122(18) Kills the Close Corporation

Joan Heminway makes excellent points about proposed § 122(18) over at the Business Law Prof Blog. One wonders whether there is even a future for the Delaware statutory close corporation following passage of § 122(18). Close corporations are governed by Subchapter XIV of the DGCL. Most of what the provisions of the subchapter accomplish can be accomplished by a 122(18) stockholder agreement. There are a couple of exceptions of note: first, statutory close corporations are limited to private corporations, whereas a 122(18) stockholder agreement can be used in both private and public corporations. Second, where stockholders are managing a close corporation, the stockholders inherit the fiduciary obligations and liabilities of the board, whereas there is no such imputation on stockholders in 122(18). Finally (well, not finally, just finally for this post), stockholders of close corporations are on notice that they are stockholders in a close corporation by way of the certificate of incorporation, there is no such notice to stockholders in a corporation with an active 122(18) stockholder agreement. 

OK, so the Delaware State Bar Association has just killed the Close Corporation. That was their intention? Seems like the kind of unintended collateral damage that comes from a shabby process. 

-bjmq