CURRENT MONTH (November 2024)
Delaware Court of Chancery Rejects the Application of a Supermajority Stockholder Charter Vote to the Reincorporation of a Delaware Corporation to a Nevada Corporation
By Lisa Stark
In Gunderson v. The Trade Desk Inc., C.A. No. 2024-1029-PAF (Del. Ch. Nov. 8, 2024), the Delaware Court of Chancery rejected the application of a supermajority stockholder vote requirement for amendments to a corporation’s certificate of incorporation to a statutory conversion under the doctrine of independent legal significance. In this case, The Trade Desk, Inc. (Trade Desk), a Delaware publicly traded corporation, sought to reincorporate in Nevada. Trade Desk’s founder controls nearly a majority of the company’s outstanding voting power. Absent the application of the supermajority stockholder vote requirement to the conversion, stockholder approval of the reincorporation by Trade Desk’s stockholders was a near certainty.
After Trade Desk noticed a special meeting of stockholders to vote on the conversion by a majority of all outstanding voting power of its stockholders, plaintiff brought this action, alleging that a supermajority stockholder vote was required to approve the conversion under Article X of Trade Desk’s Certificate of Incorporation (Article X). Article X requires the approval of 66⅔ percent of the outstanding voting power of Trade Desk’s stockholders, voting as a single class, “to amend or repeal, or adopt any provision” of the certificate of incorporation inconsistent with certain enumerated articles of the certificate of incorporation. As part of the conversion, Trade Desk’s certificate of incorporation would be repealed, and the enumerated provisions of Trade Screen’s certificate of incorporation would no longer be in effect.
However, Trade Desk sought to effect the reincorporation as a statutory conversion under Section 266 of the Delaware General Corporation Law (DGCL), not as an amendment to, or repeal of, Trade Desk’s Certificate of Incorporation under Section 242 of the DGCL. Defendants argued that the supermajority vote requirement contained in Article X applied only to action taken under Section 242 of the DGCL, which specifically applies to amendments to the certificate of incorporation, not conversions under Section 266 of the DGCL. The Court agreed with defendants, applying the doctrine of independent legal significance and decades of case law in holding that (i) actions taken under one section of the DGCL are not tested under other sections of the DGCL, and (ii) Article X would need to specifically reference “conversions” for the supermajority vote contained in Article X to apply to Trade Desk’s reincorporation to Nevada.
