2009 Updates To Delaware General Corporation Law - Part 2: Elimination Of 'Empty Voting'

By an amendment effective August 1, 2009 to section 213(a) of

its General Corporation Law, Delaware has provided a way for

corporate boards to avoid a problem sometimes referred to as

"empty voting." The purpose of the change is to better

align shareholders' voting rights with their actual economic

interests.

Under the old statute, the record date for (a) notice of a

shareholder meeting and (b) entitlement to vote at that shareholder

meeting are one and the same, and must be no more than 60 days and

no fewer than 10 days prior to the shareholder meeting. However, in

some circumstances, such as following the announcement of a public

company merger requiring shareholder approval, a long period

between the record date and the meeting date may result in a

significant proportion of shareholders of record selling their

stock to capture the gain of the merger. Those sellers thus have no

economic interest in the corporation at the time of the vote. This

can make majority and supermajority voting requirements difficult

for the merging corporation to achieve.

As amended, section 213(a) allows the board to fix a separate

and subsequent "voting record date" for determining

voting eligibility. There is no statutory limit on how late the

voting record date can be, so that, at least theoretically, the

board could set the record date for voting as late as the day of

the meeting. (As a practical matter, companies will not be able to

have such a late record date because of the need to ensure that

proxies are distributed and votes can be tabulated in a timely

fashion.) Setting the record date for voting much closer to the

meeting increases the likelihood that the shareholder of...