A recent decision of the Delaware Court of Chancery needs to be consulted by anyone who seeks to fully understand the prerequisites under the Delaware General Corporation Law for effective restrictions on the transfer of stock. Henry v. Phixos Holdings, Inc., C.A. No. 12504-VCMR (Del. Ch. July 10, 2017).

The prerequisites under DGCL Section 202 include actual knowledge of the restrictions and consent by the stockholder to the stock transfer restrictions.  The court explained in this useful decision why the requirements of Section 202 were not met based on the facts of this case, and why those restrictions cannot be retroactive unless additional requirements are satisfied.

A longer discussion of this case will be published as part of my regular column for the National Association of Corporate Directors’ publication called Directorship.