Delaware – General Corporation Law – Stock Transfers

Delaware Portal Previous Page Next Page Home Page

§ 201. | § 202. | § 203.

Corporations

CHAPTER 1. GENERAL CORPORATION LAW

Subchapter VI. Stock Transfers

§ 201. Transfer of stock, stock certificates and uncertificated stock.

Except as otherwise provided in this
chapter, the transfer of stock and the certificates of stock which
represent the stock or uncertificated stock shall be governed by
Article 8 of subtitle I of Title 6. To the extent that any provision of
this chapter is inconsistent with any provision of subtitle I of Title
6, this chapter shall be controlling. (8 Del. C. 1953, § 201; 56 Del.
Laws, c. 50; 64 Del. Laws, c. 112, § 18.)

§ 202. Restrictions on transfer and ownership of securities.

(a) A written restriction or restrictions
on the transfer or registration of transfer of a security of a
corporation, or on the amount of the corporation’s securities that may
be owned by any person or group of persons, if permitted by this
section and noted conspicuously on the certificate or certificates
representing the security or securities so restricted or, in the case
of uncertificated shares, contained in the notice or notices sent
pursuant to § 151(f) of this title, may be enforced against the holder
of the restricted security or securities or any successor or transferee
of the holder including an executor, administrator, trustee, guardian
or other fiduciary entrusted with like responsibility for the person or
estate of the holder. Unless noted conspicuously on the certificate or
certificates representing the security or securities so restricted or,
in the case of uncertificated shares, contained in the notice or
notices sent pursuant to § 151(f) of this title, a restriction, even
though permitted by this section, is ineffective except against a
person with actual knowledge of the restriction.

(b) A restriction on the transfer or
registration of transfer of securities of a corporation, or on the
amount of a corporation’s securities that may be owned by any person or
group of persons, may be imposed by the certificate of incorporation or
by the bylaws or by an agreement among any number of security holders
or among such holders and the corporation. No restrictions so imposed
shall be binding with respect to securities issued prior to the
adoption of the restriction unless the holders of the securities are
parties to an agreement or voted in favor of the restriction.

(c) A restriction on the transfer or
registration of transfer of securities of a corporation or on the
amount of such securities that may be owned by any person or group of
persons is permitted by this section if it:

(1) Obligates the holder of the
restricted securities to offer to the corporation or to any other
holders of securities of the corporation or to any other person or to
any combination of the foregoing, a prior opportunity, to be exercised
within a reasonable time, to acquire the restricted securities; or

(2) Obligates the corporation or any
holder of securities of the corporation or any other person or any
combination of the foregoing, to purchase the securities which are the
subject of an agreement respecting the purchase and sale of the
restricted securities; or

(3) Requires the corporation or the
holders of any class or series of securities of the corporation to
consent to any proposed transfer of the restricted securities or to
approve the proposed transferee of the restricted securities, or to
approve the amount of securities of the corporation that may be owned
by any person or group of persons; or

(4) Obligates the holder of the
restricted securities to sell or transfer an amount of restricted
securities to the corporation or to any other holders of securities of
the corporation or to any other person or to any combination of the
foregoing, or causes or results in the automatic sale or transfer of an
amount of restricted securities to the corporation or to any other
holders of securities of the corporation or to any other person or to
any combination of the foregoing; or

(5) Prohibits or restricts the transfer
of the restricted securities to, or the ownership of restricted
securities by, designated persons or classes of persons or groups of
persons, and such designation is not manifestly unreasonable.

(d) Any restriction on the transfer or
the registration of transfer of the securities of a corporation, or on
the amount of securities of a corporation that may be owned by a person
or group of persons, for any of the following purposes shall be
conclusively presumed to be for a reasonable purpose:

(1) Maintaining any local, state, federal
or foreign tax advantage to the corporation or its stockholders,
including without limitation:

a. Maintaining the corporation’s status
as an electing small business corporation under subchapter S of the
United States Internal Revenue Code [26 U.S.C. § 1371 et seq.], or

b. Maintaining or preserving any tax attribute (including without limitation net operating losses), or

c. Qualifying or maintaining the
qualification of the corporation as a real estate investment trust
pursuant to the United States Internal Revenue Code or regulations
adopted pursuant to the United States Internal Revenue Code, or

(2) Maintaining any statutory or
regulatory advantage or complying with any statutory or regulatory
requirements under applicable local, state, federal or foreign law.

