March 4, 2021

Volume XI, Number 63

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March 03, 2021

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March 02, 2021

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Corporate Charters - Who Are Parties?

Last summer, I considered the question of whether bylaws constitute a contract under California law.  See Are Bylaws Contracts Under California Law? and Are Bylaws a Contract or Contracts? Earlier this month, Vice Chancellor Sam Glasscock III ruled that a director's duties are fiduciary not contractual:

"While a corporate charter operates in some respects as part of a contractual arrangement among the stockholders and the corporation and its board, the entity and its directors are not contractually bound to one another by the charter—they are not counter-parties—and the legal compulsion for directors to comply with the charter arises as part of their fiduciary duties, and not in contract."

Lacey v. Mota-Velasco, C.A. No. 2019-0312-SG (Del. Ch. Feb. 11, 2021).  This case involved a derivative claim by stockholders that was based on the theory that directors of a corporation could be liable to the corporation for breach of contract as a result of the corporation's failure to abide by its charter.  Vice Chancellor acknowledged that it is "useful" to consider direct actions by stockholders against the corporation as actions in contract.  However, he found that directors are not subject to a contract simply because it binds the corporation.  

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© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 54
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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