Help Me With Sign Delaware Banking Document

Industry sign banking delaware contract safe

good morning good afternoon or good evening depending on where you may be listening to this webinar today we will present to you delaware's business entity laws and our instructor today will be tamara kling tamara has been a government relations and regional attorney for with ct for over 10 years she works with state bar associations and government offices to implement changes in the business entity laws tamara lectures on topics related to business entity operations and filings along with other ct attorneys ms kling is responsible for maintaining a national database of business entity filing requirements tamra is licensed to practice in law in illinois and she received her ba in political science from loyola university of chicago and her jd from chicago kent college of law and right now i'd like to introduce to you tamara cling thank you victor well i'm going to go on you have seen the information on housekeeping and we're going to start the webinar today as victor mentioned i have been with ct for quite a while and i've talked on various business entity and law topics today we're going to talk about delaware business entity laws this webinar has also been referred to as why delaware we all know that a lot of corporations and llcs are headquartered or they're domiciled in delaware even though they may have no real connection to the state and today we're going to talk about all the reasons that businesses like to form in delaware and then we're also going to talk about delaware's a little bit more in depth about some of their corporation and llc laws so today is this is the overview why do companies want to form in delaware we'll look at the business entity laws we'll also try to get to the alternative entities i don't know if we will there's a lot of material here so you will be able to get all the information on it and i will try to cover as much as possible you can also ask questions what we do is we aggregate put all the questions together and then as part of our thank you package to you you will see all the questions people have asked and our answers so that can be a helpful learning tool as well so why is delaware the leading formation state this is a picture of chicago i live in chicago perhaps that's why victor put it here i was expecting a picture of delaware all right well this just gives you an idea of how new entities have been formed over the years and as you can see with the exception of 09 everything has just been increasing and here we are we've got the 2018 numbers the 2019 are not quite yet available but we'll have them another interesting thing that you can see is that the formation of llcs has outpaced the formation of corporations even as far back as 2008 so there were 160 000 llc's formed and only about 45 600 corporations so that's just something to keep in mind as we discuss things oh i'm sorry i thought that was there okay so here we have just an idea of what the delaware corporation and alternative entities are on file that's kind of interesting too and it just shows you what's going on in delaware and as you can see there wasn't even a dip in 09 it was just flat and then by 2010 things started to increase again and delaware corporations and entities are also just a good barometer of what's happening in the economy overall so we are at polling question number one oh thank you pamera posing question number one and please enter these for cle credit um answer in the pop-up box that comes up on your screen not in the q a box that's for questions about the webinar itself but here we are with polling question number one where do you form the majority of your entities is it number one delaware is it two the state where i practice or three elsewhere and again this is for cle credit these need to be answered um and answering the pop-up box that just came up on your screen not the q a box and we have polling question one where do you form the majority of your entities is it number one delaware is it number two the state where i practice or perhaps three and one last time just to make sure everybody gets uh time to answer the question where do you form a majority of your entities number one delaware number two the state where i practice and number three elsewhere all right i think everybody had a good chance here to react to the poll and i'm going to send the results to you tamara and you'll see that we have uh 62 percent of the people have actually formed the majority of their entities okay well you are here for a very good reason and if you form in the state where you practice that can make a lot of sense too especially if you have a smaller business if you have a smaller business it's hard to tell your client well we're going to form you as a delaware llc and then oh yeah you're going to have to qualify and pay to do business in the state where you live and work so that can be a hard sell sometimes and then elsewhere i'm thinking that's probably nevada so why do so many businesses form in delaware i'll go into all of this in a little bit more detail but the delaware business entity statutes are are helpful they're well-worn they're well-written they're available and they're they send they tend to promote corporate and business welfare the court system is excellent and the court system has generated a large body of case law and then also in the practical matter there's a division of corporations that does all the business entity filings so there's a lot of words that practitioners and other people have used to describe the delaware statute they look at them as very modern they're updated almost annually they tend to be flexible with the llc they understand that it's a pick your partner entity and they try to accommodate that they tend to be non-restrictive especially you'll see that with the llc's efficient and predictable and all of these things make them attractive to practitioners the guiding principles of the business entity law want to allow management to act quickly they respect the freedom to contract especially with llcs there's a strong bias against regulation these are not regulatory statutes the llc and the corporation requirements are generally what you need to get a business on the record and we're going to go in more in depth about shareholders derivative suits directors and officers