The Delaware Court of Chancery frequently hears Section 225 proceedings to determine the proper composition of a corporation’s board of directors. In one such recent case, Boris v. Schaheen, C.A. No. 8160-VCN (Del. Ch. Dec. 2, 2013), the court’s decision turned primarily on whether the Delaware General Corporation Law requires a written instrument evidencing board approval to issue common stock—a question previously answered in relation to preferred stock, convertible preferred stock and stock transferred in a stock split.
An ancillary, but nonetheless interesting, issue is that impending amendments to the DGCL may have provided a means to cure what the court determined to be void issuances of void stock, which were a dispositive issue in the case. In particular, the Delaware legislature has amended the DGCL to add two new sections that will take effect April 1. Section 204 will enable directors to ratify defective corporate acts by adopting a resolution. Section 205 will allow corporations, directors or stockholders to apply to the court for certain determinations regarding the validity of the board’s ratification of defective acts, among other things. The Court of Chancery acknowledged these amendments and noted that they supported its conclusion that equity, in the absence of specific authority granted to the court, would not otherwise permit ratification of void stock issuances, even if the results are inequitable.
