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2006 Amendments to Corporate Law



Friday, July 21, 2006

General Assembly Approves 2006 Amendments to Corporate Laws

Dover – The Delaware General Assembly approved the following legislation in 2006 amending Delaware’s business entity statutes:

SB 322 – Corporate Amendments
HB 414 – Limited Liability Company Amendments
HB 415 – Limited Partnership Amendments
HB 424 – General Partnership Amendments

Highlights of this year’s legislation, which is effective August 1, 2006, except as noted, are summarized below:

NOTE: THE FOLLOWING SUMMARY OF 2006 LEGISLATION AFFECTING DELAWARE BUSINESS ENTITY LAWS IS NEITHER AUTHORITATIVE NOR ALL-INCLUSIVE. THIS SUMMARY DOES NOT REPRESENT OFFICIAL POLICY OF THE STATE OF DELAWARE AND HAS BEEN PREPARED ONLY FOR GENERAL INFORMATION PURPOSES AND NOT FOR LEGAL ADVICE.

 

AMENDMENTS RELATING TO ELECTIONS OF DIRECTORS

Section 141(b) has been amended to provide that a directorsresignation may be made effective upon the happening of a future event or events, and that certain resignations may be made irrevocable. By permitting a corporation to enforce a director resignation conditioned upon the director failing to achieve a specified vote for reelection (e.g., more votes for than against) coupled with board acceptance of the resignation, these provisions permit corporations and individual directors to agree voluntarily, and give effect in a manner subsequently enforceable by the corporation, to voting standards for the election of directors which differ from the plurality default standard in Section 216. The new provisions of Section 141(b) do not, however, address whether resignations submitted in other contexts may be made irrevocable.

Section 141(d) has been amended to clarify that the classified terms of directors (e.g., 1 year, 2 year or 3 year terms) commence after the classification of the board of directors becomes effective, thereby expressly permitting certificate of incorporation or bylaw provisions that provide for classification effective at a point in time after such provisions are adopted. The new sentence added to Section 141(d) permits the certificate of incorporation or bylaw provision that divides the directors into classes to include language authorizing the board of directors to assign members of the board already in office to the board classes at the time such classification becomes effective.

Section 216 has been amended to provide that a bylaw adopted by a vote of stockholders that prescribes the required vote for the election of directors may not be altered or repealed by the board of directors. This amendment does not address any other situation in which the board of directors amends a bylaw adopted by stockholder vote.
 

AMENDMENTS RELATING TO REGISTERED AGENTS AND REQUIRING BUSINESS ENTITIES TO PROVIDE A COMMUNICATIONS CONTACT OF THEIR REGISTERED AGENT

Delawares business entity statutes (Section 132 of the Delaware General Corporation Law, as well as corresponding provisions in the Delaware Limited Liability Company Act, Revised Uniform Limited Partnership

Act and Revised Uniform Partnership Act) have been amended to require every business entity to provide its registered agent with (and to update from time to time) the name, business address, and business telephone number of a natural person who is an officer, director, employee, or designated agent of the business entity, who is currently authorized to receive communications from the registered agent. The amendments clarify the duties of registered agents and set forth certain qualifications for Commercial Registered Agents that represent more than 50 business entities. For example, Commercial Registered Agents must have a Delaware business license and must retain the communications contact information provided by the businesses they represent. The amendments authorize the Secretary of State to refuse to file documents submitted by registered agents that are not in compliance with the statute and, in limited circumstances, to bring a lawsuit in the Court of Chancery seeking to enjoin a person or entity from serving as a registered agent. These amendments take effect on January 1, 2007.
 

AMENDMENT RELATED TO ANNUAL REPORTING REQUIREMENTS

Chapter 5 of the Delaware General Corporation Law has been amended to clarify the requirement that Delaware corporations file a complete annual report and to require the Secretary of State to declare void the charter of any corporation that fails to file a complete annual franchise tax report. Previously, the Secretary of State could only void the charter of a corporation for failure to pay taxes. These amendments become effective on January 1, 2008.
 

AMENDMENT AFFECTING CORPORATE NAME RESERVATIONS

Section 102 of the Delaware General Corporation Law has been modified to permit persons to make an application to the Secretary of State to secure or renew an exclusive reservation to a specified corporate name for 120 days for a fee of up to $75. Similar reservation processes are already permitted for other Delaware business entities.
 

AMENDMENTS RELATING TO ALTERNATIVE BUSINESS ENTITIES

The Delaware Limited Liability Company Act, the Revised Uniform Limited Partnership Act, and the Revised Uniform Partnership Act have been amended in several respects, in addition to the amendments noted above relating to registered agents for Delaware business entities. These additional amendments include provisions that:

1. Clarify that unless the governing agreement provides otherwise, meetings of partners, members or managers may be held by conference telephone or other communications equipment, as long as all such persons can hear one another.

2. Conform the non-corporate entity statutes to 2005 amendments to the Delaware General Corporation Law amendments relating to entity domestication, transfer, transfer and continuance, and conversion.

3. Establish, similar to the 2005 amendment to Section 15-1001 of the Revised Uniform Partnership Act, that a limited partnership may be formed from inception as a limited liability limited partnership.

NOTE: THE FOLLOWING SUMMARY OF 2006 LEGISLATION AFFECTING DELAWARE BUSINESS ENTITY LAWS IS NEITHER AUTHORITATIVE NOR ALL-INCLUSIVE. THIS SUMMARY DOES NOT REPRESENT OFFICIAL POLICY OF THE STATE OF DELAWARE AND HAS BEEN PREPARED ONLY FOR GENERAL INFORMATION PURPOSES AND NOT FOR LEGAL ADVICE.


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