that are liability things of that nature it is covered it's not a complete free-for-all and the laws are adaptable to new developments both in the law in business and in technology so there can be a lot of reasons for the delaware legislature to seek to make updates there can be changes in the business environment there can be new lending practices there can be other types of insurance that become available technology all kinds of changes for instance it's been a long time since directors were required to vote in person they can do that through technology and why shouldn't they be able to do that the process is that the annual amendments to the delaware code are drafted by the delaware bar association's corporation law council now they seek input from around the country from professors managers people who are very well versed in business entity law investors people of all stripes they also receive requests from the secretary of state they see what's going on and the secretary of state often has good ideas as well it's then enacted like by the legislature like any other act i don't want you to think it's a complete rubber stamp though the delaware legislature also takes these things seriously and they debate and look into it and take comment as well so here's one of the cases that i think you'll find interesting it's an example of the state legislature reacting to a court decision and in this case it was called atp tour versus the deutsche tennis fund and the issue was is a bylaw adopted by the board which shifted attorney fees to unsuccessful plaintiffs in intra-corporate litigation ballot so in other words loser pays especially if it's the plaintiff and it's it's to chill it's to chill litigation um and the delaware supreme court held yes it's valid there is no provision in the corporate code or any other delaware law that would prohibit it it's enforceable and they said that the intention may be to deter challenges to their corporate actions as that that is not an improper purpose so given the law as it stood it was okay but this led to an amendment the delaware legislature made changes which prohibited a bylaw or any kind of a charter provision from imposing on a stockholder for attorney fees or expenses of the corporation or any other party in connection with an internal corporate claim so they did not want to discourage corporate claims to a large degree this is just a picture of the delaware court system this actually comes from the delaware website they were they referred to the supreme court of delaware as the court of last resort as you'll notice with the court of chancery that's where most business law cases go it's an equitable and a law court so the court of chancery is the court that hears most cases revolving around delaware business law so there's three ways to get to chancery court you can have an equitable claim you can be seeking an equitable remedy or you can have a statute that provides jurisdiction and all of the business entity statutes do confer jurisdiction on the chancery court the chancery court judges are picked carefully they have a lot of knowledge and they're very highly regarded in the business law world so this is a case to kind of underscores how badly litigation litigants want to be in the chancery court in this case the plaintiff had lost money entrusted to bernie madoff and they filed a suit in the chancery court they wanted an equitable apportionment of the defense costs between the bond underwriters and the director and officer insurer so this was they were thinking apportionment of costs between basically insurance companies all the litigants plaintiff and defendant wanted the case heard by the chancery court but the chancery court looked at this case and raised their own subject matter jurisdiction and they said they did not have jurisdiction they lacked jurisdiction because what they essentially said was this is really just a contract matter um they're claiming that the defendants didn't fulfill their obligations under those insurance comp insurance policies which are contracts so this is a breach of contract it's an action for damages and it does not belong in the court of chance or there's really nothing equitable about it there's also something called the forum selective clause selection clause and it authorizes forum selection provisions and a corporation certificate of incorporation or bylaws so when you're forming a corporation you may want to have all internal claims be brought before the delaware chancery court maybe you have stockholders who live in other states or or there may be other ways of doing that so it prohibits any provision in the certificate of incorporation that prohibits bringing an internal corporate claim in delaware for some reason maybe people want to stay out of delaware and the internal claim is defined as a claim including a shareholder's derivative action that's based on a violation of the duty by a director or officer as to which the general corporation law confers jurisdiction upon the chancery court addition to that there's a lot of reasons businesses like it the supreme court has great expertise they hear cases fairly quickly and they're thorough if you ever see some of their decisions they can be 40 50 or 60 pages long so there's a lot of information they give not only in their analysis of the case and the law but sometimes they're stick to as well that can be helpful and they tend to be flexible and they really do try to be consistent and that goes back to the jurists on the court being very dedicated and knowledgeable delaware this court has generated a lot of case law the largest body of corporate case law in the country almost every section of the code has been interpreted at some point and there's a lot of precedent there's a lot of case law on things like director and office or liability shareholder derivative suits anti-trust takeover defenses merger fairness fiduciary duties so there is a whole lot there and over time the llc case law has developed as well so there are a lot of llc cases for a while that was one of the reasons some practitioners were reluctant to form llc's but the truth is there's a lot of guidance from the court then lastly we have the division of corporation that's part of the secretary of state's office they process all the business entity filings they are the official maintainer of records and as far