Del. corporate law makes Google restructuring possible

August 14 01:08 2015

Google Inc.’s new operating structure announced earlier this week was made possible by a little-known section of Delaware law. The Mountain View, Calif., company — which since 2003 has been incorporated in Delaware — created a holding company called Alphabet Inc. to own its units outside of Google’s core Internet

Calico, Google’s medical research firm; Nest, which makes web-connected appliances; Google X research labs, which is responsible for Google Glass; Fiber, which is building high-speed broadband networks in several cities; and the company’s venture and capital investment firms will fall under the Alphabet umbrella. Google will be folded into Alphabet while continuing to operate its trademark search engine, as well as other Internet properties. Alphabet will replace Google, a company with a $226 billion capitalization, as the publicly traded entity.

All Google shareholders will receive the same number of Alphabet shares. Alphabet also is incorporated in Delaware. CEO and co-founder Larry Page on Monday said the change will provide more independence for the divisions. Analysts said the move may also be a nod to Wall Street demands for more fiscal accountability. According to Google’s Securities & Exchange Commission filing, the restructuring will be conducted under a part Delaware General Corporation Law called Section 251(g), which says a company incorporated in the state can create and merge with a holding company without shareholder consent.

Although Section 251 has undergone some changes in recent years, the specific statute permitting Google to complete the transaction has not been modified, said Matthew O’Toole, an attorney with Wilmington firm Potter Anderson & Corroon and chairman of the Delaware State Bar Association’s corporate law section. O’Toole said that the publicity surrounding Google’s restructuring highlights some of the DGCL’s advantages, but noted corporate attorneys and executives have been aware of those benefits for some time.