Corporate Governance

Certificate of Incorporation (COI)

—not required to dictate corporation governance •

Certificate amendment

Certificate amendment—COI can be amended to include any provision that would have been admissible in original

Amendment procedure - Stock issued

To amend the COI after the corporation has issued stock, the board of directors must adopt a resolution and submit the amendment to the stockholders for a majority vote/approval.  For the amendment to be adopted by the stockholders, the majority of outstanding stock entitled to vote must vote in favor of the amendment (1) at a properly noticed annual or special shareholder meeting or (2) by written consent.  If the amendment is adopted, it must then be filed with the Secretary of State.

After a corporation has issued stock, the stockholders entitled to vote have the power to adopt, amend, or repeal the bylaws unless the COI also extends this power on the board of directors. 

Amendment procedure - Stock not issued

• Board of directors exists—board majority may amend

• No board of directors—incorporator majority may amend

• Nonstock corporation—governing body majority ma

Bylaws

—contain any lawful provision for corporation management or regulation of affairs consistent with COI

Changes to Bylaws

—can be adopted, amended, repealed by incorporators, initial directors, initial governing body

o Stock not issued—board may also make bylaw changes

o Stock issued—changes made by stockholders only unless COI also grants power to board or governing body

Forum selection provisions

A forum-selection clause may be included in the COI or bylaws that states which claims (including internal claims) can be brought in which court and how shareholders may be limited by this provision. 

A forum-selection clause unilaterally adopted by a board with the authority to adopt bylaws is valid and enforceable under Delaware law to the same extent as other contractual forum-selection clauses.  But even though a committee may generally exercise all of the powers and authority of the board in the management of the corporation's business and affairs, it may not adopt, amend, or repeal the bylaws.

• Does not apply to federal claims

internal Claims are:

Internal corporate claims are (1) claims that are based on a violation of a duty by a current or former director, officer, or stockholder or (2) claims for which the DGCL confers jurisdiction on the Court of Chancery.  These forum restrictions are limited to claims brought under Delaware state law and do not apply to federal claims.

Litigation expenses upon Stockholder

—COI or bylaws cannot impose liability on stockholder or any other party for corporation attorney’s fees and expenses for internal corporate claim

Advance notice bylaws

—provisions requiring stockholders to provide corporation with prior notice of intent to nominate directors for election; usually valid unless it unduly impedes or interferes with effectiveness of stockholders’ vote or is inequitably applied

Challenges

—bylaws presumed valid, but must be reasonable and tailored to what is necessary to counter the threat

Defective corporate act

A defective corporate act is not void or voidable merely because it was not authorized if the act was validated by the Court of Chancery or is ratified.

To Ratify a Defective Corporate act

Board must adopt resolution stating (1) defective act to be ratified, (2) date of act, (3) if act involved issuance of putative stock (including number and type of shares and date of purported issuance), (4) nature of authorization failure, and (5) board approval of ratification.

• The ratification must generally be submitted to the stockholders for approval.  If the defective corporate act would have required a filing with the Delaware Secretary of State, then the corporation must file a certificate of validation.

Defective Corporate act - Stockholders must approve ratification

Stockholders must approve ratification unless (1) no law or corporation provision requires approval, (2) defect did not involve failure to follow rules on business combinations with interested shareholders, or (3) at time of ratifying resolution, no valid voting shares were outstanding

Organizational meeting - Annual meeting

1. Timing and purpose—Once the COI is filed, an organizational meeting is held to appoint officers, adopt bylaws, and approve contracts.  If the COI is silent as to who is on the board, the incorporators elect the board of directors when they hold the meeting.

2. Notice—minimum two-days‘ notice required; must state time, place and purpose of meeting

Corporation Annual Meeting: Compel or not to Compel?

A corporation is required to hold a stockholders' meeting each year. 

• If the annual meeting for the election of directors is not held on the designated date or the directors have not been elected by written consent, the meeting must be held as soon as convenient. 

• If there is a failure to hold the annual meeting or to take action by written consent for 30 days after the designated date for the meeting, or if no date has been designated for 13 months after the last annual meeting or last action by written consent, whichever is latest, the Court of Chancery has discretion to summarily order a meeting to be held upon the request of any director or stockholder. 

• The court may issue an order designating the time and place of the meeting, the record date determining the stockholders entitled to notice, and the form of notice.