Understanding Delaware General Corporation Law and Its Impact

Delaware General Corporation Law is the backbone of corporate governance in the United States, with over 50% of publicly traded companies incorporated in the state.

It's a complex framework that governs the formation, operation, and dissolution of corporations, providing a clear and predictable set of rules for businesses to follow.

The law is designed to be business-friendly, with a focus on facilitating mergers and acquisitions, raising capital, and providing a flexible framework for corporate governance.

Delaware's corporate law is administered by the Delaware Court of Chancery, which has developed a reputation for being highly knowledgeable and effective in resolving complex corporate disputes.

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The Delaware General Corporation Law (DGCL) has undergone significant changes, particularly in the area of stockholder rights. The amendments to Section 220 of the DGCL have limited the specific materials that a stockholder may demand to inspect.

In general, a stockholder will only be entitled to inspect and copy books and records if their demand is in good faith and for a proper purpose. The demand must also describe with reasonable particularity the stockholder's purpose and the books and records sought for inspection.

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The amendments impose stricter procedural requirements, which may make it easier for some corporations to argue that a stockholder request is not narrowly tailored or does not meet the heightened standard. To be eligible for inspection, a stockholder's demand must meet all three of the following criteria:

Additionally, the corporation may impose reasonable restrictions on the confidentiality, use, or distribution of books and records. This can include requiring the stockholder to agree that any information included in the corporation's books and records is deemed incorporated by reference in any complaint filed by the stockholder.

Delaware acquired its status as a corporate haven in the early 20th century.

Following the example of New Jersey, which enacted corporate-friendly laws at the end of the 19th century, Delaware adopted a general incorporation act on March 10, 1899, aimed at attracting more businesses.

Before the rise of general incorporation acts, forming a corporation required a special act of the state legislature.

General incorporation allowed anyone to form a corporation by simply raising money and filing articles of incorporation with the state's Secretary of State.

The group that pushed for this legislation intended to establish a corporation that would sell services to other businesses incorporating in Delaware.

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Delaware has a more well-developed body of case law than other states, thanks to the extensive experience of its courts, providing corporations and their counsel with greater guidance on corporate governance and transaction liability issues.

The Delaware Court of Chancery is a separate court of equity that hears disputes over internal affairs of corporations, with no juries and cases heard by judges called chancellors.

Since 2018, the court has consisted of one chancellor and six vice-chancellors, with one chancellor hearing each case.

Litigants can appeal final decisions of the Court of Chancery to the Delaware Supreme Court.

Delaware has attracted major credit card banks due to its relaxed rules regarding interest, which are more lenient than those found in many other U.S. states.

National banks can "import" these laws from the state in which their principal office is located, which is why several national banks have chosen to locate their principal office in Delaware.

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However, it's worth noting that national banks are formed under federal law, not Delaware law, so they are subject to federal restrictions in addition to state laws.

Delaware corporations are subject almost exclusively to Delaware law, even when they do business in other states, thanks to the "internal affairs doctrine".

This means that Delaware corporations don't have to comply with the laws of other states regarding their internal affairs, as long as they are incorporated in Delaware.

Delaware laws also don't require for-profit corporations to have at least one director and two officers, unlike most other states, which can make it easier to set up and run a corporation.

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