Meaning
A self-help statutory procedure under Delaware corporate law allows a company to retroactively cure defective corporate acts and invalid stock issuances without court intervention. This process, governed by section 204, requires the board of directors and the stockholders to adopt resolutions detailing each defect and the proposed remedy. It enables corporations to restore the validity of their past actions internally and efficiently.
Notice Requirement
The corporation must send formal notice to all current and past holders of valid and putative stock once the resolutions are adopted. Formal notifications ensure that any affected party has the opportunity to challenge the ratification in court within a specific statutory window. This step is essential to achieve finality and protect the corporation from subsequent challenges.
Filing Process
If the defect being cured requires a change to a previously filed document, the company must submit a certificate of validation to the state. This filing amends the corporate record retroactive to the date of the original defective act. The administrative cost of preparing these filings is far lower than the cost of litigating shareholder disputes or renegotiating broken transactions.
Capital Protection
Successful ratification secures the cap table. It allows pending funding rounds to proceed smoothly.
