If you are a shareholder or director of a Delaware corporation, and you dispute the composition of the company’s board of directors, or the appointment of an officer, you have a remedy under the Delaware General Corporation Law (“DGCL”).  This post will generally discuss such disputes, and the scope of remedies available to such shareholders or directors.

What Mechanism Can a Shareholder or Director Use To Challenge the Propriety of the Composition of a Board of Directors or the Holding of Office by an Officer?

Section 225 under the DGCL provides the means whereby the Court of Chancery can adjudicate an action that challenges an election, appointment, removal or resignation of any director or officer. The purpose of such a suit is to address and resolve the uncertainty that arises when the authority of corporate leaders and, thus the governance of a corporation, is in dispute.

Is a Section 225 Action Limited to Disputes Over the Election of Directors and Officers?

No. In addition to disputes over the election of officers and directors, a Section 225 proceeding can be initiated to address the result of any vote of stockholders or members, such as a disputed stockholder vote over matters other than to the right of a director or officer or member of a governing body to hold office, as well as the right of any person to hold or continue to hold office.

Can Corporate Wrongdoing Be Addressed in a Section 225 Action?

Because of the need to expeditiously determine the outcome of a disputed election, a proceeding under Section 225 is strictly limited to those issues necessary to the determination of the statute’s purpose. Therefore, unless it is necessary to the determination of the proper composition of a board of directors or officers of the company, collateral issues such as breach of fiduciary duties or disputed share ownership will be deemed outside the purview of such an action.

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.