Delaware Expands Upon a Board’s Authority to Issue Corporate Securities

By Elliot Weiss

It used to be that under Delaware law, only a corporate board of directors or one of its duly formed committees could authorize the creation and issuance of stock, options and rights to acquire stock. That all changed with last year’s amendments to the Delaware General Corporations Laws (DGCL).

By way of an amendment to Section 157(c) of the DGCL, boards of Delaware corporations can now delegate to officers the power and authority to allocate options and rights to purchase stock. A revision to Section 152(b) of the DGCL took this a step further—boards of Delaware corporations are now able to authorize officers to issue capital stock as well.

There are caveats to a board’s delegation of authority pursuant to these amendments. Specifically, directors must still fix:

1. The maximum number of shares of stock, rights or options to be issued and the number of underlying shares issuable upon exercise;

2. A time period during which these shares of stock, rights to purchase stock or options may be issued; and

3. A minimum amount of consideration (if any) for these shares of stock, rights to purchase stock or options and for the shares issuable upon exercise.

Of note, resolutions adopted by boards of Delaware corporations delegating these powers to officers may be dependent upon a number of outside factors, including the volume weighted average price (VWAP) for a public company issuer’s stock price. These factors must be incorporated into the adopted resolution.

As a practical matter, the amendments to Sections 157 and 152 may, among other things, streamline the hiring process of Delaware corporations with respect to the negotiation of compensation packages for prospective employees, assuming, of course, that the board in question has taken appropriate steps to duly authorize the delegation of corporate activities to its officers.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.