Effective August 1, 2022, Delaware amended its General Corporation Law (the "DGCL") to permit the certificate of incorporation of a Delaware corporation to provide for exculpation of officers from liability to the corporation or its stockholders for money damages for breach of fiduciary duty as an officer. Since then, we have received questions from clients and others about Maryland law in this regard.
The Maryland General Corporation Law was amended in 1988 to permit the charter of a Maryland corporation to provide for exculpation of both directors and officers from liability to the corporation or its stockholders for money damages with only two narrow exceptions: (a) "an improper benefit or profit in money, property, or services" limited to "the amount of the benefit or profit . . . actually received" or (b) a "judgment or other final adjudication . . . that the person's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated . . . ." (Emphasis added.) As courts in Maryland have applied this provision to officers of Maryland corporations, we have no doubt about its applicability or effectiveness in suits by the corporation or its stockholders for money damages under state law. Indeed, we are unaware of any Maryland case decided since enactment of the statute in which an officer of a Maryland corporation with a charter exculpation provision was held liable for monetary damages.
As a result of the amendments to the DGCL, a Delaware corporation may include a provision in its certificate of incorporation or a stockholder-approved amendment thereto that provides for exculpation of officers for breaches of the duty of care. However, under the DGCL, an exculpation provision may not eliminate or limit the liability, among other exceptions, of (i) a director or officer for acts or omissions not in "good faith" (a concept that was litigated for over ten years for directors in the Disney case in Delaware), (ii) an officer in any action by or in the right of the corporation or (iii) a director or officer for breach of the duty of loyalty to the corporation or its stockholders.
Thus, Maryland's permitted statutory exculpation provision continues to be both broader and more protective of directors and officers than the new officer exculpation provisions of the DGCL.
* * *
As always, our colleagues and we are available at any time to discuss these or other matters.