Delaware Bill Would Extend Liability Protection to Corporate Officers | Ballard Spahr LLP


The Delaware General Assembly will soon consider a package of amendments to Delaware General Corporations Lawincluding one that would allow corporations to shield executives from certain types of shareholder damage claims.

Under Delaware law, trustees have a duty of loyalty (a duty to act in the best interests of shareholders) and a duty of care (a duty to make informed judgments). DGCL §102(b)(7) currently authorizes provisions in the certificate of incorporation eliminating directors’ personal liability to shareholders or the corporation for damages for breach of fiduciary duty, unless the director violates the duty of loyalty; acts in bad faith, commits an intentional fault or knowingly violates a law or receives an improper personal advantage. The amendment would extend the same protection to officers, although unlike the current protection given to directors, officers would not be immune from claims for damages brought by or on behalf of the company (that is to say derivative claims). The term “Officer” is defined in §142 of the DGCL as a person whose “titles and functions [are] stated in the articles of association or in a resolution of the board of directors.” The disposition would be subject to shareholder approval.

The proposed changes also include a technical adjustment to the law allowing shareholders to require an assessment of their interest when the company participates in certain types of mergers. Currently, only the owner of the record is allowed to require an appraisal, but the amendment would allow a beneficial owner to do so.

Another change would clarify the law allowing actions by written consent – ​​shareholder votes taken without a meeting. The measure providing for a consent is effective if the shareholder owned shares on the record date, even if he did not own shares at the time of the execution of the consent.

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