as delaware what the most important thing for the state is they assess and collect franchise taxes now delaware does not have sales tax they are modern they are technologically advanced filings can be completed in as quickly as half an hour and this also generates a big chunk of the state's revenue so that's one of the reasons that this is so important to the state they do understand the needs of the community of users so they meet with some of the large law firms and the service companies such as ct so they understand that our role is to make their business easier this just gives you an idea of they allow expedited service and cut off times so as you can see there's some pretty generous things such as you know one hour service for a thousand dollars now that's pretty expensive but if you have a large closing if you're you're selling a huge commercial building you don't want the closing to be held up you may be able to avail yourself to this so this can be very important the state forms aren't mandatory you can create whatever you want only one doc one document copy copy is required and if you make an error there are some articles of correction that can be filed if the document was inaccurate that there's a defective execution and the effective date is the same as the document originally filed and what people can say that they relied on your inaccurate filing to their detriment and you can have a delayed effective date um 90 days for corporations 100 days 180 days for different entity types so this gives you all kind of time that if you do not wish to pay for expedited filing and you want a certain filing time then this is what i would recommend documents of course have to be signed signatures are easy that can be conformed electronic or facsimile generally a corporation document can be signed by any officer and an llc can be signed by an authorized person so the person signing the document does not have to be a member or manager and then with some of the other partnership agreements you can see what the requirements are document ordering that's very important what if you need a certificate of good standing well they have long form and short form maybe you need to get a loan and the loan officer needs to make sure that this corporation is in good standing in their home state that makes sense you can also have certified copies if a merger has taken place and there's also expedited and standard service for that too so maybe you need something maybe you have a back to a closing and one of the parties needs to show that they are in good standing in their home state you would do an expedited document ordering if necessary so now we are at the second polling question thank you very much tamara pulling question number two it sort of addresses what tanner has been speaking about which hector do you believe is most responsible for delaware's popularity as a formation state and your choices are number one it's business entity statutes number two its court system number three its extensive case law precedent number four it's filing office or number five all of the above and again please answer in the pop-up box that comes up on your screen these are for cle credit do not answer in the q a box but in the pop-up box that came up and we'll do it again polling question number two which factor do you believe is the most responsible for delaware's popularity as a formation state is it number one it's business entity statutes number two its court system number three it's extensive case law precedent number four it's filing office or number five all of the a ove and one last time just to make sure everybody has time here because uh don't run to miss anybody for ca credit which factor you believe is the most responsible for delaware's popularity as a formation state one it's business entity statutes two it's court system three it's extensive case law precedent four it's filing office and number five all of the above and i'm going to close the poll and i'm going to push the results to you tamara and i think you'll see that uh everyone go well the vast majority got this pretty much all right that uh it's really all of the above i think you're right um or you could just call it the delaware mystique clients are also familiar with it or at least they know delaware's an important state so that's part of it as well all right so no surprise there so we're going to take a look at delaware corporate law just briefly um it was in night it was an 1899 law but in 2013 new jersey passed some anti-trust laws and a lot of businesses took their business to delaware they went across the river publicly traded delaware corps are subject to the federal securities law traditionally federal law didn't govern the internal operations of corporations but with history sarmayne's oxley dodd-frank and there have been other federal regulatory bodies or governing of the internal affairs of corporations so there's several things to look at formation stockholders delaware tends to define things or use different terms usually you'll hear shareholder and delaware they're called stockholders it's the same thing so we're going to go into delaware corporate law there's several steps when you're forming a corporation you have to prepare and file a certificate of incorporation you need to protect the name clients don't understand sometimes that if the name isn't available they don't understand why their own name may not be available so this is a practical tip if they're looking into signage and all kinds of things make sure the name is available first before they take it too far they have to hold an organizational meeting elect directors adopt bylaws and issuance of stock this is kind of an interesting case uh buchi versus salzburg and here we have kind of the limits on the certificate of incorporation clauses corporations have had form selection clauses purporting to require any claim under the securities act of 1933 has to be brought in federal court now that makes sense to me if the federal ask you would go to federal court um but the clause was invalid and ineffective as it sought to bind the plaintiff to a particular forum or the claim does not involve the rights or relationships that were established by or under delaware corporation law so the delaware chancery court awarded a fee of three million dollars to the attorneys of the shareholder plaintiff who