On July 27, 2022, Delaware Gov. John Carney signed into law this year’s amendments to the DGCL, which became effective yesterday. This Saul Ewing memo highlights the most notable aspect of the 2022 amendments:
The most significant change to the DGCL is the extension of Section 102(b)(7)’s exculpation of personal liability to corporate officers. Previously, Section 102(b)(7) authorized the exculpation of personal liability for corporate directors only. This discrepancy between director and officer liability often created issues in litigation involving individuals serving as both corporate directors and officers. In such instances, an individual could be exempt from liability in his or her director capacity yet still liable in his or her capacity as an officer.
The newly revised Section 102(b)(7) remedies this discrepancy by authorizing corporations to adopt exculpatory provisions in their certificates of incorporation that limit or eliminate the personal liability of officers, as well as directors. As with director liability, corporations may only limit an officer’s liability for breaches of the duty of care. Specifically, officers may only be exempted from claims for breach of duty of care brought directly by stockholders. Officers remain liable for breach of fiduciary duty claims brought directly by the corporation or derivatively by stockholders, as well as for breaches of the duty of loyalty and for intentional acts or omissions.
Exculpation of liability under Section 102(b)(7) is available only for senior officers authorized to receive service of process under Delaware law. These officers include the president, CEO, CFO, COO, chief legal officer, controller, treasurer, chief accounting officer, and others named as executives in SEC filings.
Officer liability is a topic we’ve addressed quite frequently over the past few years, and the ability of companies to include exculpatory language in their charter documents akin to the language that protects directors provides an opportunity to help even the playing field – at least hypothetically. The idea of exculpating senior corporate officers from liability to stockholders is controversial, so it remains to be seen how many companies will opt to ask stockholders to approve these exculpatory charter amendments.
– John Jenkins