(e) Any other lawful restriction on
transfer or registration of transfer of securities, or on the amount of
securities that may be owned by any person or group of persons, is
permitted by this section. (8 Del. C. 1953, § 202; 56 Del. Laws, c. 50;
56 Del. Laws, c. 186, § 11; 64 Del. Laws, c. 112, §§ 19, 20; 72 Del.
Laws, c. 123, § 4.)

§ 203. Business combinations with interested stockholders.

(a) Notwithstanding any other provisions
of this chapter, a corporation shall not engage in any business
combination with any interested stockholder for a period of 3 years
following the time that such stockholder became an interested
stockholder, unless:

(1) Prior to such time the board of
directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an
interested stockholder;

(2) Upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of
the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the voting stock outstanding (but
not the outstanding voting stock owned by the interested stockholder)
those shares owned (i) by persons who are directors and also officers
and (ii) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or

(3) At or subsequent to such time the
business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 662/3% of the
outstanding voting stock which is not owned by the interested
stockholder.

(b) The restrictions contained in this section shall not apply if:

(1) The corporation’s original
certificate of incorporation contains a provision expressly electing
not to be governed by this section;

(2) The corporation, by action of its
board of directors, adopts an amendment to its bylaws within 90 days of
February 2, 1988, expressly electing not to be governed by this
section, which amendment shall not be further amended by the board of
directors;

(3) The corporation, by action of its
stockholders, adopts an amendment to its certificate of incorporation
or bylaws expressly electing not to be governed by this section;
provided that, in addition to any other vote required by law, such
amendment to the certificate of incorporation or bylaws must be
approved by the affirmative vote of a majority of the shares entitled
to vote. An amendment adopted pursuant to this paragraph shall be
effective immediately in the case of a corporation that both (i) has
never had a class of voting stock that falls within any of the 3
categories set out in subsection (b)(4) hereof, and (ii) has not
elected by a provision in its original certificate of incorporation or
any amendment thereto to be governed by this section. In all other
cases, an amendment adopted pursuant to this paragraph shall not be
effective until 12 months after the adoption of such amendment and
shall not apply to any business combination between such corporation
and any person who became an interested stockholder of such corporation
on or prior to such adoption. A bylaw amendment adopted pursuant to
this paragraph shall not be further amended by the board of directors;

(4) The corporation does not have a class
of voting stock that is: (i) Listed on a national securities exchange;
or (ii) held of record by more than 2,000 stockholders, unless any of
the foregoing results from action taken, directly or indirectly, by an
interested stockholder or from a transaction in which a person becomes
an interested stockholder;

(5) A stockholder becomes an interested
stockholder inadvertently and (i) as soon as practicable divests itself
of ownership of sufficient shares so that the stockholder ceases to be
an interested stockholder; and (ii) would not, at any time within the
3-year period immediately prior to a business combination between the
corporation and such stockholder, have been an interested stockholder
but for the inadvertent acquisition of ownership;

(6) The business combination is proposed
prior to the consummation or abandonment of and subsequent to the
earlier of the public announcement or the notice required hereunder of
a proposed transaction which (i) constitutes 1 of the transactions
described in the second sentence of this paragraph; (ii) is with or by
a person who either was not an interested stockholder during the
previous 3 years or who became an interested stockholder with the
approval of the corporation’s board of directors or during the period
described in paragraph (7) of this subsection (b); and (iii) is
approved or not opposed by a majority of the members of the board of
directors then in office (but not less than 1) who were directors prior
to any person becoming an interested stockholder during the previous 3
years or were recommended for election or elected to succeed such
directors by a majority of such directors. The proposed transactions
referred to in the preceding sentence are limited to (x) a merger or
consolidation of the corporation (except for a merger in respect of
which, pursuant to § 251(f) of this title, no vote of the stockholders
of the corporation is required); (y) a sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in 1 transaction or a series of
transactions), whether as part of a dissolution or otherwise, of assets
of the corporation or of any direct or indirect majority-owned
subsidiary of the corporation (other than to any direct or indirect
wholly-owned subsidiary or to the corporation) having an aggregate
market value equal to 50% or more of either that aggregate market value
of all of the assets of the corporation determined on a consolidated
basis or the aggregate market value of all the outstanding stock of the
corporation; or (z) a proposed tender or exchange offer for 50% or more
of the outstanding voting stock of the corporation. The corporation
shall give not less than 20 days’ notice to all interested stockholders
prior to the consummation of any of the transactions described in
clause (x) or (y) of the 2nd sentence of this paragraph; or

(7) The business combination is with an
interested stockholder who became an interested stockholder at a time
when the restrictions contained in this section did not apply by reason
of any of paragraphs (1) through (4) of this subsection (b), provided,
however, that this paragraph (7) shall not apply if, at the time such
interested stockholder became an interested stockholder, the
corporation’s certificate of incorporation contained a provision
authorized by the last sentence of this subsection (b).

