Delaware courts have invalidated provisions in a certificate of incorporation that incorporated by reference substantive provisions of a stockholders’ agreement. Specifically, it said that some of its provisions relating to the election and removal of directors were subject to the provisions of a stockholders’ agreement between the corporation and some investors.
WHY THIS IS IMPORTANT… The Court said the incorporation by reference of the substantive provisions of a private agreement into a publicly filed certificate of incorporation was contrary to public policy. Delaware requires that certificates of incorporation be filed with the Secretary of State so stockholders and third parties are on notice of the primary governance terms of the corporation. If parties to a stockholders’ agreement could effectively change the terms of the certificate of incorporation by amending the private agreement, the other stockholders would be disenfranchised because an amendment to the certificate of incorporation generally requires stockholder approval.
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