The general corporation law is a law in Delaware that outlines the rules for forming a corporation and methods for settling disputes within companies.

Outline of the General Corporation Law

The Court of Chancery in Delaware is responsible for settling disputes that occur inside limited liability companies (LLC) and corporations. This court does not use juries, and instead employs chancellors, or judges, to settle disputes. This is beneficial because it means rulings will typically be fact-based.

The general corporation law states that a corporation can be formed by anyone as long as its purpose is legal. Some of the entities that can form corporations in Delaware include:

  • People.
  • Partnerships.
  • Associations.

This law also includes rules for what information should be included in the Certificate of Incorporation. Additionally, a company's shareholders cannot be held liable for the company's debts. Once you have filed your Certificate of Incorporation with the state, your corporation will come into existence.

Under the general corporation law, corporate bylaws can be amended by the company's shareholders whenever they see fit. One of the main purposes of the general corporation law is to define corporate powers, as well as restrictions. For example, in Delaware, a corporation is not allowed to function as a bank.

Delaware corporations are required to have a Registered Agent that resides in the state, and the corporation is allowed to change their registered agent if needed. A Board of Directors is required for corporations in this state.

While the general corporation law requires that corporations appoint officers, failing to do so will not result in the corporation being dissolved. The ability to issue stocks is another power granted by this law.

As long as the company's shareholders consent, it is possible to impose restrictions on transferring previously issued stocks. An annual shareholder meeting must be held to elect a board of directors. However, if the shareholders provide written consent of the election, a meeting does not need to be held. Voting by proxy is also possible. For a shareholders meeting to be valid, one-third of shareholders with voting power should be in attendance. After a shareholder meeting, there will be a ten-day period where shareholders can examine the register.

Shareholders are also granted the right to examine the corporation's records. This examination must take place during the business day, and a written request needs to be submitted. Before stocks are paid for, the corporation can make changes to its Certificate of Incorporation as long as the changes are legal. 

However, after stock payments have been received, amending a Certificate of Incorporation is more complicated. Before this document can be changed, a resolution needs to be passed by the Board of the Directors, and then a majority of shareholders must approve the amendment.

Rules for Merging, Selling, and Dissolving a Corporation

Corporations are allowed to merge in Delaware. Mergers can involve two or more companies. If there are shareholders who do not agree with the merger, their shares can be bought out. However, the shares must be purchased for fair market value.

By meeting certain requirements, other entities have the ability to transition to a corporation. Some of these entities include:

  • Business Trusts.
  • LLCs.
  • Partnerships.
  • Statutory Trusts.

Similarly, corporations in Delaware can transition to another type of entity if they wish. The majority of company shareholders must approve either the dissolution or sale of a corporation. Before a Delaware corporation can be dissolved, franchise taxes required by the state need to be paid. This includes the current year's Franchise Tax.

Offering stock publicly is not possible for close corporations. In sections 361 through 368 of the general corporation law, you can find the rights of a public benefit corporation and rules for structuring. A corporation that has been formed based on the laws in a state other than Delaware is known as a foreign corporation. Entities that are not located in the United States are allowed to incorporate in Delaware as long as they follow a strict set of requirements.  

Changes to the Law

Occasionally, the general corporation law undergoes changes. For example, in 2009, the law was amended to give stockholders more rights to access proxy statements of the company. This change also allows stockholders to request reimbursement when a proxy solicitation has taken place while electing a Board of Directors.

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