Shareholders of Pennsylvania corporations routinely give the board of directors the power to unilaterally make or change bylaws that relate solely to the business affairs of the corporation, subject to shareholders’ right of repeal.
Fortunately for shareholders, particularly those in the minority, Pennsylvania courts have made it clear that the power of the board of directors does not extend to those bylaws that affect the shareholders’ rights, such as the right to transfer shares. The board of directors typically cannot make or change such bylaws affecting shareholders’ rights without the unanimous approval of the shareholders.
But a recent Delaware decision could affect Pennsylvania courts’ interpretation of the law and thereby limit Pennsylvania shareholders’ ability to protect their rights.
In Boilermakers Local 154 Retirement Fund v. Chevron Corp., shareholders of Chevron Corp. sued the board of directors after the board unilaterally adopted a bylaw that limited the shareholders’ ability to select the venue for litigation of the corporation’s internal affairs.
Surprisingly, the Delaware Court of Chancery upheld the board’s right to limit forum selection, despite the fact that the bylaw affected the shareholders’ ability to assert their rights.
The section of Delaware’s General Corporation Law that addresses the power to adopt and amend bylaws is nearly identical to the applicable section of Pennsylvania’s Business Corporation Law, so courts in both states have generally applied the law in the same manner. Moreover, Delaware courts typically have a strong influence on how corporate law is interpreted throughout the country. Thus, the Chevron ruling could have a negative effect on Pennsylvania shareholders.
If the Chevron case begins to sway Pennsylvania courts, shareholders could strongly consider limiting or eliminating the power of the board of directors to make or change bylaws in any capacity.
-Amanda Gerstnecker, Meyer, Unkovic & Scott LLP, firstname.lastname@example.org
Business workshop is a weekly feature from local experts offering tidbits on matters affecting business. To contribute, contact Business Editor Brian Hyslop at email@example.com.