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Recent Updates for Rights and Options Respecting Stock under DGCL

August 25, 2022

A recent amendment to Section 157 of the Delaware General Corporation Law (the “DGCL”) has broadened the ability of the board of directors of a Delaware corporation to delegate its authority over the issuance of rights or options to acquire the corporation’s stock. Prior to the amendment, Section 157 permitted the board to delegate to officers of the corporation the power to allocate rights or options to purchase the stock, subject to certain limitations.  However, Section 157 continued to require the board to fix the terms of the rights or options, including the purchase price.  In contrast, the DGCL imposes a different set of restrictions on the board’s ability to delegate with respect to stock issuances.  For example, subject to certain requirements, the board may delegate the authority to determine the purchase price for the corporation’s stock. The recent amendment to Section 157 of the DGCL is intended to harmonize these two different treatments of stock issuances on one hand and right or option issuances on the other hand.

Specifically, salient aspects of the amendment to Section 157 are set forth below:

  1. The board may adopt a resolution to delegate to a person or body the authority to enter into one or more transactions to issue stock rights or options;

  2. Stock rights or options may be issued in such numbers, at such times, and for such consideration as such person or body may determine; and

  3. The board resolution effecting such delegation shall fix:

  • the maximum number of rights or options, and the maximum number of shares issuable upon exercise thereof, that may be issued pursuant to such resolution.

  • a time period during which such rights or options, and during which the shares issuable upon exercise thereof, may be issued; and

  • a minimum amount of consideration (if any) for which such rights or options may be issued and a minimum amount of consideration for the shares issuable upon exercise thereof.

The amendment gives corporations greater flexibility in establishing their internal procedures for equity incentive programs. It will help to reduce unintended “foot-faults”, where such delegation by the board has exceeded the permitted scope previously authorized under the pre-amendment Section 157. 

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