successfully challenged the securities act of 1933 to be brought in federal court the plaintiff achieved a significant result in the attorney's developed and advanced and nuanced public policy argument and so this has been kind of a complicated area and it's a very recent case if you would like to read it it gives you a lot of insight not into this just specific issue but how the court analyzes things incorporation fees you have to pay these different fees reduced or lower fees is not the reason corporations incorporate in delaware there are certain fees and here has the filing fee table based on whether you have stock without par value or par value stock also you have to have meetings for the stockholders they have to have their annual meeting special meetings can be held by the board or any authorized person and meetings can be held by means of remote communication this is particularly important to smaller businesses who don't want to have to meet in person can save a lot of money action can also be taken by consent without having a meeting a notice or a vote the voting requirements can be the same as you would have for a meeting you can also deny this in the certificate of incorporation maybe you want to have some kind of debate or discussion you don't want everyone just signing a form but the election of directors requires unanimous consent so what this means is if you are going to have action taken by consent just by signing forms or agreeing it does not require a majority generally unless it's related to directors so that that kind of gives you a little insight into the popularity and why delaware is so liked the default provision is that each share has a vote but also you can have classes or series of shares that have greater lesser no voting rights you can have stock that votes double you know you can have stock that's preferred stock that's paid more there's a whole lot of things that you can do especially if you have preferred stockholders or certain investors cumulative voting can be authorized what that means is that if you have 100 shares and there are several voters you can several directors you can accumulate your votes to vote that way most voting in a publicly traded company would be done by proxy i don't know if you've ever owned shares in a public company but you used to get that big package in the mail and that you could read it and decide how you wanted to vote to whom do you want to give your proxy vote and some people find that very interesting and get quite involved dividends that's important they're payable only if declared by the board and the board is never required to pay a dividend it can reinvest it if you are going to pay a dividend there are certain accounting procedures and according to the delaware code they have to be paid out of what's called surplus or net profit stockholder approval is never needed for a dividend distribution also stockholders have the right to inspect books and records they have to make a written demand and they have to show that there's some kind of proper purpose you can't just get stuck you can't just get a list of shareholders to send out advertising or some other reason unrelated to the corporation and the burden of proof for the proper purpose if you're looking to have the stockholder list then the corporation has to show that the stockholder has does not have a proper purpose with other records the burden shifts to the stockholder and they have the primary responsibility of saying that they have a proper purpose so this is a case called weingarten versus monster worldwide and in this case you have a plaintiff that demanded a corporate on the corporation that it had the right to inspect its records the plaintiff was the stockholder at the time but the corporation refused the demands they've had their reasons the corporation was subsequently acquired and the plaintiff was no longer a stockholder when they filed the action so the court was presented with the issue of first impression does a plaintiff seeking to inspect corporate records do they have to be a stockholder at the time the plaintiff filed the complaint remember the corporation changed hands and the court said the plaintiff has to demonstrate that they have complied with the requirements for inspection and part of that is that you have to be a stockholder the legislation they said was very clear only stockholders at the time of the filing have standing to invoke support in invoked the court's assistance so no they did not have a case another thing that comes up quite a bit is shareholder derivative suits and for that contemporaneous ownership is required according to the procedural rules and derivative suits are governed by the chancery court rule and by case law the demand even has to be excused if futile and the plaintiff has to have adequate representative the plaintiff must be an adequate representative of the other parties that they are claiming are seeking to have their issues addressed under the derivative suit so demand can be excused um demand is excused when the facts allege the board's decision is not entitled to the production of the business judgment rule now the business judgment rule we hear that a lot it's derived from case law and it presumes in making a decision the directors acted in an informed basis in good faith with an honest belief that their action taken was in the best interest of the corporation you can only rebut that the directors breach that fiduciary duty by doing it by saying they've reached their duty of good faith loyalty or due care so the purpose of the demand requirement gives the corporation the ability to rectify or change something prior to litigation the theory is that we want the shareholders to make a demand on the board to tell them what they should do and give the directors the opportunity to say well maybe we should maybe that's we're going in the wrong direction the board of directors manages the business affairs of the company you can have one or more the default or the general rule is the term is one year unless staggered and a director can be removed either by a majority vote of the stockholder not a super majority just a more majority and it can be removed by the chancery court so if the shareholders take the corporation to court and say this director is reached his fiduciary duties or he's somehow incompetent then that chancery court