What is Section 228 of the Delaware General Corporation Law?
Section 228 of the Delaware General Corporation Law details some of the rights of a company's stockholders.3 min read
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.
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:
- 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 which 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 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.
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 consents 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.
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