Court Of Chancery Explains Section 205 Jurisdiction
Under the fairly new provisions of Section 205 of the DGCL, the Court may validate certain “defective corporate acts,” including “any act or transaction purportedly taken by or on behalf of the corporation that is … within the power of a corporation …, but is void or voidable due to a failure of authorization.”
In Grimes v. Alteon, Inc., 804 A.2d 256, 266 (Del. 2002), the Delaware Supreme Court read the DGCL to require that any right to purchase stock must be (i) approved by the board and (ii) evidenced by a written instrument. This decision finds that a board’s failure to satisfy Grimes by failing to approve a stock issuance under an oral agreement falls within Section 205’s purview as a defective corporate act, which may be ratified.