can elect to choose to get rid of one of your directors directors are elected by a plurality of the votes the stockholders again vote for the director um the director at the most votes is elected without regard to votes withheld or not cast or who or voted against and that's because there's and it could be twenty thousand stockholders and maybe only a small percentage vote for the directors or they can have what's called a plurality plus you have to adopt that by law and that requires the director receiving less than a majority of votes has to resign and it may then give the board the discretion to reject the resignation then directors have fiduciary duties and this is defined by case law not the corporate law and they owe a duty of loyalty they cannot be on two sides of the same transaction they are not allowed to compete with the corporation and then we have to look at the corporate opportunity doctrine now this doctrine says that the director officer and or controlling shareholders can't take a business opportunity that could benefit the corporation and it's really what we consider it to be an application of the fiduciary duty of loyalty so they also owe a duty of care and the actions again as i just mentioned are protected by the business judgment rule this is kind of an interesting case too called marshawn versus barnhill and it involved the director's hair mark's duty of oversight and i'll go into that a little bit caremark was a case that was decided in 1996 in delaware it was a derivative suit and the delaware court said the corporation had the authority to establish and had the duty to establish an oversight process but it also had the duty to monitor that just setting up an oversight process wasn't enough and they said in this case um the board in tiermark failed to establish oversight procedures for you can hear the air quotes here mission critical functions and if they did not do that or fail to follow through then they can be held liable for breach of share marks duties so that's that's what the care mark duties are now in this case there was an ice cream company that had a listeria outbreak they had to recall the product they shut down and there was stock dilution so it was very harmful to this company a stockholder however filed a derivative suit and it claimed that the directors ignored a lot of red flags so there was a violation of care marks but the trial court dismissed this complaint and the delaware supreme court reversed it held that dismissing the stockholder care mark claim was improper he had fleeted facts supporting a fair inference that no reasonable compliance system and protocols were established the board of directors left any kind of effort resulted in not receiving official newness notices from food safety and they really took they really failed to take a remedial action and expose the consumers to a lot of harm so listeria is serious and any kind of food company should be prepared for that and in this case they did not make their care mark duty and then the court went in to say there's a lot of evidence the board's failures and here are some of them um no board there was no board committee that addressed food safety that's important you should with a food company you should probably have a committee that's devoted to food safety there weren't any kind of processes or protocols that required management to keep the board of praise the food safety issues no schedule for the board to consider quarterly or any kind of food safety so as you you can hear the word food safety comes up a lot and depending on the corporation and the business they're in that care mic duty might be looked at differently and you can read i don't want to read everything to you but the board meetings are devoid of any suggestion that there was any regular discussion of food safety issues so food safety is mission critical to an ice cream company and they fail to meet that duty officers it's another thing that will something you need to know about delaware corporate law the titles and duties are stated in the bylaws or by resolution any number of offices can be held by the same person especially if you have a smaller company the chosen is bylaws or determined by the board and officers it's important to remember oh the same fiduciary duty as directors and that was reiterated in a case in delaware in 2009 so in case there's any doubt officers have the same fiduciary duties as directors the corporate charter can't limit or eliminate personal liability for breach of duty so that's something to consider and then there's indemnification and advancement i'll talk about this a little bit we want good people to serve as officers and directors and in order to do that they don't want to be taking too many risks so they want to know that they will be protective according to the delaware code there's permissive indemnification that pays expenses settlement agreements but in order to avail themselves to the permissive identification indemnification the party needed to have acted in good faith and in the corporation's best interest indemnification isn't permitted in a derivative suit if that director the corporate defendant is unliable some corporations just take these provisions and make them mandatory something to think about with the payment of expenses attorney's fees you want to make sure that if you're drafting some kind of agreement for your directors that and they will probably insist that they have advancement of fees lawsuits can take a long time and they can be expensive so you want to know that the directors will be able to actually defend themselves they won't have to be waiting for a settlement or for a court decision in the statute they tell us what kind of amendments can be made to a corporate charter name purpose stockholders rights dividends all of these things in addition to that if there's anything specific to your corporation or your industry you can make changes there as well so this is just the procedure i'm not going to spend too much time on amendments a restated certificate of incorporation let's say you have a lot of amendments and you want to have one document this will reduce your certification costs it's called sometimes called a bring down document one thing that's relatively new is the ratification of defective acts and that allows the board of directors to adopt a resolution to ratify