Recently, I wrote about a proposal by The Trade Desk, Inc. to convert from a Delaware to a Nevada corporation. Predictably, a stockholder challenged the proposed reincorporation. Gunderson v. The Trade Desk, Inc., 2024 WL 462207 (Nov. 8, 2024).
The stockholder's argument? Despite the fact that Section 266 of the Delaware General Corporation Law provides for conversions by a majority of the shares of the outstanding stock entitled to vote on the proposal, the required vote should be 66 2/3%:
Article X of the corporation’s certificate of incorporation, however, requires the approval of 66 2/3% of the outstanding voting power of the corporation’s stock, voting as a single class, “to amend or repeal, or adopt any provision” of the certificate inconsistent with certain enumerated articles of the certificate. There is no dispute that upon conversion, the Nevada corporation will possess a certificate of incorporation that is inconsistent with some of the enumerated articles.
Relying on the doctrine of independent legal significance, Vice Chancellor Paul A. Fioravanti, Jr. disagreed finding that "Article X does not apply to the Conversion and Defendants have correctly disclosed that only a majority vote is necessary". The doctrine of independent legal significance holds that "legal action authorized under one section of the corporation law is not invalid because it causes a result that would not be achievable if pursued through other action under other provisions of the statute." SIPCA Hldgs. S.A. v. Optical Coating Lab’y, Inc., 1997 WL 10263, at *5 (Del. Ch. Jan. 6, 1997).
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