Delaware General Corporation Law (DGCL) §109 states, “after a corporation other than a nonstock corporation has received any payment for any of its stock, the power to adopt, amend or repeal bylaws shall be in the stockholders entitled to vote.” §109(b) goes on to state that the bylaws “may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees.” The power to adopt, amend or repeal bylaws is also concurrently vested with the board upon approval of a granting charter clause. DGCL §109 appears to concurrently vest in shareholders and the board a broad authority to adopt, amend or repeal bylaws.
In Boilermakers Local 154 Retirement Fund v. Chevron Corp., the Court of Chancery of Delaware elaborated upon the scope of DGCL §109. Bylaws that “relate to the ‘business of the corporation[s],’ the ‘conduct of [their] affairs,’ and regulate the ‘rights or powers of [their] stockholders” are permissible. The court went on to state that the traditional subject matters of bylaws have been “stockholder meeting, the board of directors and its committees, and officerships” and “bylaws of Delaware corporations have a ‘procedural, process-oriented nature.’” Subject matter that “direct how the corporation, the board, and its stockholders may take certain actions” are within the bounds of §109. Ultimately in Boilermakers the court upheld a board-adopted forum selection bylaw, stating that the bylaw establishes “procedural rules for the operation of the corporation . . .” Similarly, in ATP Tour, Inc. v. Deutscher Tennis Bund, the Delaware Supreme Court upheld a board bylaw that shifted litigation expenses to a plaintiff.
I. Asymmetry Between the Powers of the Board and of Shareholders
a. Substantive Limits
DGCL §109 appears to establish broad authority for both shareholders and the board to amend bylaws as long as it is “not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees.” However, cases, doctrines, and other DGCL provisions have developed to create an asymmetry between the powers of the board and the shareholders.
In CA, Inc. v. AFSCME Emps. Pension Plan, the Delaware Supreme Court struck down a shareholder proposed bylaw amendment mandating reimbursement of election expenses for insurgent directors. In the matter, the court developed “a two-prong test: (a) whether the bylaw is within the scope of shareholders’ bylaw power; and (b) whether the bylaw violates any Delaware law to which it is subject.” In addressing the first prong, the court stated that although §109 may appear to make the board’s and shareholders’ powers to adopt, amend or repeal bylaws identical and coextensive, “§109(a) does not exist in a vacuum. It must be read together with 8 Del. C. § 141(a) . . .” Consequently, shareholders’ power under §109 is not coextensive and is limited by the “board’s management prerogatives under § 141(a).” Because shareholders’ exercise of § 109 powers must not conflict with board’s management powers under § 141(a), the court determined that bylaws must address procedural issues, not substantive business decisions. The court found the specific bylaw in question permissible, reasoning that the bylaw in question does not impermissibly interfere with the board’s authority under § 141(a) because it “establish[es] the procedures through which board and committee action is taken.” Nevertheless, the court struck down the bylaw amendment under the second prong, reasoning that the bylaw would impermissibly limit the board’s exercise of their fiduciary duties. The bylaw would “prevent the directors from exercising their full managerial power in circumstances where their fiduciary duties would otherwise require them to deny reimbursement to a dissident slate.”
Through its holding, the court created a substance-procedure distinction that limits shareholders’ power under DGCL § 109. Furthermore, because this limitation is based upon DGCL § 141(a), it does not apply to the board’s exercise of § 109. Consequently, judicial analysis of board-adopted bylaws is different from the analysis for shareholder-adopted bylaws that was outlined in AFSCME. Analysis of board action is similarly a two-step analysis. The first question is whether the bylaw addresses permissible subject matters. This is a question of facial validity that is generally easy to satisfy because of the broad scope of DGCL § 109 and board’s management authority under DGCL § 141(a). As stated in ATP, “corporation’s bylaws are ‘presumed to be valid, and the courts will construe the bylaws in a manner consistent with the law rather than strike down the bylaws.’” Second step considers the context in which the provision is adopted or deployed. Applying a factual case-by-case analysis, the courts consider whether the bylaw was adapted for inequitable purposes or may operate in an inequitable way.
AFSCME has been the only case that directly distinguished between shareholders’ and the board’s powers under DGCL § 109. Consequently, it is unclear whether future courts will continue to uphold this distinction. Nevertheless, although the Delaware legislature subsequently overturned AFSCME with an amendment authorizing proxy expense reimbursement and proxy access bylaws, “the principle that shareholder authority under section 109 is more limited than director authority appears to have survived.”
b. Other Limits
Beyond the limitations discussed in AFSCME, there are the other provisions in the DGCL that may provide a basis for the courts to restrict shareholders’ powers. “These provisions include authorizing proxy expense reimbursement under section 112, providing proxy access under section 113, classifying the board of directors under [section] 141(d), requiring majority voting under section 216, and opting out of the state antitakeover statute under section 203(b)(3).” These sections do not explicitly state that the shareholder’s right to adopt bylaws are restricted to the stated subject matters. However, the presence of such a list within the DGCL may imply that there is indeed a limited list of permissible subject matter for shareholder-adopted bylaws.
Finally beyond the legal limitations, there are practical limitations to the power of shareholders to adopt, amend or repeal bylaws. The modern trend of separation of ownership and control means that many shareholders hold their stock through institutional intermediaries. Therefore, the beneficiary owners are further removed from involvement in corporate governance, and their powers are vested in intermediaries, whose voting preferences may differ. Another practical limit is the collective action problem. Although rise of shareholder activism have reduced costs, “governance issues are rarely of sufficiently high value to attract the interest of hedge fund activists,” who are better situated to “mobilize traditionally passive institutional investors.”
 Del. Ann. Code tit. 8 § 109(a).
 73 A.3d 934 (2013).
 Id. at 951.
 Id. at 939.
 91 A.3d 554 (2014),
 Del. Ann. Code tit. 8 § 109(b).
 953 A.2d 227 (Del. 2008).
 EKREM SOLAK, SHAREHOLDER ACTIVISM AND THE LAW: THE FUTURE OF US CORPORATE GOVERNANCE 102 (2020).
 953 A.2d at 229.
 Jill E. Fisch, Governance by Contract: The Implications for Corporate Bylaws, 106 CALIF. L. REV. 373, 385 (2018).
 Id. at 235. The court reasoned that although the text of the bylaw “is couched as a command to reimburse”, when
considered within the context of election for directors, the purpose of the bylaw was deemed “to promote the
integrity of that electoral process.”
 Id. at 239.
 91 A.3d at 557.
 Id. at 558.
 Solak, supra note 9, at 102.
 Fisch, supra note 12, at 387.
 Id. at 389.
 Id. at 395.