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CALIFORNIA CORPORATE & SECURITIES LAW

Is This Proposed Amendment To Delaware’s Stockholder Consent Statute Really Needed?

Recently, I wrote about a proposal to amend Section 141(f) of the Delaware General Corporation Law to permit inchoate directors to take action by written consent.  The Corporation Law Section of the Delaware State Bar is proposing a parallel amendment to Section 228(c) of the DGCL to allow for springing stockholder consents.  The proposed amendment would add the following:

Any person executing a consent may provide, whether through instruction to an agent or otherwise, that such a consent will be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made, and, for the purposes of this section, if evidence of such instruction or provision is provided to the corporation, such later effective time shall serve as the date of signature. Unless otherwise provided, any such consent shall be revocable prior to its becoming effective.

I question whether there is really a need for a change to Section 228(c).  Unlike directors, stockholders can appoint proxies to vote their shares.  They can even appoint a proxy to execute a consent.  A number of years ago, I represented a corporation in connection with an action by some of its stockholders to remove the incumbent by board of directors by written consent.  Instead of soliciting consents, the incumbent board solicited proxies to execute consents.  This allowed them to control the dating of consents for purposes of the 60 day rule in current Section 228(c) (which is not proposed to be amended).  See The Arcana of Dating Stockholder Consents and my article, Delaware’s Inadequate Protection of Shareholders When Action Is Taken by Consent, 11 Bus. Law. Update 4 (1991).

“go home, be merry, give consent”

It appears that the intent of the proposed amendment to Section 228(c) is to permit a person to execute a consent before that person becomes a stockholder (the amended language refers to “any person” and provides that such later effective time “shall serve as the date of signature”).  However, the person must still be a stockholder on the record date established under DGCL Section 213 to be entitled to consent to the action.  Suppose, for example, that on Day 1, a person executes a consent that provides that it will be effective on Day 59.  Suppose further, that he record date established under Section 213(b) is Day 50 and  that the person becomes a stockholder on Day 58.  While the consent may become effective on Day 59 under the proposed amendment, the stockholder won’t be entitled to consent as to the matter for which the record date has been established.

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