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The corporate bylaws, in addition to the certificate of incorporation, make up the core of any corporation's governance documents. Whereas the subject matter of the certificate of incorporation deals with the basic relationships between stockholders and the corporation, the substance of corporate bylaws is typically limited to issue of governance process within the corporation. Bylaws typically do not contain substantive mandates, but direct how the corporation, the board, and its stockholders may take certain actions.
The corporate bylaws are subordinate to the certificate of incorporation. To the extent bylaws and the certificate or the DGCL are in conflict, the certificate and/or the DGCL will take precedence over the bylaws. Because they are subordinate, corproate bylaws are also easier to amend. Typically, corporate bylaws may be amended by a corporation's board of directors or its stockholders. When stockholders amend the bylaws, they need only achieve a majority of a quorom rather than the more exacting majority of the outstanding shares as is the case in an amendment to the corporation's certificate of incorporation.
Whereas the certificate of incorporation must be filed with the state, a corporation is not required to file its bylaws with any state authority.EDIT PLAYLIST INFORMATION DELETE PLAYLIST
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|1||Show/Hide More||DGCL Sec. 109 - Bylaws|
|2||Show/Hide More||Boilermakers Local 154 Retirement Fund v. Chevron Corporation|
In Boilermakers, the court answers the question whether directors can unilaterally adopt bylaws to restrict the rights of stockholders. The bylaw in question is an ‘exclusive forum provision' bylaw that purports to limit the rights of stockholders to bring certain kinds of litigation against the corporation and its board to courts in Delaware. Forum selection provisions are common in commercial contracts.
In this case, the board – and not the stockholders – adopted an exclusive forum bylaw. This case raises important questions about the ability of directors to act unilaterally in the context of corporate bylaws as well as the nature of the “corporate contract” that stockholders enter into when they purchase shares of any corporation.
This case also reviews the standards of review a court will apply to judicial challenges to bylaws as well as the typical subject matter appropriate for bylaws.
|3||Show/Hide More||Proxy Access and Expense Bylaws|
Although corporate bylaws are typically limited to process, they can still be extremely powerful in determining the balance of internal corporate governance. For example, although stockholders are required to vote for the board of directors, unless stockholders have the ability to nominate candidates the director positions, the power to vote might appear somewhat meaningless. Consequently, the ability to nominate directors to the corporate ballot is an extremely important power. Without access to the corporate-sponsered ballot, stockholders are often left only rubber stamping board decisions about who is able to run for a seat on the board of directors.
Of course stockholders are always free to run a “proxy contest” by sponsering their own proxy ballot, however the mechanics of such a contest are prohibitively expensive for all but the largest stockolders.
In response to efforts by the SEC to enforce a blanket rule opening up access to the corporate-sponsered proxy to all stockholders, Delaware adopted permissive rules that on the one hand make it possible for corporations to opt to adopt bylaws making access to the corporate proxy available to stockholders under certain conditions.
Delaware also adopted rules that allow corporations to adopt bylaws to permit the reimbursement of election expenses for successful candidates. Reimbursement bylaws are intended to reduce the financial hurdles for independent board candidates to run against incumbent directors.
Both of these changes – proxy access and reimbursement bylaws - are indended to reduce the incentives against stockholders nominating and running their own candidates for seats on boards and thereby make boards more responsive to stockholder interests.
March 15, 2017
Brian JM Quinn
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