Yesterday, I listened to a talk by Vice Chancellor J. Travis Laster of the Delaware Court of Chancery entitled "Purpose, Power, and Fiduciary Duty: Dimensions of Delaware's Corporate Law Regime". The webinar was presented by the University of Delaware's John L. Weinberg Center for Corporate Governance. Vice Chancellor Laster took a very deferential view of a board's decisions to donate corporate assets - applying a standard of rationality, not reasonableness. Notably, he did not reference the statutory authority for corporate giving - Section 122(9) of the Delaware General Corporation Law provides that a Delaware corporation has the power to "[m]ake donations for the public welfare or for charitable, scientific or educational purposes, and in time of war or other national emergency in aid thereof". He also did not apply the doctrine of corporate waste to his analysis, although he did address it in response to my question.
Six years ago, I noted one significant difference between Section 122(9) and Section 207(e), the analogous provision in California's General Corporation Law. California's statute expressly dispenses with any requirement of a specific corporate benefit. I do not read this to authorize donations when there is no benefit to the corporation whatsoever because directors are required to act "in a manner such director believes to be in the best interests of the corporation and its shareholders". Cal. Corp. Code § 309(a). A gift of all of the corporation's assets would seem to be of no benefit to the corporation.
Section 207 also expressly subjects the power of corporate giving to:
- Any limitations contained in the corporation's articles of incorporation;
- Compliance with other provisions of the California General Corporation Law; and
- Compliance with any other applicable laws.
One such other applicable law would be the California Voidable Transactions Act. Cal. Civ. Code §§ 3439 - 3439.14.