Page 24 - Delaware Lawyer - Winter 2020

FEATURE
John Mark Zeberkiewicz
John Mark Zeberkiewicz is a director of Richards, Layton & Finger, P.A. in Wilmington, Delaware. Although Richards, Layton & Finger may have been involved in some of the cases mentioned in this article, the views expressed herein are the views of the author and are not necessarily the views of the firm or its clients.
Sections of the
Groundbreaking amendments ease the burden of curing defective corporate acts
Curing defective corporate acts has long been a struggle for Delaware corporations and lawyers alike. Sections 204 and 205 of the Delaware General Corporation Law (DGCL),1 which deal with the ratification and validation of defective corporate acts, were enacted in 2013 and became effective on April 1, 2014.2 The two Sections were enacted to overturn harsh outcomes stemming from opinions of the Delaware Supreme Court, such as Waggoner v. Laster,3 holding that corporate acts taken in violation of the certificate of incorporation or DGCL are void — and therefore not susceptible to cure by ratification.4
22 DELAWARE LAWYER WINTER 2020
As a result of those holdings, outside counsel were frequently unable to give so-called “valid issuance opinions” — legal opinions confirming that a corpora- tion’s shares have been duly authorized and validly issued and are fully paid and nonassessable — that are often required to be delivered in connection with equity financing transactions or initial public of- ferings. Corporations were also frequently at risk of making inaccurate representa- tions in stock purchase or other agree- ments regarding their own capitalization, and disputes over corporate control often hinged on compliance with hyper-techni- cal requirements of corporate law, with- out regard to the underlying equities.
In practice, the failures in authoriza- tion that were determined to render cor-
porate acts or stock void were in most in- stances the result of foot-faults or incor- rect assumptions regarding the operation of Delaware corporate law rather than fraud, malfeasance or wishful thinking. Before the adoption of Sections 204 and 205, minor defects, like a missing sig- nature page to an otherwise unanimous written consent of the board, a poorly sequenced board and stockholder con- sent to a charter amendment, or a passel of stockholder consents with pre-printed dates, could cast doubt on an entire capi- tal structure. And fixing those defects was no small feat, as the only available solution usually involved some form of unanimous stockholder action. As many startup companies tap angel investors and other “friends and family” for seed capital
204 and 205
DGCL: A Retrospective