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The Delaware General Corporation Law (GCL) has been amended to reflect the growing use of the Internet and other electronic mediums of communication. The new legislation touches on important key issues concerning the appropriate role of electronic communication with respect to Delaware corporations. Embodied in Delaware Senate Bill 363, the new legislation was signed into law June 23 and became effective July 1. SeeAn Act to Amend Title 8 of the Delaware Code Relating to the General Corporations Law, Del. S.B. 363 � 20 (2000), available in The State of Delaware Legislative Information System, http://aosta.state.de.us/ (hereinafter S.B. 363). The bill is divided into 20 sections, with the first three addressing matters unrelated to electronic communications. See id. �� 1-3. The first three sections, respectively, touch on the following issues: (1) appropriate corporate names, (2) appropriate signatures for a certificate of incorporation, and (3) when a certificate of incorporation may define future business opportunities that fall within the corporate opportunities doctrine. The bill first addresses when corporate directors may use electronic communication as a substitute for written or telephone communication. See id. �� 4-6. It permits directors to engage in activities requiring approval at a board meeting if all of the directors consent via an electronic communication, such as an e-mail. See id. � 5, amending Del. Code Ann. tit. 8, � 141 (f) (2000). Moreover, it expands the scope of permissible board meetings beyond in-person meetings and conference calls to include other types of meetings where the directors can simply hear each other. See id. � 6, amending Del. Code Ann. tit. 8, � 141 (i). Presumably, this provision is intended to account for current and future electronic technologies that facilitate audible communications. The bill also changes the requirement that corporate directors may only resign by written notice, stating that notice by electronic transmission will suffice. See id.� 4, amending Del. Code Ann. tit. 8, � 141(b). Notably, these three amendments are merely the default “rules,” and corporations are free to amend their certificate or bylaws to modify the extent to which electronic communications may substitute for a traditional writing. SeeS.B. 363, �� 4-6, amending Del. Code Ann. tit. 8, �� 141(b), 141(f) and 141(i). The bill also authorizes shareholder meetings to be conducted by “remote communication” if expressly permitted by the corporate bylaws or certificate of incorporation. SeeS.B. 363, � 7, amending Del. Code Ann. tit. 8, � 211(a)(1). Remote communication is also permitted by board action if the certificate or bylaws either grant the directors the discretion to decide the location of shareholder meetings or are silent as to the issue. SeeS.B. 363, � 7, amending Del. Code Ann. tit. 8, � 211(a)(1). If authorized, shareholders who are not physically present at a meeting may participate via remote communication and are deemed to be “present in person” for voting and other purposes. SeeS.B. 363, � 7, amending Del. Code Ann. tit. 8, � 211(a)(2). Interestingly, the amendment permits shareholder meetings to be conducted solely in virtual locations, such as Internet “chat rooms.” SeeS.B. 363, � 7, amending Del. Code Ann. tit. 8, � 211(a)(1). To take advantage of virtual shareholder meetings and remote shareholder communications, a corporation must first implement protocols designed to ensure the integrity of its electronic communication. SeeS.B. 363, � 7, amending Del. Code Ann. tit. 8, � 211(a)(2)(B). To do this, a corporation must take three steps: First, a corporation must take “reasonable measures” to ensure that the remote communication is actually originating with a shareholder or proxyholder. SeeS.B. 363, � 7, amending Del. Code Ann. tit. 8, � 211(a)(2)(B)(i). This mandate presumably obligates a corporation to use authentication and other technologies designed to prevent fraudulent identification. Second, the corporation must use technology that allows remote shareholders a reasonable opportunity to participate in the meeting. SeeS.B. 363, � 7, amending Del. Code Ann. tit. 8, � 211(a)(2)(B) (ii). Specifically, the bill mandates that shareholders must be able to perceive each portion of the shareholder meeting almost simultaneously with its actual occurrence. SeeS.B. 363, � 7, amending Del. Code Ann. tit. 8, � 211 (a)(2)(B) (ii). Corporations may likely satisfy this requirement by taking advantage of “real-time” technology. Finally, the corporation must keep a record of all votes or actions taken via remote communication. SeeS.B. 363, � 7, amending Del. Code Ann. tit. 8, � 211 (a)(2)(B)(iii). The bill has also amended the language of the GCL to allow the use of electronic ballots for the election of directors. SeeS.B. 363, � 8, amending Del. Code Ann. tit. 8, � 211(e). Similar to virtual shareholder meetings, the corporation must be able to identify that the electronic ballot