What Is Section 228 of Delaware General Corporation Law?

Corporations often need to make decisions and take official actions that require approval from their stockholders. The traditional method for securing this approval is to hold a formal meeting where stockholders can vote. This process, however, can be time-consuming and administratively burdensome.

To streamline this process, corporate law provides an alternative known as action by written consent, which enables a corporation to move more nimbly. It is particularly useful for companies with a small number of stockholders, such as startups or closely-held family businesses. By using written consents, a company can authorize important transactions or elect directors without the logistical complexities of a formal meeting.

Requirements for Action by Written Consent

Under Section 228 of the Delaware General Corporation Law (DGCL), the primary requirement for taking action by written consent is securing the necessary level of stockholder approval. The law specifies that the corporation must obtain signatures from stockholders who hold at least the minimum number of votes that would be needed to approve the action at a meeting. This threshold is a majority of the voting power of all outstanding shares eligible to vote, not a simple majority of stockholders who participate.

For example, if a corporation has 1,000,000 shares outstanding and a simple majority vote is required, the company must receive signed consents from stockholders representing at least 500,001 shares. This default rule can be altered or even prohibited if explicitly stated in the corporation’s certificate of incorporation.

Before soliciting consents, the corporation must establish a “record date” to determine which stockholders are entitled to participate. The record date is a specific date fixed by the board of directors, and only individuals who are registered stockholders on that date can execute a valid consent. This requires the corporation to maintain an accurate stockholder list, which is the definitive record for calculating whether the voting threshold has been met.

The written consent document itself must clearly state the corporate action being authorized. This could be the full text of a proposed amendment to the bylaws, a resolution to approve a merger, or the names of individuals being elected to the board. Each consent form must include a space for the stockholder’s signature and the date of that signature. Per Delaware law, consents are only valid for a 60-day period from the date the first consent is delivered to the corporation.

The Consent Solicitation and Execution Process

Once the necessary documentation is prepared, the corporation can begin soliciting consents from its stockholders. The distribution of consent forms can be handled through various methods, including traditional mail or electronic delivery. The method of delivery must ensure that the consent is properly documented and that its authenticity can be verified by the corporation.

As signed consents are returned, the corporation, often through its corporate secretary, must receive and tabulate them. This involves verifying each signature and confirming that the stockholder was a holder of record as of the established record date. This process is managed meticulously to track the cumulative voting power of the returned consents and ensure the validity of the final action.

The process concludes once consents representing the minimum number of required votes have been collected. These executed consents must be delivered to the corporation to become effective. Delivery can be made to the corporation’s principal place of business, its registered office in Delaware, or to an officer or agent who has custody of the company’s minute book. Upon successful delivery of sufficient consents, the authorized action is considered approved and the signed consents are filed with the corporation’s minutes.

Post-Consent Notification Obligations

After a corporate action has been authorized by written consent, Delaware law imposes a specific notification requirement if the approval was not unanimous. The corporation must provide “prompt notice” of the action taken to any stockholders who were entitled to vote on the matter but did not sign a consent. The content of this notice must inform the non-consenting stockholders of the specific corporate action that was authorized, such as an amendment to the company’s bylaws.

This notice must be given “promptly” after the necessary consents have been delivered to the corporation. While “promptly” is not defined as a specific number of days, it is understood to mean as soon as reasonably practicable. The delivery of this notice can be accomplished through the same channels used for other official corporate communications, such as mail or electronic transmission. This final step completes the written consent process.