some kind of technically defective act or something did not go the way you thought it would then we talk a lot about mergers you know corporations are free to merge with other business entity types i i won't read all of that to you but we've talked about delaware law being liberal and this is the one of the ways that it is there's also consolidations the delaware code does not authorize share exchanges if you've taken any of our courses on mergers it's called the reverse triangular merger that would affect the share exchange foreign companies can domesticate to delaware especially if they want to do business in the united states talk a little bit about merger you know the board adopts a res lution they decide they want to have a merger the shareholders vote there's also short form merger different types of merger you'll be able to see that in your notes conversion is important this is relatively new where a business entity can change what type of it is a business it is and it can move to another state this is a huge change though all the outstanding stock has to vote if the outstanding stock vote file a certificate of conversion with the secretary of state if they're going to become a new entity such as you're converting a llc to a corporation then you would need articles in incorporation and other delaware or foreign entities can convert to delaware the approval of the other entity has to look you have to look to their governing document and in order to do this you file a certificate of conversion and if you're moving to delaware a certificate of incorporation so we are now at polling question number three all right thank you so much tamara we're at polling question number three and again this is for cle credit i need to answer these in order to get your certificate and polling question number three is in your practice you often convert entities that is do you so to speak and your choices are number one frequently number two rarely and number three never and again please answer in the pop-up box that came up on your screen for this c cla polling question polling question number three in your practice you often convert entities one frequently too rarely are three never all right tamara's sort of speaking about this and polling question number three i'll read one last time just to make sure everybody gets a chance to answer and it's a quick one number three in your practice you often convert entities number one frequently number two rarely or number three never all right i'm going to close the poll i believe everybody's answered and i'm going to push the results to you tamara and you'll see that we have um rarely about 60 never about 30 percent and frequently 10. that's interesting i want to clarify my language traditionally uh con conversions i guess traditionally is in the eye of the beholder but originally with conversions if you move from state to state it was called a conversion if you change your entity type it was a conversion now a lot of statutes are a lot of states are saying that if you move to another state they're calling it domestication so conversion and domestication i don't want to confuse the two but the the rules are that you can move either from state to state change your entity type or both so that's just something i want people to be aware of and if you're changing entity type from state to state you know for instance you have a kansas lp that wants to become an ohio llc you have to check the kansas lp statute making sure it can convert to that type of entity type in another state and then you would have to check the ohio llc statute to make sure that is allowed as well so just just to be clear you have to check the laws of both states and for each entity type that's involved well at some point your corporation maybe you don't want to do business anymore you want to dissolve that has to be approved of by the board of directors and a majority of the stockholders again this can be by unanimous written consent you maybe don't want to gather all the stockholders for a meeting to dissolve if the business hasn't even begun yet then the incorporators or the initial director can do this after it's been approved you have to file a certificate of the solution and you have to pay all your franchise taxes that you owe the state before you are allowed so the secretary of state would require any annual franchise tax report that's due or will be due soon to be filed before the corporation can officially dissolve also delaware allows you to revoke the dissolution within a period of three years so maybe you decide that the corporation has merit or you wish to do things or continue doing business within that three-year period you can revoke the dissolution you don't have to reform so that gives you the relation back you are considered to have been in a corporation the entire time since the period of incorporation not just the you don't have to start over if you're under that three year period if you go past the three years then you have to incorporate a new corporation public benefit corporations these are kind of interesting it's defined as a for-profit corporation it's organized on the delaware corporate code and it's intended to provide some kind of benefit to the public maybe operating in a responsible sustainable business manner you can think of a lot of things that are environmental charity charitable things that just are meant to help the public so the purpose of the public benefit is that it's managed in a way that balances stockholders interests and in the best interest of the stakeholders anyone who would be interior material affected by the corporation's conduct in the certificate of incorporation you have to identify that it is a public benefit entity and if you already have an existing delaware corporation it can become a public and public benefit corporation if it amends its certificate of incorporation it can also merge into a public benefit corporation and that must be approved by two-thirds of the outstanding shares of each class of stock obviously you require some kind of a super majority approval because it is such a huge change they also have to provide notice to the stockholders regarding their efforts to achieve that public benefit that they were formed and no appraisal rights are available if a public if it's publicly held so there's some examples i have for you there's method