delaware Limited Liability Company Act, the Delaware Revised Uniform Limited Partnership Act, and the Delaware Revised Uniform Partnership Act.

[2] “Electronic Transmission” is currently defined in Section 232 of the DGCL to mean “any form of communication, not directly involving the physical transmission of paper, including the use of, or participation in, 1 or more electronic networks or databases (including 1 or more distributed electronic networks or databases), that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.” That definition would not be modified by the proposed amendments.

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