## Facts

- DCX, Inc. was incorporated in Delaware as a for-profit stock corporation and later converted, by stockholder vote, into a nonprofit, nonstock mutual benefit corporation.
- Decades later, DCX’s board caused DCX to reconvert to a for-profit stock corporation by amending its certificate of incorporation and adopting related corporate resolutions.
- The reconversion authorized new stock that was issued only to voting members.
- Two classes of nonvoting members were eliminated, and those members’ rights were extinguished, including rights to share in any distribution of assets upon dissolution.
- The elimination of nonvoting membership interests occurred without prior notice to nonvoting members and without any merger, consolidation, dissolution, or payment of consideration for the terminated rights.
- Ata A. Farahpour, a nonvoting member in an eliminated class and a cab driver affiliated with DCX’s business, challenged the transaction.
- The jurisdiction hearing the underlying dispute certified Delaware-law questions to the Delaware Supreme Court, which addressed only the legal questions presented.

## Issues

1. Whether Delaware corporate law authorizes a corporation to reconvert from a nonprofit, nonstock mutual benefit form to a for-profit stock form by charter amendment and corporate resolutions, issuing new stock only to voting members and eliminating nonvoting member classes and their economic rights.
2. Whether, as a matter of statutory corporate law, such changes may be implemented without notice to nonvoting members, without dissolution, merger, or consolidation, and without providing compensation to members whose rights are extinguished.

## Decision

- The court answered the certified questions in the affirmative on a statutory basis.
- Delaware’s General Corporation Law permits the structural changes described—conversion and reconversion, issuance of newly authorized stock only to voting members, and elimination of nonvoting member classes and associated rights—through amendment of the certificate of incorporation and related corporate action.
- The statute does not, in the abstract, require that nonvoting members receive notice or consideration, or that the corporation proceed by dissolution, merger, or consolidation to accomplish the changes.
- The court expressly limited its answers to generic statutory authority and reserved fact-dependent equitable issues for resolution in the underlying litigation.

## Legal Principles

- Under the Delaware General Corporation Law, a corporation generally may restructure its capital or membership arrangements through certificate of incorporation amendments and implementing corporate resolutions when not otherwise prohibited by statute.
- Statutory permissibility of a corporate restructuring does not resolve potential equitable constraints; claims such as unfair dealing or breach of fiduciary duty may depend on disputed facts and must be evaluated on a developed record.
- Absent a specific statutory or charter-based requirement, nonvoting members are not guaranteed statutory notice or compensation solely because charter amendments extinguish their membership rights.

## Conclusion

Delaware corporate law authorized DCX’s described reconversion and elimination of nonvoting member rights as a matter of statute, but the court left open whether equitable doctrines could provide relief based on the particular facts surrounding the transaction.


Farahpour v. DCX, Inc., 635 A.2d 894 (Del. 1994)