that's a company that produces environmentally friendly cleaning products it's sold at target there is kickstarter plum organics a baby food patagonia that's a an older company that's been around for a long time athleta is kind of interesting they formed in 1998 they were ultimately become part of gap brands and they became an official b corp or public benefit corporation in 2019 so public benefit corporations are still they are growing another thing sometimes i get questions people don't understand the difference between a public benefit corporation you know why would i want to have a public benefit corporation when i could have a non-profit entity and the biggest difference is a public benefit company can profit you can make profits for the company um but they're just allowed to make different choices based on what their what they see themselves doing for the public so they can take into account not just profit but stakeholder liability reputation environmental considerations who they hire so there's a lot that goes into a public benefit corporation and it gives them a lot of latitude now a non-profit corporation of course can take donations but a public benefit corporation they don't accept donation but they can probably sell you stock so that might encourage investment so there's a lot of interest in that so i'm going to take a look now at the delaware limited liability company act um it's been effective since october of 1992. the first llc act was enacted earlier in wyoming but delaware is the leading llc state as well kind of interesting it is based on the limited partnership act not the corporation code it's full of mainly default provisions so what that means is you have to be very pro you have to be very familiar with the default provisions because if you don't mention them in the operating agreement which is what guides the llc then the default provisions will prevail if you are taken into chancery court the policy of the act is clear they want to give the maximum effect to the principle of the freedom to contract and the enforceability of the llc agreement itself now delaware again changes the language a little bit llc agreement and other states you may hear it called the operating agreement same thing here it's just given a different name they're very easy to form file a certificate of formation there are limited requirements and there's a 90 fee to file they can be easily amended as well you might want to change the name of the entity you might want to change various things that you had on that initial formation document so if you want to change you can obviously they are allowed to carry out any lawful business purpose or activity um they may be for profit or non-profit now most states it's pretty rare to find a non-profit llc even in delaware that's not an issue the statutes do prohibit them from engaging in banking and they have all the powers that are granted by the statute and whatever is given to them in the llc agreement so this is what i mentioned the operating agreement and it's used to opt out mostly out of the default provisions so in order to draft a good agreement you have to know what is in the default provisions you don't want to have the chance report filling in the gaps also an llc agreement it can be written oral or implied so even if you don't have something in writing it does not mean you do not have an agreement and it is not subject to the statute of fraud that's from a recent court case these are some of the typical things you might want to include in your llc agreement meetings terms of existence a big one is always allocation of profits and laws how will new members be admitted do you want to sell membership interest that's important funding that's always important those are things to think about so as i've mentioned there's fewer default provisions so you have to be aware of that draft carefully and issues including the place and time of meetings quorum any of this stuff you'll have to put in it's common in the corporation law but it is not common in delaware it's not there in delaware llc law and depending upon what kind of llc you want to have are you a pharmaceutical company are you a few friends getting together to form a small business there's a lot of things to consider so an llc can be a single member delaware and all states allow that i'm going to go on a little bit so we don't miss our polling question this is an interesting case i saw one heading for it was kind of clickbait for attorneys the the headline was chancery court denies records and family feud over 950 million dollar sale so what we have here is the same gervais llc was formed to pass wealth on from one family from a couple to their daughters as an assignee of a membership interest the assignee had no right to inspect the books and records and she wanted to do so and here they said the trust settler's assignment of her llc interest had no effect because dispositions without prior written unanimous consent of llc managers were null and void meaning that the trust had no interest in the llc so the contractual language was such that the acts were void it trumped the common law rendering in the settler's assignment ineffective and invulnerable to equitable defenses talk a little bit about management the default rule is that management is vested in the members a man llc can be member managed or manager managed unless you put something in your operating agreement the decision of the members owning more than 50 percent of the profits are the control management can also be invested in managers you can have professional managers operate or manage the llc or you can have some members of the llc manage it so you have to indicate that in the operating agreement and of course members and managers have the right to delegate authority to agents employees and if you want to call them an officer you may so let's see this is how managers are chosen and we are now at polling question number four thank you very much then tamara um we were just talking about members and manager we have a question here on that polling question four please enter your answer in the pop-up box that comes up on your screen in your practice are llc's your clients operate generally number one member managed or number two manager managed again this is polling question number four for cle credit please answer in the pop-up box that comes up on