Delaware has recently amended its General Corporation Law to address concerns that have arisen due to the coronavirus crisis. These amendments, among other things, will make it easier for companies to respond to emergencies like the coronavirus outbreak, and make it easier to convene shareholder meetings or meetings of a board of directors when external circumstances make in-person meetings problematic. These changes are intended to address problems many companies, including many who operate in New York, have struggled to handle due to existing rules.
The coronavirus, also known as COVID-19, is the greatest public health crisis the United States has faced in a century, and the impact has been felt across the country. While the priority has been on protecting public health, the economy has suffered immensely due to the coronavirus, resulting in many businesses closing, or limiting their operations, and millions of employees being fired or furloughed. And unfortunately, even businesses that were able to stay open found themselves having difficulty responding to this emergency.
The first of these measures addresses the issue that there was no explicit provision in the General Corporation Law allowing a board of directors to convene to alter their company’s bylaws in response to the pandemic. While an executive order by the governor covered this issue on a temporary basis, the newly amended law will allow businesses to convene their boards during an epidemic, pandemic, or other similar scenario going forward. This means businesses will not need to wait for executive action to take emergency steps to protect themselves during an epidemic or pandemic, or another similar emergency.
An additional measure that was passed affects how shareholder meetings are conducted. The new amendment will make it easier for corporations to postpone shareholder meetings, as well as change the location or format of a meeting, as appropriate. This is meant to address the issue that many shareholder meetings were typically conducted in person, or conducted using designated proxies, without provisions for conducting these meetings remotely. Now, it will be easier to conduct remote meetings, or to change the venue of a meeting if it is not safe for circumstances like those posed by the coronavirus.
Finally, an amendment was passed that will affect how dividends are recorded and distributed. In effect, the new law will allow a corporation to change the date of a scheduled dividend that has not yet passed, with only a filing to the Securities and Exchange Commission acting as notice, provided that the change is in response to an emergency situation. However, the effective date of the dividend must be distributed within 60 days of the originally scheduled date. This measure is intended to help companies deal with emergency financial issues that can arise during a pandemic, by allowing them to postpone the financial strain caused by a dividend payout.
Some may wonder why it is important what Delaware does with respect to its corporate governance laws. The answer has to do with the fact that there are more corporations in Delaware than any other state, due to certain laws and regulations that have given Delaware a reputation for being friendly to businesses. Thus, even in New York and other states, developments in Delaware are highly relevant, as every state has a significant number of corporations operating within its borders that are incorporated in Delaware.
However, incorporating in Delaware may not necessarily be to every company’s benefit. The legal and financial implications, including potential increased tax liabilities, should be taken into consideration before choosing where to incorporate your business. Therefore, if you are looking into starting a corporation or are thinking about restructuring your business, you need to consult with a business law attorney knowledgeable in business organizations.
The business law attorneys at Blodnick, Fazio & Clark are skilled and knowledgeable in the areas of business law and commercial transactions. With offices conveniently located in Garden City, Nassau County, and Babylon, Suffolk County, the firm provides high-quality legal care at reasonable prices. If you require legal assistance concerning business startups, formation, corporate acquisitions and mergers, corporate restructuring, or another business matter, call (516) 280-7105 or fill out our contact form for a free consultation.