Notwithstanding paragraphs (1), (2), (3)
and (4) of this subsection, a corporation may elect by a provision of
its original certificate of incorporation or any amendment thereto to
be governed by this section; provided that any such amendment to the
certificate of incorporation shall not apply to restrict a business
combination between the corporation and an interested stockholder of
the corporation if the interested stockholder became such prior to the
effective date of the amendment.

(c) As used in this section only, the term:

(1) “Affiliate” means a person that
directly, or indirectly through 1 or more intermediaries, controls, or
is controlled by, or is under common control with, another person.

(2) “Associate,” when used to indicate a
relationship with any person, means: (i) Any corporation, partnership,
unincorporated association or other entity of which such person is a
director, officer or partner or is, directly or indirectly, the owner
of 20% or more of any class of voting stock; (ii) any trust or other
estate in which such person has at least a 20% beneficial interest or
as to which such person serves as trustee or in a similar fiduciary
capacity; and (iii) any relative or spouse of such person, or any
relative of such spouse, who has the same residence as such person.

(3) “Business combination,” when used in reference to any corporation and any interested stockholder of such corporation, means:

(i) Any merger or consolidation of the
corporation or any direct or indirect majority-owned subsidiary of the
corporation with (A) the interested stockholder, or (B) with any other
corporation, partnership, unincorporated association or other entity if
the merger or consolidation is caused by the interested stockholder and
as a result of such merger or consolidation subsection (a) of this
section is not applicable to the surviving entity;

(ii) Any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in 1 transaction or a series of
transactions), except proportionately as a stockholder of such
corporation, to or with the interested stockholder, whether as part of
a dissolution or otherwise, of assets of the corporation or of any
direct or indirect majority-owned subsidiary of the corporation which
assets have an aggregate market value equal to 10% or more of either
the aggregate market value of all the assets of the corporation
determined on a consolidated basis or the aggregate market value of all
the outstanding stock of the corporation;

(iii) Any transaction which results in
the issuance or transfer by the corporation or by any direct or
indirect majority-owned subsidiary of the corporation of any stock of
the corporation or of such subsidiary to the interested stockholder,
except: (A) Pursuant to the exercise, exchange or conversion of
securities exercisable for, exchangeable for or convertible into stock
of such corporation or any such subsidiary which securities were
outstanding prior to the time that the interested stockholder became
such; (B) pursuant to a merger under § 251(g) of this title; (C)
pursuant to a dividend or distribution paid or made, or the exercise,
exchange or conversion of securities exercisable for, exchangeable for
or convertible into stock of such corporation or any such subsidiary
which security is distributed, pro rata to all holders of a class or
series of stock of such corporation subsequent to the time the
interested stockholder became such; (D) pursuant to an exchange offer
by the corporation to purchase stock made on the same terms to all
holders of said stock; or (E) any issuance or transfer of stock by the
corporation; provided however, that in no case under items (C)-(E) of
this subparagraph shall there be an increase in the interested
stockholder’s proportionate share of the stock of any class or series
of the corporation or of the voting stock of the corporation;

(iv) Any transaction involving the
corporation or any direct or indirect majority-owned subsidiary of the
corporation which has the effect, directly or indirectly, of increasing
the proportionate share of the stock of any class or series, or
securities convertible into the stock of any class or series, of the
corporation or of any such subsidiary which is owned by the interested
stockholder, except as a result of immaterial changes due to fractional
share adjustments or as a result of any purchase or redemption of any
shares of stock not caused, directly or indirectly, by the interested
stockholder; or

(v) Any receipt by the interested
stockholder of the benefit, directly or indirectly (except
proportionately as a stockholder of such corporation), of any loans,
advances, guarantees, pledges or other financial benefits (other than
those expressly permitted in subparagraphs (i)-(iv) of this paragraph)
provided by or through the corporation or any direct or indirect
majority-owned subsidiary.

