Aug
19
2010

Delaware Revised Statutes – Part I

About two years after buying our latest family car, we had the manufacturer repair the video of the car’s DVD player.  (We once drove cross-country without this working and it was a tryyyyyyying experience; I’m not sure how my parents did it.  Of course, lots of things were different back then: not only did we not wear our seatbelts in the van, the seatbelts were stuffed down in the seat so as to not be in our way.  We often travelled with more passengers than there were seatbelts anyway, so perhaps by removing any chance at safety for all of us, my parents were tipping their hat at the principle of fairness.  Or perhaps they knew that until someone put TVs in cars, their only chance for driving sanity lay in us distracting ourselves with games, like Twister and hide-and-go-seek.  After the DVD player’s video was repaired, I couldn’t get the audio to work.  I was a little irritated and asked the manufacturer if they could fix that too; they asked if I had “performed all the trouble-shooting steps contained in the manual.”  I suddenly found myself closer to embarrassment than irritation as I responded, “what manual?”  They then sent me a manual (which I did not have because I bought the car from a person rather than a dealer and never thought to ask for one).  Armed with the manual, I learned not only how to turn on the sound, but also that, although I had been able to improvise basic operation for two years, the manual made basic operation easier and made some additional cool features possible.

Similarly, Delaware recently provided a much improved manual to nonstock corporations. Delaware is an outlier jurisdiction in that it does not have a separate statute that governs nonprofit corporations. Rather, the Delaware General Corporation Law (“DGCL“) governs all corporations; Delaware corporations that want to be exempt are organized as Delaware nonstock corporations under the DGCL.  Until recently, in many instances, there were ambiguities in the DGCL about whether and/or how a given provision (for example, some of those pertaining to stockholders) applied to nonstock corporations. To some extent, practitioners like myself had to “improvise” when it came to Delaware nonstock corporations. And, frankly, when asked to do a choice of law analysis, I always included a strike against Delaware on these grounds. Now, Delaware has amended the DGCL to provide greater clarity regarding nonstock corporations.  New Section 114 provides, for example, a listing of sections of the DGCL that do not apply to nonstock corporations and provides that in certain sections the word “stockholders” should be deemed to refer to “members”–thus eliminating many areas of ambiguity.  In the end, I still think it is easier to work with separate nonprofit corporation statutes, but Delaware has definitely improved the ease with which nonstock corporations and their advisers navigate the DGCL.

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