On behalf of Wolf Popper LLP
The ability to take action with respect to a corporation's officers and board of directors is an important right for shareholders. Officers and directors who are not performing their fiduciary duties properly, who are not effective in their work, or who are otherwise not meeting the expectations of shareholders can and should be held to account and, when necessary, removed.
A corporation must follow the proper procedures when making decisions, and it is important for shareholders to understand the corporation's governing documents as well as the legal rights and responsibilities the legal documents create to ensure things are done properly. It is also important, of course, to ensure that the governing documents themselves are in line with the law of the state of incorporation.
In some cases, corporations may draft governing documents that are later subject to legal challenge. Our firm successfully represented shareholders against a corporation in this situation in a recent case in Delaware Chancery Court. At issue in the case was the legality of a corporation bylaw requiring that, in order to remove directors, there must be a two-thirds majority of votes from shareholders.
However, Delaware law specifies that "any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors." In this case, the corporation argued that the requirements of the state statute are permissive in nature rather than mandatory, which allowed it to establish a stricter requirement. Agreeing with Wolf Popper, however, the court ruled that the requirements are mandatory, making the bylaw at odds with state law. The decision provides an important clarification of Delaware state law of which corporations should be aware when drafting and reviewing their own bylaws going forward.
Shareholders can and should consult with experienced legal counsel in addressing legal issues surrounding their corporation's governing documents, not only in the creation and revision of these documents but also in addressing legal disputes regarding their proper interpretation. Our firm is committed to zealously representing the rights and interests of our clients and helping them to achieve the best possible outcome in their case.