Delaware Corporate Law Amendments Headed to Governor’s Desk

Amendments to Delaware corporate law that seek to overturn a landmark court decision invalidating some contracts between corporations and powerful investors are on their way to Gov. John Carney’s (D) desk.

The legislation (S.B. 313) encountered little pushback in its swift journey through the legislature. It passed the House on Thursday by a vote of 34 to 7. The Senate passed the bill June 13 with no debate or opposition.

Critics have objected to the speed with which the amendments developed after a February ruling by Delaware’s Chancery Court invalidated stockholder agreement clauses that grant founders, preferred backers, or activist investors significant authority over core managerial decisions.

Read More: Move to Change Delaware Law After Musk Attacks Called Knee-Jerk

Delaware Senate Majority Leader Bryan Townsend (D), who’s also a corporate attorney with Morris James LLP, sponsored the bill. The Corporation Law Council, the influential Delaware State Bar Association committee that drew up the amendments, said the legislative changes would restore much-needed certainty over many types of contracts.

Vice Chancellor J. Travis Laster’s Feb. 23 ruling struck down extensive veto rights in a pact between Moelis & Co. and its billionaire founder, along with sections pledging the investments bank’s support for future board nominees.

The court’s chief judge echoed sections of Laster’s opinion in a subsequent decision that could upend the way companies usually negotiate mergers and acquisitions. Neither case has been appealed yet to the Delaware Supreme Court.

Over four dozen law professors opposed the amendments, saying in a letter that the “issues at stake warrant careful judicial review, not hasty legislative action.”

Delaware is the nation’s epicenter for business incorporation, with more than 1 million businesses—nearly 70% of Fortune 500 companies—registered in the state, largely thanks to nearly a century of sophisticated legal rulings. The Chancery Court’s seven jurists are recognized as business law experts who can quickly hear corporate litigation without a jury.