your screen in your practice are the llc's your clients operate generally number one member managed or number two manager managed all right again in the pop-up box we'll do this one more time because i want to make sure everybody gets a chance here we're coming near the end of the program and you want to make sure we answer these questions and the evaluation question is upcoming in your practice are the llc's your clients operate generally number one member manager number two manager managed all right i think i'm going to close the poll now i believe almost everybody answered and tamara i'm pushing the results to you and you'll see that we have manager manage just beats out to member manage 55 to 44. okay well that's interesting that tells me that if you have a manager managed llc it's probably worth more money and it's not just something that the members wish to be involved in so fiduciary duties are important the delaware llc act doesn't define a standard of conduct for members or managers or state whether they owe fiduciary duties so that's that's important to consider the llc has every right to indemnify and home harmless any person subject to standards contained in the llc agreement there was a 2013 amendment after a chancery court decision as you can see the covenant of good faith and fair dealing couldn't be eliminated in the 2013 amendment to the code the legislature said in any case not provided for in this chapter the rule of law and equity including the rule of law and equity relating to fiduciary duties um shall govern so this resolved the split there had been a split between the superior and chancery courts over whether there was an absence of such provision managers and members whether they owed that fiduciary duty of loyalty now if you remember what i talked about there was a chancery court and there's always also a court of law and that's called the superior court and for some reason that must have there must have been a conflict and if you rely on expert opinion in good faith that should be enough another case that has come up is gats property versus arugu capital and in this case this is still developing law for llc even today as i mentioned the delaware statute doesn't establish the duty of care and loyalty so this was a case that created a split over the default fiduciary duties that's what led to that amendment the minority members sued the manager alleging breach of fiduciary duty after he bought them out for a price that was well below market value so you can see here there was a conflict between the members and it was a manager managed llc the chancery court held that the managers owe a default fiduciary duty of care and loyalty the delaware supreme court stated that the chancery court ruling that managers owe a default duty was dicta and it had no precedental value so where there's a contractual provision imposing fiduciary duties in the operating agreement there's no need to decide if there are default default duties because i said that you know most provisions are default and in this case they overrode them no party has the chance record to decide the issue and reasonable minds could differ so it was up to the general assembly to clarify which they did llcs are also allowed to merge and i think i'm going to wrap this up we've talked about a lot of information it's almost to the hour i will just conclude with the series llc we get a lot of questions about that and an llc agreement can establish a series so you can have an llc that has various series that have different types of business interests members managers all kinds of things like that and in delaware now we have protected series and registered series they're both interesting and important and ct has a lot of information on that topic so i will conclude and hand this back over to picture all right thank you so much tamara for the lovely presentation today uh the presentation book that tamara has which has additional information will be available and we send out the thank you email so look forward to that right now though we have a four evaluation questions for cle credit and again please answer in the pop-up box that comes up on your screen and the first uestion is please rate the value of today's webinar content on a scale of one to five where five is the highest and one is the lowest again cle evaluation question one please rate the value of today's webinar content on a scale of one to five where five is the highest and one is the lowest and your choice is there obviously you can see them one two three four five or five four three two one all right and we're going to go go to another polling question number two is i mean evaluation question it is please rate today's presenter on a scale of one to five where five is the highest and one is the lowest clv cle evaluation question number two please rate today's webinar on a scale of one to five where five is the highest and one is the lowest and again your choice is there number one five two four three three four two five one and again just uh answer in the pop-up box that came up on your screen and now we're on to evaluation question number three for cle credit and that question is please rate today's written materials on a scale from one to five where five is the highest and one is the lowest and again there are choices there one five two four three three it almost sounds like a phone number four two and five one and again evaluation question three please rate today's written materials on a scale of one to five where five is the highest and one is the lowest all right and then we're going to do one more and the final cle question is one second here it's number four please rate today's webinar technology on a scale from one to five where five is the highest and one is the lowest all right and again your choices are one five two four three three four two five one and again cle evaluation question four in the pop-up box please rate today's webinar technology on a scale from one to five where five is the highest and one is the lowest and again after answering those questions we'd like to thank you for joining us today for delaware's business entity laws and we look forward to you joining us for future cle webinars and i believe our march 2nd one will be trust under ucc article 9. again thank you very much for your time and enjoy the rest of your day evening or morning thank you