Key Takeaways

  • Section 228 DGCL allows Delaware corporations to take stockholder action without a meeting, notice, or vote if proper written consents are obtained.
  • Requirements include delivery of signed consents to the corporation within 60 days of the first signature, and consents may be revoked unless made irrevocable.
  • Authorized submitters include stockholders, members, proxy holders, or duly authorized representatives.
  • Electronic submissions are permitted if reliable, but must be converted into paper form and delivered in the same manner as written consents.
  • 2017 amendments streamlined the rules by removing strict dating requirements and allowing for a single “as of” date across consents.
  • 2022 and later amendments clarified stockholder record dates, expanded electronic transmission recognition, and refined notice obligations to ensure corporations provide prompt disclosure of actions taken by consent.
  • Corporate governance impact: While Section 228 DGCL empowers stockholders, corporations may limit or restrict this right in their certificate of incorporation. Many boards weigh the benefits against risks like activist stockholder campaigns.

Section 228 of the Delaware General Corporation Law details some of the rights of a company's stockholders. Section 228 is also referred to as the "Action by written consents of the stockholders or members,” or the “Consent of stockholders or members in lieu of meeting.”

Section 228 rules that unless otherwise described in a company's certificate of incorporation, shareholders have the right to proceed with any action that would typically be done at a meeting of shareholders, but are not required to have a meeting, give prior notice or hold a vote.

Requirements to Take Action by Consent

According to Section 228, taking action by written consent requires the following actions:

  • The board must not have the minimum number of votes necessary to permit the same action if it were taken at a meeting.
  • The consent must be signed by the holders of outstanding stock.
  • The signed consent must be delivered to the company, either by hand or by certified registered mail, with a return receipt requested.

In addition to the above requirements, every written consent must contain the date of signature for each stockholder or member who signs the document. A consent must also be delivered to the corporation's registered address, principal place of business, or to an agent of the corporation who has custody of the book used to record meetings of shareholders. In addition, the consent cannot be made effective to take action within 60 days of the earliest-dated consent that has been properly delivered to the company. A consent is typically revocable if done prior to its effective date unless the document specifically states otherwise.

Practical Implications for Corporations

Corporations using Section 228 DGCL should be mindful of timing and recordkeeping. Once the requisite consents are received, the corporation must promptly notify non-consenting stockholders of the action taken, unless notice is not otherwise required by the DGCL. This ensures transparency and helps avoid disputes. Failure to follow delivery and notice rules could lead to challenges regarding the validity of the corporate action.

Who is Authorized to Submit a Consent?

In addition to following other requirements, the consent must be submitted by one of the following authorized individuals:

  • Stockholder
  • Member or proxy holder
  • Person or persons authorized to act for a stockholder, member, or proxy holder

Electronic Submission of a Consent

The regulations also apply to consents that are submitted through a form of electronic transmission. It is permitted to submit a copy, a facsimile, or another type of trustworthy replica of a consent. This duplication may be substituted or used in place of the original document. The date on which the consent is sent through electronic submission will be considered the date the authorized person signed the consent. However, the consent is not considered to be delivered until it has been reproduced into a paper format and delivered to the corporation. This delivery must follow the same required delivery methods as outlined for standard written consent.

Occasionally, a corporation may input bylaws that prohibit the use of written consent. This type of bylaw provision generally has no impact since Section 228 very specifically permits written consent, unless in the circumstance where it is specified differently in the certificate of incorporation. Corporations may want to input this type of provision because they recognize that the ability of shareholders to act by written consent may cause them to be vulnerable to a consent solicitation by an activist shareholder.

Record Dates and Notice Requirements

The board of directors may set a record date to determine which stockholders are entitled to act by written consent. If no date is fixed, the record date defaults to the day the first consent is delivered. Corporations must also provide prompt notice of the action taken by consent to all stockholders who did not participate, reinforcing accountability and alignment with fiduciary duties.

Amendments to Section 228 of the Delaware General Corporation Law

On July 21, 2017, the Governor of Delaware, John Carney, signed the 2017 amendments to the Delaware General Corporation Law and the Alternative Entity Statutes into law. The majority of these amendments were effective on August 1, 2017, and the others on or after that date. Some of the changes include:

  • Date for written consent no longer required
  • Recognition of "dated on" as well as "dated as of"
  • Permitted use of a single date, rather than individual

One of the amendments eliminated the requirement for written consent to be dated. This change was made to eliminate unexpected issues that arise for corporations that frequently use written consents. Although it is not a requirement for the consent to be dated, it should continue to contain a date somewhere on the document for use with recordkeeping. The updated requirements are not effective for consents signed prior to August 1, 2017, so special attention should be taken when reviewing consents. Additional details can be found in Subchapter VII of the Delaware General Corporation Law.

Recent Legislative Updates

Recent updates to the DGCL have continued to refine Section 228:

  • Record Date Clarifications (2022): Boards may set record dates more flexibly, helping corporations better manage consent solicitations.
  • Electronic Transmission Expansion: Recognized methods of electronic consent were broadened, reducing administrative friction.
  • Notice Obligations Strengthened: Clarifications emphasized that corporations must provide timely notice to non-consenting stockholders, particularly when material actions such as mergers or charter amendments are approved.

These updates reflect Delaware’s ongoing effort to balance efficiency with stockholder rights.

Frequently Asked Questions

  1. What is Section 228 DGCL?
    It is a Delaware corporate law provision allowing stockholders to take action by written consent without holding a formal meeting, unless restricted in the certificate of incorporation.
  2. Can corporations prohibit action by written consent?
    Yes. A corporation’s certificate of incorporation may expressly eliminate stockholder rights to act by written consent, requiring all actions to occur at meetings.
  3. How long are consents valid under Section 228 DGCL?
    Consents must be delivered within 60 days of the first dated consent. After that window, they expire and cannot be used to authorize action.
  4. Are electronic consents valid?
    Yes. Section 228 allows consents via electronic transmission if they can be reliably reproduced in paper form and delivered to the corporation.
  5. Do corporations need to notify non-consenting stockholders?
    Generally, yes. Unless the action itself doesn’t otherwise require notice, corporations must notify stockholders who did not consent once the action is effective.

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