This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
The discovery usually happens on a Tuesday, three weeks before signing. Buyer’s counsel is building the capitalization representation and asks for the board consent approving the Series A option pool increase. There isn’t one. Or the minute book shows 12 million shares outstanding against 10 million authorized. Or the charter amendment everyone operated under for six years was approved by the board but never filed. Or an entire director class was “elected” at a meeting that never had a quorum, and that board approved everything since. The company has been running for years on corporate actions that were never properly authorized — and now a buyer’s diligence team is staring at the question every deal lawyer dreads: is this stock even valid?
Delaware’s old answer was terrifying; the modern answer is a procedure.
Under the pre-2014 case law, the answer could be catastrophic. Decisions like STAAR Surgical Co. v. Waggoner treated stock issued without valid authorization as void — not voidable, void — and void acts couldn’t be fixed by good intentions, the passage of time, or everyone’s shared assumption that the shares existed. A technical foot-fault could unwind a cap table. Delaware’s response was Sections 204 and 205 of the DGCL, effective in 2014: a statutory machine for ratifying “defective corporate acts,” with the core rule that no defective corporate act or putative stock is void or voidable solely because of a failure of authorization, if properly ratified under § 204 or validated by the Court of Chancery under § 205. The full text of both sections is on the state’s site here.
The § 204 mechanics are precise, and precision is the point. The board adopts resolutions identifying each defective act, its date, the shares of putative stock involved, and the exact nature of the failure of authorization, then approves ratification. If the underlying act would have required stockholder approval — a charter amendment, a merger, an overissuance requiring more authorized shares — the ratification goes to stockholders too, with notice. If the defective act originally required a filing with the Secretary of State, the company files a certificate of validation. Done correctly, the ratification is retroactive: the act is treated as valid as of the date it originally occurred, and downstream acts that relied on it inherit that validity. Challenges get a short fuse — claims attacking a ratification generally must be brought within 120 days of the validation effective time. For situations self-help can’t reach — no functioning board, disputed control, ratification votes that can’t practically be assembled — § 205 lets the company or other interested parties petition the Court of Chancery to validate acts directly, the route made famous by the cap-table cleanups in cases like In re Numoda Corp. The important limit: the statute cures failures of authorization, not deliberate defiance — Chancery made clear in Nguyen v. View, Inc. that an act taken in conscious disregard of a required approval isn’t a “defective corporate act” eligible for ratification at all.
Florida now has the same machine, and almost nobody uses it on purpose.
Florida imported this framework into the Business Corporation Act, at sections 607.0145 through 607.0152 — definitions, the substantive rule that ratified or validated defective acts are not void or voidable, board ratification with the same required statements (s. 607.0147), quorum and voting rules keyed to the action being ratified (s. 607.0148), notice to holders of valid and putative shares (s. 607.0149), retroactive effect to the date of the original defective action (s. 607.0150), articles of validation filed with the Department of State where the underlying act required a filing (s. 607.0151), and judicial validation in circuit court plus the 120-day claim window (s. 607.0152). The Florida statute is expressly nonexclusive — common-law ratification survives alongside it — but for anything touching putative shares, the statutory route is the one that produces a paper trail a buyer will accept. For Florida targets, this pairs naturally with the other pre-closing housekeeping we’ve written about, like reinstating an administratively dissolved target: same genre of problem, same lesson that the fix is cheap before signing and expensive after.
In a deal, the question is never just “can we fix it” — it’s who bears the fix.
First, diligence has to find the defects, which means someone actually reconciles authorized against issued shares across every amendment, traces each equity grant to a board or committee approval, and checks that written consents satisfied the statute when they were used — the consent-mechanics traps we covered in our post on DGCL 228 written consents are a leading source of quiet defects. Option-plan hygiene is its own defect factory: grants approved after the fact, evergreen increases never ratified, exercises honored against a plan that had expired. Those problems compound at closing, when every option must be cashed out or assumed against a cap table everyone has to certify — the mechanics in our post on option treatment in a sale assume the underlying grants were valid in the first place.
Second, sequencing. A ratification takes real calendar time — board action, stockholder approval if required, notice, filings — and the 120-day challenge window doesn’t close before most deals need to. Buyers respond in a few standard ways. They make completed ratification a signing or closing condition, with the resolutions and certificates of validation as scheduled deliverables. They insist the ratification happen far enough ahead that notice has gone out and no challenge has surfaced, even if the window remains technically open. And they backstop the residual risk with a specific indemnity or escrow tied to capitalization claims — which, unlike general rep breaches, are the kind of fundamental exposure that survives caps and baskets in most private deals. Where a stockholder vote on the ratification can’t be quietly obtained — because the putative holders and the valid holders disagree about who gets to vote — the parties are usually headed to a § 205 or s. 607.0152 proceeding, and the deal timeline has to absorb a court’s schedule.
Third, the seller-side lesson, which is really a founder lesson: run the ratification before the buyer finds the defect. A company that shows up with a clean validation package — resolutions identifying each defect, the votes, the filed certificates, the notice, the expired challenge window — has converted a price-chip into a footnote. A company that learns about its own cap table from the buyer’s associate has handed the other side leverage measured in escrow points and closing delay. The difference is a few weeks of corporate work done a year early. This belongs on the same pre-LOI punch list as entity standing, minute-book completeness, and the consent inventory in our Florida M&A diligence checklist.
Treat the statutes as deal infrastructure, not emergency equipment.
There’s a reason these provisions exist in both states: growing companies make paperwork mistakes at a fairly predictable rate, and the law decided that punishing everyone with void stock served nobody. But the statutes reward the orderly. They demand specificity about each defect, they impose real approval and notice mechanics, and they distinguish sharply between the company that failed to get an authorization and the company that knew it needed one and proceeded anyway — only the first gets the cure. For buyers, the practical rule is to treat any material defect as unratified until the certificates are filed and the window has run, and to price the residual tail. For founders, the practical rule is simpler: your cap table is a legal instrument, not a spreadsheet, and the cheapest time to make it true is before anyone with leverage is reading it.
If you are heading into a sale with cap table or corporate-authorization questions — on either side of the table — feel free to reach out to our firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
