New Delaware Law Authorizes Stockholder Governance Pacts
Effective August 1, amendments to Delaware's General Corporation Law legislatively overrule the Court of Chancery’s Moelis decision by expressly permitting corporations to enter into stockholder agreements that restrict board authority.
Delaware has amended its General Corporation Law (DGCL) in direct response to the Court of Chancery's influential decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Co. The amendments, effective August 1, 2024, legislatively overrule the court's holding that stockholder agreements cannot restrict board authority under DGCL Section 141(a) unless such limitations are specified in the certificate of incorporation. The Moelis decision had created significant uncertainty for common governance arrangements, particularly in companies with private equity or venture capital investors where stockholder agreements are used to grant investors control over key corporate decisions. New DGCL Section 122(18) now explicitly authorizes corporations to enter into such contracts with stockholders that restrict or require approval for corporate actions. This change restores certainty and validates many existing agreements, as the law applies retroactively. Corporate counsel should review existing stockholder and governance agreements in light of the new statutory authorization and evaluate charter provisions for clients who may wish to opt out of the new default rule.