Corporate charters, bylaws, board procedure, staggered boards, cumulative voting, and stockholder voting agreements (Delaware)

Black-letter propositions

1. 01

   The certificate of incorporation must set forth the corporation's name, the address of its registered office and the name of its registered agent, the nature of its business or purposes, and the authorized stock, including the number of shares and par value, and it may state that the purpose is to engage in any lawful act or activity.

2. 02

   Upon the filing of the certificate of incorporation with the Secretary of State, the incorporators become a body corporate by the name in the certificate from the date of the filing.

3. 03

   The original bylaws may be adopted, amended, or repealed by the incorporators, by the initial directors if named in the certificate, or by the board before the corporation has received payment for any stock, and after payment for stock is received that power is in the stockholders entitled to vote.

4. 04

   A corporation may confer the power to adopt, amend, or repeal bylaws on the directors in its certificate, but conferring that power does not divest the stockholders of it or limit their power to act.

5. 05

   The bylaws may contain any provision not inconsistent with law or with the certificate of incorporation relating to the business of the corporation, the conduct of its affairs, and the rights or powers of its stockholders, directors, officers, or employees.

6. 06

   A majority of the total number of directors is a quorum unless the certificate or bylaws require more, the bylaws may set a quorum below a majority but not below one third of the total number unless the certificate provides otherwise, and the act of the board is the vote of a majority of the directors present at a meeting with a quorum.

7. 07

   Unless the certificate or bylaws restrict it, any action required or permitted at a board or committee meeting may be taken without a meeting if all members consent in writing or by electronic transmission.

8. 08

   Unless the certificate or bylaws restrict it, directors may participate in a meeting by conference telephone or other communications equipment by which all participants can hear each other, and participation is presence in person.

9. 09

   A board may be divided into one, two, or three classes with staggered terms by the certificate, an initial bylaw, or a bylaw adopted by the stockholders, and a certificate may give holders of a class or series of stock the right to elect one or more directors.

10. 10

    The certificate of incorporation may provide for cumulative voting, under which each stockholder has a number of votes equal to the shares multiplied by the number of directors to be elected and may cast them all for one director or distribute them, and stockholders may, by a signed written agreement, agree how their shares will be voted.

Use this attack sequence under time

Common wrong turns

• A bylaw inconsistent with the certificate of incorporation is invalid.
• Unanimous written consent in lieu of a board meeting requires all directors to consent.
• Cumulative voting is not a default rule in Delaware and must be in the certificate.
• Giving the directors the power to amend bylaws does not take that power away from the stockholders.

Worked example

A Delaware corporation has five directors, and its bylaws set the quorum at one third of the directors. The certificate of incorporation is silent on quorum. Two directors attend by telephone, and one director attends in person, and the three vote to approve a contract.

Practice this topic

Certificate of incorporation and bylaws

Section 102(a) of the Delaware General Corporation Law requires the certificate of incorporation to set forth the corporation's name, the address of its registered office and the name of its registered agent, the nature of its business or purposes, which may be stated as any lawful act or activity, and the total number of authorized shares and their par value, and section 106 provides that upon filing of the certificate the incorporators become a body corporate from the date of the filing.

Section 109 provides that the bylaws may be adopted, amended, or repealed by the incorporators, the initial directors named in the certificate, or the board before payment for stock is received and thereafter by the stockholders entitled to vote, that the certificate may confer that power on the directors without divesting the stockholders, and that the bylaws may contain any provision not inconsistent with law or the certificate relating to the business of the corporation and the rights of its stockholders, directors, and officers.

Board procedure and structure

Section 141(b) provides that a majority of the total number of directors is a quorum unless the certificate or bylaws require more, that the bylaws may provide for a quorum less than a majority but not less than one third of the total, and that the vote of a majority of the directors present at a meeting with a quorum is the act of the board. Section 141(f) permits board action without a meeting by unanimous written consent unless the certificate or bylaws restrict it, and section 141(i) treats participation by conference telephone as presence.

Section 141(d) allows the directors to be divided into one, two, or three classes with staggered terms by the certificate, an initial bylaw, or a stockholder-adopted bylaw and allows a class or series of stock to elect one or more directors.

Voting arrangements

Section 214 provides that the certificate of incorporation may provide for cumulative voting at director elections, so that each stockholder may cast a number of votes equal to shares times the number of directors to be elected all for one director or distributed among them.

Section 218(c) provides that an agreement between two or more stockholders, if in writing and signed by the parties, may provide that their shares be voted as the agreement provides, and section 218(d) provides that the section does not invalidate any other lawful voting agreement or irrevocable proxy.

Frequently asked questions