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Among the obligations of most corporate boards of directors is the requirement to conduct a periodic review of their company’s organizational documents. Given the rapid rise in the use of remote board meetings, as well as recent changes to the Delaware General Corporation Law (DGCL), now is a perfect time to revisit and strengthen these critical documents. This effort can provide for greater flexibility and clarity relating to shareholder meetings, board actions, and other corporate actions, including the following.
OFFICER EXCULPATION
Effective August 1, 2022, the DGCL was amended to allow corporations to adopt officer exculpation provisions in their articles of incorporation. This change allows corporations to protect covered officers from personal liability for monetary damages for claims of breach of the fiduciary duty of care. Importantly, this change does not al- low for the exculpation of officers from any action by or in the right of the corporation, such as derivative litigation, including claims for breaches of the fiduciary duty of loyalty. While amending articles of incorporation to allow for the exculpation of officers does require shareholder approval, boards may want to consider making this change.
REMOTE OR VIRTUAL MEETINGS
Shareholder Meetings: For most businesses, remote communications are now
a fact of life. State laws vary, however, with respect to virtual shareholder meetings. Companies must ensure that state law and their own corporate bylaws permit virtual meetings. Boards should also review other bylaw provisions relating to meeting location, notice, procedures, quorum, adjournment, and recordholder lists to confirm that such provisions allow for—or at a minimum, do not preclude—the virtual format.
Board Meetings: Although the organizational documents of many companies may expressly permit telephonic meetings, boards should confirm that their bylaws provide maximum flexibility to conduct meetings in a wide variety of videoconferencing and other remote- communication formats. Also worth considering—allowing the option to submit approvals by written consent, including via email or other electronic means of communication.
EXCLUSIVE FORUM PROVISIONS
Boards should consider whether to adopt an exclusive forum provision. Traditional exclusive forum provisions generally require derivative actions and other intracorporate disputes of a company to be litigated exclusively in the state or federal courts of a specific state (typically, their state of incorporation or the state of their principal place of business). These provisions seek to avoid the cost and uncertainty of parallel litigation, the risk of inconsistent outcomes, and the potential for one state’s laws to be misinterpreted by other states’ courts. For Delaware corporations, they also provide for the resolution of intracorporate disputes by the courts most experienced in handling corporate law issues.
Delaware corporations, as well as corporations in certain states that have adopted the Model Business Corporation Act (MBCA), are permitted under state corporate law to include an exclusive forum provision in their governing documents.
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ABOUT THE AUTHORS: Alexandra Layfield is a partner at Jones Walker and co-leader of the firm’s corporate, securities and executive compensation team. She counsels public and private companies on transactional matters, primarily in the areas of corporate finance, securities law, general corporate law, and corporate governance, as well as mergers and acquisitions.
Katherine Herbert is an associate in the Jones Walker Corporate Practice Group. Her practice focuses on assisting public and private company clients with a variety of corporate matters, including stock and asset mergers and acquisitions transactions, conversions, consolidations, dispositions, internal reorganizations/restructurings, and private equity transactions.
