Frechter v. Zier

A corporate bylaw that permitted stockholders to remove directors with or without cause only upon the vote of “not less than 66 and two-thirds percent . . . of voting power of all outstanding shares” of the company was found to be invalid under Delaware law. Specifically, the Court of Chancery held that the bylaw provision directly violated Section 141(k) of the Delaware General Corporation Law (“DGCL”), which provides that “[a]ny 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.”

BOTTOM LINE: Corporate directors may only be removed by a majority of shareholders entitled to vote at an election of directors. Although this standard may not be modified in bylaws, there is a possibility that the right may be modified in a certificate of incorporation.

NOTE: Whether the “majority” standard can be modified by a corporation’s certificate of incorporation is not entirely clear, and the Court in Frechter was careful to note that the matter before it “involve[d] a bylaw provision with no consideration of any provisions contained in the corporation’s certificate of incorporation.”