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3 September 2025

Advance Notice Bylaws — Rarely Subject To Abstract Challenge

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Duane Morris LLP

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A defining feature of Delaware corporations is board-centric governance.
United States Delaware Government, Public Sector
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A defining feature of Delaware corporations is board-centric governance. Stockholders' participation in corporate governance is largely limited to voting in corporate elections, and directors' accountability to stockholders, in most circumstances, is limited to the ballot box. As a result, bylaws enacted by a sitting board of directors which affect the election process have a special significance. But, while the Court of Chancery has shown a special sensitivity to corporate boards using their powers to meddle in the rules governing their own reelections, the recent Carroll v. Burstein, C.A. 2024-0317-LWW shows that to be viable, those challenges need to be grounded in a real-world contest to the directors' reelections in most cases. When the challenge to election rules is instead purely abstract, Carroll makes clear that the court will rarely intervene.

As we have previously discussed on this blog, advance notice bylaws are a common feature of Delaware corporations. These bylaws require stockholders who are nominating election candidates to make disclosures about both the nominees and themselves prior to the meeting at which the election will take place. As the Delaware Supreme Court explained in the Kellner case last year, which we discussed on this blog, these provisions can provide beneficial transparency, allowing the stockholders to make a better-informed decision on corporate leadership. But, there remains a risk of an incumbent board using transparency as a pretext for imposing a needlessly burdensome advance notice process, or applying the advance notice rule in an unfair way, in order to entrench themselves in power. The Kellner decision discussed how Delaware courts should handle cases involving election bylaws which are valid in the abstract, but which in that instance were being enacted or applied by a board for improper, selfish motives.

Carroll addresses the reverse situation. Here, as has also recently happened at many other companies, the board revisited and revised its advance notice bylaw in reaction to an SEC rule change making it easier to contest elections in publicly traded companies. The board was not facing a contested election, and the stockholder-plaintiff was not planning to contest an election in the future. As a result, the plaintiff's challenge to the bylaw was purely abstract — a so-called "facial" challenge. The plaintiff argued that provisions requiring a nominating stockholder to identify other stockholders sharing a "common goal" did so in language so expansive and loose as to impose on the nominating stockholder an unknowably vast disclosure obligation.

Applying Kellner, the Court explained that the grounds for facial challenge to an election bylaw in Delaware are very narrow. So long as the bylaw is not prohibited by some statute, or contrary to the corporation's charter, a bylaw which can be validly applied in any circumstance survives a facial challenge and must be upheld. Since a lone stockholder nominating a preferred candidate would face very simple and limited disclosure requirements under the "common goal" provisions, the bylaw was facially valid. On a facial challenge, the court determined that it is not appropriate to consider how the bylaw might be interpreted or applied in hypothetical scenarios.

When a dissident stockholder or candidate alleges an election contest is being frustrated by an advance notice bylaw enacted or applied as unfair entrenchment by an incumbent board of directors, the Court of Chancery will examine the bylaw and its application under principles of equity. These challenges, like those presented in Kellner last year and this past May in Vejseli v. Duffy which we also wrote about, will be given a detailed and context-specific analysis of the circumstances with an eye towards ensuring fairness towards a corporation's stockholders. By contrast, Carroll shows that abstract, facial challenges, which lack the concrete circumstances to provide that context, have only very limited availability. Additionally, Carroll emphasizes the importance of proactive diligence by a corporate board. Enacting the advance notice bylaw on a clear day before any dispute arose made the provision more resistant to challenge.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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