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For those of you working with shells or other clients
incorporated in Delaware, the most popular state to incorporate (over half the
Fortune 500 are there), an uncertainty has been resolved.
If one reads the Delaware General Corporation Law trying
to determine if shareholder approval is required for a reverse or forward stock
split, it is not easy to find the answer, since it is not directly addressed.
However, all have generally interpreted the law to require reverse stock
splits, where outstanding shares are combined to a smaller number, require such
approval. If you are public and SEC reporting, this means a full proxy or
information statement which is subject to SEC review, delay and cost, but
usually is pretty straightforward.
Forward splits were not clear and I've heard lawyers
interpret the law both to permit a split with shareholder approval and not.
This is important because in some shell mergers the number of outstanding
shares needs to be increased before the combination. Section 242 of the DGCL
says you may amend your certificate of incorporation to reflect splits,
which has been the source of the confusion. Now a new case in Delaware, Blades
v. Wisehart, et al., C.A. No. 5317-VCS (Del.Ch. Nov. 17, 2010) (Vice Chancellor
Strine) clarifies all this regarding forward splits.
Without saying so, it appears the court interprets the
word "may" above to "must" and says that forward splits require one to go
through the charter amendment procedure in Section 242. Be advised! Check
it out yourself - there is no legal advice in this post!!
For additional insights on reverse mergers,
SPACs, other alternatives to traditional initial public offerings, the small
and microcap markets and the economy, visit the Reverse Merger and
SPAC Blog by David N. Feldman, Esq., Partner of Richardson &
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What about Nevada law?