was actually authorized by the party entitled to vote. Moreover, electronic ballots may be used only when the certificate and/or bylaws permit and when the board has authorized their use. The bill also increases other election efficiencies. For example, it mandates that corporations keep their shareholder list accessible on a secure electronic network so that it may be viewed by authorized shareholders. SeeS.B. 363, � 9, amending Del. Code Ann. tit. 8, � 219(a). Directors who willfully neglect to maintain an electronic list are deemed ineligible for election at the meeting. SeeS.B. 363, � 10, amending Del. Code Ann. tit. 8, � 219(b). At the same time, the bill mandates that the notice of a shareholder meeting must contain information detailing how the shareholder may properly make use of electronic communications so that their presence is actually accounted for at the meeting. SeeS.B. 363, �� 11-13, amending Del. Code Ann. tit. 8, 222. The bill also sets forth the guidelines for ascertaining when an electronic proxy is deemed to be signed, dated, delivered and in writing. [FOOTNOTE 1]As discussed above, a corporation must take measures to determine the genuineness of an electronic communication; however, for electronic proxies, it must also take technical measures designed to reveal the date that the communication was sent. The bill states that the date an electronic communication was sent will be treated as the date on which the communication was “signed.” As to the requisite element of delivery, however, the communication must still be executed by traditional methods involving a writing, unless the board of directors resolves that electronic delivery is sufficient. The bill adds a new provision to the GCL allowing a corporation to use electronic notice when it is required to send a shareholder notice of action, such as a shareholder meeting. [FOOTNOTE 2]This is arguably the most significant of the bill’s amendments. It provides that when notice is required by the GCL, certificate of incorporation, or bylaws, electronic notice may be deemed sufficient if the authority mandating such notice permits electronic notice. SeeS.B. 363, � 19, creating Del. Code Ann. tit. 8, � 232(a). The bill also sets out detailed requirements for when electronic notice may be sent directly to a shareholder, or in the alternative, when notice may be accomplished by posting it to an electronic network (i.e., the Internet). SeeS.B. 363, � 19, creating Del. Code Ann. tit. 8, � 232(b). To avail itself of this notice provision, a corporation must first obtain consent from the shareholder that electronic notice is acceptable. SeeS.B. 363, � 19, creating Del. Code Ann. tit. 8, � 232(a). In addition, shareholder consent is deemed revoked by a written revocation of consent or under certain circumstances when a corporation sends electronic notice that is returned undeliverable on two consecutive occasions. SeeS.B. 363, � 19, creating Del. Code Ann. tit. 8, � 232(a). Moreover, a corporation is not discharged from any applicable notice duties if an electronic notice is returned as undeliverable. SeeS.B. 363, � 17, creating Del. Code Ann. tit. 8, � 230(c). Finally, shareholders can themselves waive their right to notice by using an electronic communication. SeeS.B. 363, � 16, amending Del. Code Ann. tit. 8, � 229. The Delaware Legislature was prudent in updating the GCL to conform to contemporary methods of communication. In permitting electronic communication, the GCL implicitly recognizes that varying communications media should not be the source of disparity in the law. It also recognizes that the law must keep up with technology. For example, the GCL now provides that corporate records may be maintained in any “storage devices” instead of in enumerated categories. SeeS.B. 363, � 14, amending Del. Code Ann. tit. 8, � 224. This general language is likely intended to encompass known technologies such as electromagnetic media, while accounting for future, still unknown technologies as well. The use of electronic communications in the corporate environment creates new efficiencies and the law should not limit the use of these efficiencies. Fortunately, this new Delaware legislation recognizes the necessity of having the law keep pace with technology. Michael D. Maline is an associate at Brown Raysman Millstein Felder & Steiner LLPin New York. ::::FOOTNOTES:::: FN1 SeeS.B. 363, � 15, amending Del. Code Ann. tit. 8, � 228. The bill renumbers the existing subparagraph (d) as a new subparagraph (e), while adding a new subparagraph (d). FN2 SeeS.B. 363, � 19, creating Del. Code Ann. tit. 8, � 232. The new provisions on notice do not apply to the following provisions of the GCL: (i) � 164 — failure to pay for stock; (ii) � 296 — adjudication of claims; (iii) � 311 — revocation of voluntary dissolution; (iv) � 312 — renewal, revival, extension and restoration of the certificate of incorporation; or (v) � 324 — attachment of shares. See id.� 232(e).

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