Effective on April 1, 2014, Title 8 Section 204 of the Delaware General Corporation Law provided a means of ratifying a defective corporate act. A “Defective corporate act” is defined as “an over issue, an election or appointment of directors that is void or voidable due to a failure of authorization, or any act or transaction purportedly taken by or on behalf of the corporation that is, and at the time such act or transaction was purportedly taken would have been, within the power of a corporation under subchapter II of this chapter, but is void or voidable due to a failure of authorization.”

Guidelines for filing a Certificate of Validation are provided in Section 204(b)

Filing Fees
The minimum filing fee is $2,500. In addition, if the Certificate of Validation retroactively increases authorized stock, annual reports for past years are recalculated and if any increased franchise taxes result, they are due at the time of filing. Alternatively, if authorized stock is retroactively decreased, no refund for any decrease in Franchise Tax will be granted.

Practical Issues
This new process has exposed some practical issues for which filers should be aware:

  1. Amendments cannot be combined and corrected in one document. A separate Certificate of Validation is required per amendment.
  2. Amended Annual Reports: If amended annual reports are required, DE statutes allow one year to file an annual report. Therefore, a corporate officer must deal directly with the Franchise Tax Dept to determine the process of filing the reports and to determine the applicable fees. Once fees are determined, the company either pays them directly to Franchise or they can wire them to the service company to handle payment.
  3. Since each filing must be handled individually, service companies cannot include them in batch filings.
  4. Filings cannot be pre-cleared or expedited.
  5. Filings can only be submitted as 24 hour and yet processing time has taken over 24 hours.

Click here for a sample Certificate of Validation.

It is important for corporations to review and maintain – on a regular basis – their minute books and corporate resolutions to ensure their corporate actions are in compliance with their certificate of incorporation and bylaws. If not, there may now be an easier means of ratifying those unauthorized actions, but it is not cheap.

For more help on this topic or to learn more about VPS’s minutebook services, please contact VPS today.