By its terms Del. Code Ann. tit. 8, § 109(a) vests in the shareholders a power to adopt, amend or repeal bylaws that is legally sacrosanct, i.e., the power cannot be non-consensually eliminated or limited by anyone other than the legislature itself. But § 109(a) does not exist in a vacuum. It must be read together with Del. Code Ann. tit. 8, § 141(a). No such broad management power is statutorily allocated to the shareholders.
The bylaws in question directed the board to reimbursement proxy expenses. The current bylaws and certificate of incorporation did not address the issue, but the certificate tracked Del. Code Ann. tit. 8, § 141(a). Thus, the Delaware corporation sought a no-action letter from the United States Securities and Exchange Commission (SEC), under 17 C.F.R. § 240-14a-8, claiming that a bylaw proposed by appellee stockholder was not a proper subject for shareholder action. General counsel for the stockholder opined that the proposed bylaw was a proper subject. The SEC certified two questions pursuant to Del. Const. art. IV, § 11(8) and Del. Sup. Ct. R. 41, which sought a determination of whether the bylaw was a proper subject for stockholder action and whether any law would be violated if the bylaw were adopted.
Are the bylaws proposed by the stockholder a proper subject for shareholder action?
The Court found that both the board and the shareholders, independently and concurrently, had the power to adopt, amend and repeal the bylaws; and that shareholders' statutory power to adopt, amend or repeal bylaws was not coextensive with the board's concurrent power and was limited by the board's management prerogatives under § 141(a). The Court concluded that the bylaw fell within the scope of Del. Code Ann. tit. 8, § 109 and was a proper matter for stockholder action, but that the bylaw, as drafted, violated the prohibition derived from § 141(a) against contractual arrangements that committed a board to a course of action that would preclude them from fully discharging their fiduciary duties to the corporation and its shareholders.