Using Advance Notice Corporate Bylaws to Control Shareholder Activism: New Legal Developments

The organizational documents of many corporations typically include advance notice bylaws. Such bylaws set a deadline (e.g., 90 or 120 days) in which shareholders must give prior notice to the corporation of their intent to make a nomination or other proposal at a shareholders' meeting. Courts generally enforce these bylaws under the rationale that reasonable limitations are justified in maintaining an orderly atmosphere during shareholders’ meetings.

From time to time, corporate counsel get a reminder from the courts that things are not always so simple. The recent Delaware case of Saba Capital v. BlackRock Credit noted, "when advance-notice bylaws unduly restrict the stockholder franchise or are applied inequitably, they will be struck down." The court did not permit the corporation to require shareholders' proposed directors to answer a 31-page questionnaire in five or fewer days. There have been recent cases, however, affirming the use of such bylaws. In Blue Lion v. Home Street, a Washington state trial court enforced such a bylaw last year, as did the Delaware Court of Chancery in an August 2019 ruling in Bay Capital Finance, LLC v. Barnes and Noble Education Inc.

In this evolving legal environment, corporate counsel must be familiar with all legal developments. These changes form the basis of future drafting and signal the need to review advance notice bylaws periodically to make sure clients remain protected. New rulings also guide counsel in assisting clients in using and enforcing well-drafted bylaws.

Listen as our nationwide panel of corporate law experts provides detailed advice and guidance on this crucial area of the law. The panel will address not only drafting but use and defense of these clauses.

1. Typical components in advance notice bylaws
2. Developments in the law
   1. Delaware (Saba Capital v. Blackrock Credit)
   2. Nationally
3. Drafting
   1. Drafting for a new entity
   2. Examining existing bylaws
4. Implementation
   1. Timely but deficient notices
   2. Untimely notices
   3. Litigation considerations

The panel will review these and other noteworthy matters:

• Drafting of advance notice bylaws
• The current state of the law
• Use of such bylaws
• Defense of such bylaws