Update on Fee Shifting or Forum Selection Bylaws

On June 24, 2015, the Governor of Delaware signed Senate Bill No. 75, which amends the DGCL and (1) prohibits charter or bylaw provisions that would shift the company’s fees and costs of  an unsuccessful “internal corporate claim” to the stockholder prosecuting that claim, but (2) allows the certificate of incorporation or bylaws to specify that internal corporate claims be brought only in the courts of Delaware.  The text of the amendments may be accessed here.

The prohibition on fee shifting provisions was accomplished via amendments to Sections 102(f) and 109(b) of the DGCL, which provide that the certificate of incorporation or the bylaws “may not contain any provision that would impose liability on a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with an internal corporate claim, as defined in Sec. 115 of this title.”

The Bill also created a new Section 115 of the DGCL, which addresses forum selection provisions in a company’s governance documents.  That new section provides in its entirety:

The certificate of incorporation or the bylaws may require, consistent with applicable jurisdictional requirements, that any or all internal corporate claims shall be brought solely and exclusively in any or all courts in this State, and no provision of the certificate of incorporation or the bylaws may prohibit bringing such claims in the courts of this State.  “Internal corporate claims” means claims, including claims in the right of the corporation, (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which this title confers jurisdiction upon the Court of Chancery.

The Bill also contains fairly significant revisions to Section 204, which allows for the ratification of defective corporate acts and stock, and which we will highlight in an upcoming post.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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