The Delaware House of Representatives recently passed Senate Bill 313 (SB 313), overcoming the final major obstacle to essentially overturn the ruling in West Palm Beach Firefighters’ Pension Fund v. Moelis & Co.¹

The Moelis ruling (read our previous alert) sent shockwaves through the corporate governance world by striking down provisions in stockholder agreements that favored stockholders’ rights and effectively limited a board of directors’ ability to use its own best judgment in governance matters.

SB 313, which passed on June 20, 2024, creates a new subsection (18) to Section 122 of the Delaware General Corporation Law (DGCL) that will give corporations the authority to enter into stockholder agreements that were invalidated in Moelis.²

The amendment provides a nonexclusive list of provisions that corporations may include in such contracts, including:

• Restricting or prohibiting a corporation from taking actions specified in a contract, regardless of whether the taking of such action would require approval of the board under the DGCL.
• Requiring the approval or consent of one or more persons or bodies before the corporation may take actions specified in the contract (including directors, stockholders or beneficial owners).
• Requiring the corporation or one or more persons or bodies to take, or refrain from taking, actions specified in the contract (including directors, stockholders or beneficial owners).³

Notably, corporations must receive some form of consideration for entering into such a contract, the amount of which must be determined by the board of directors. The consideration may include requiring stockholders to take, or refrain from taking, one or more actions, such as placing restrictions on transfer or granting the corporation a power-of-attorney in drag-along transactions. By requiring consideration, the amendment complies with existing case law regarding the validity of governance documents entered into without consideration.⁴

While some are expressing concern with how quickly SB 313 flew through the legislative process (arguing that additional time should be afforded to encourage further debate on the nuances of the proposed amendments), others are cheering lawmakers’ quick response to what many viewed as a provision of the DGCL that was out of touch with corporate governance reality.

If Governor John Carney signs the bill into law as expected, it will bring an end to the first chapter of the Moelis saga that garnered much attention in the first half of 2024. We will continue to monitor the impacts of SB 313 on future corporate governance issues as stockholders inevitably push the limits on the types of agreements permitted under the new subsection (18) to Section 122 of the DGCL.

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