In recent years, frivolous and inefficient multijurisdictional stockholder litigation has become a costly burden on corporations in the United States. A popular solution among boards of directors has been to adopt bylaws with forum selection provisions (which require certain disputes to be litigated before one forum). Those who oppose this solution have challenged these provisions on the grounds that they were passed as bylaws—which are unilaterally adopted by boards without stockholder consent. These challengers argue that bylaws are like contracts, and, therefore, require the mutual assent of both stockholders and the corporation to be enforceable. This argument implicates a classic theory of corporate law—the contractarian theory—but vastly oversimplifies the relationship between a stockholder, her corporation and the board of directors. When the contractarian theory of corporate law is applied to the full legal and practical reality of that relationship, the mutual assent argument falls apart and the contractarian theory is shown to support the enforceability of bylaws.
Benjamin D. Landry,
Mutual Assent in the Corporate Contract: Forum Selection Bylaws,
18 Fordham J. Corp. & Fin. L. 889
Available at: http://ir.lawnet.fordham.edu/jcfl/vol18/iss4/3