In Pierre Schroeder, et al. v. Philippe Buhannic, et al., C.A. No. 2017-0746-JTL, the Court was asked to consider the validity of a shareholder consent that removed a CEO and appointed a new CEO and Chairman of the Board.

Although there was a provision in a stockholder agreement that required shareholders to vote their shares to elect “three (3) representatives designated by the holders of the majority of the common stock, one of whom shall be the Chief Executive Officer of the Company”, the Court reminds us that if shareholders wish to limit the power of the board to manage the corporation, including the right to select the CEO, this power needs to be restricted in the certificate or bylaws of the corporation.

BOTTOM LINE: Do not assume that the provisions of a shareholder agreement will be enforceable without first considering (i) whether or not the provision is permitted under the DGCL, (ii) how the Delaware Courts have interpreted the relevant DGCL provision and (iii) what must be addressed in the Certificate or bylaws of the corporation to enable a shareholder agreement to address the issue.