(4) “Control,” including the terms
“controlling,” “controlled by” and “under common control with,” means
the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a person, whether
through the ownership of voting stock, by contract or otherwise. A
person who is the owner of 20% or more of the outstanding voting stock
of any corporation, partnership, unincorporated association or other
entity shall be presumed to have control of such entity, in the absence
of proof by a preponderance of the evidence to the contrary;
Notwithstanding the foregoing, a presumption of control shall not apply
where such person holds voting stock, in good faith and not for the
purpose of circumventing this section, as an agent, bank, broker,
nominee, custodian or trustee for 1 or more owners who do not
individually or as a group have control of such entity.

(5) “Interested stockholder” means any
person (other than the corporation and any direct or indirect
majority-owned subsidiary of the corporation) that (i) is the owner of
15% or more of the outstanding voting stock of the corporation, or (ii)
is an affiliate or associate of the corporation and was the owner of
15% or more of the outstanding voting stock of the corporation at any
time within the 3-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested
stockholder, and the affiliates and associates of such person;
provided, however, that the term “interested stockholder” shall not
include (x) any person who (A) owned shares in excess of the 15%
limitation set forth herein as of, or acquired such shares pursuant to
a tender offer commenced prior to, December 23, 1987, or pursuant to an
exchange offer announced prior to the aforesaid date and commenced
within 90 days thereafter and either (I) continued to own shares in
excess of such 15% limitation or would have but for action by the
corporation or (II) is an affiliate or associate of the corporation and
so continued (or so would have continued but for action by the
corporation) to be the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the 3-year period
immediately prior to the date on which it is sought to be determined
whether such a person is an interested stockholder or (B) acquired said
shares from a person described in item (A) of this paragraph by gift,
inheritance or in a transaction in which no consideration was
exchanged; or (y) any person whose ownership of shares in excess of the
15% limitation set forth herein is the result of action taken solely by
the corporation; provided that such person shall be an interested
stockholder if thereafter such person acquires additional shares of
voting stock of the corporation, except as a result of further
corporate action not caused, directly or indirectly, by such person.
For the purpose of determining whether a person is an interested
stockholder, the voting stock of the corporation deemed to be
outstanding shall include stock deemed to be owned by the person
through application of paragraph (9) of this subsection but shall not
include any other unissued stock of such corporation which may be
issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.

(6) “Person” means any individual, corporation, partnership, unincorporated association or other entity.

(7) “Stock” means, with respect to any corporation, capital stock and, with respect to any other entity, any equity interest.

(8) “Voting stock” means, with respect to
any corporation, stock of any class or series entitled to vote
generally in the election of directors and, with respect to any entity
that is not a corporation, any equity interest entitled to vote
generally in the election of the governing body of such entity. Every
reference to a percentage of voting stock shall refer to such
percentage of the votes of such voting stock.

(9) “Owner,” including the terms “own”
and “owned,” when used with respect to any stock, means a person that
individually or with or through any of its affiliates or associates:

(i) Beneficially owns such stock, directly or indirectly; or

(ii) Has (A) the right to acquire such
stock (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise; provided, however, that a
person shall not be deemed the owner of stock tendered pursuant to a
tender or exchange offer made by such person or any of such person’s
affiliates or associates until such tendered stock is accepted for
purchase or exchange; or (B) the right to vote such stock pursuant to
any agreement, arrangement or understanding; provided, however, that a
person shall not be deemed the owner of any stock because of such
person’s right to vote such stock if the agreement, arrangement or
understanding to vote such stock arises solely from a revocable proxy
or consent given in response to a proxy or consent solicitation made to
10 or more persons; or

(iii) Has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (except
voting pursuant to a revocable proxy or consent as described in item
(B) of subparagraph (ii) of this paragraph), or disposing of such stock
with any other person that beneficially owns, or whose affiliates or
associates beneficially own, directly or indirectly, such stock.

(d) No provision of a certificate of
incorporation or bylaw shall require, for any vote of stockholders
required by this section, a greater vote of stockholders than that
specified in this section.

(e) The Court of Chancery is hereby
vested with exclusive jurisdiction to hear and determine all matters
with respect to this section. (66 Del. Laws, c. 204, § 1; 70 Del. Laws,
c. 79, §§ 8-10; 73 Del. Laws, c. 298, §§ 4-6; 76 Del. Laws, c. 145, §
2.)

Close Menu
×
×

Basket