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School’s Board Of Directors Could Not Remove Members’ Ability To Vote On Bylaws
The Taipei American School is a college preparatory independent school that offers children, particularly those with parents who are United States citizens, an American-based education. The Taipei American Foundation is a nonprofit corporation incorporated in Delaware, which oversees the School and also assists in building, establishing, maintaining, and operating schools and educational institutions of all kinds in the United States and in foreign countries. The Foundation is a member-managed nonprofit corporation, meaning that, among other things, the members of the organization are responsible for electing the Board of Directors. In a series of amendments to the Foundation’s governing documents, the Board of Directors reserved the exclusive right to amend, alter, change, or repeal the Foundation bylaws, eliminating that right from the general members.
Randy Chen, one of the general members, sent a letter to the Board Chair addressing the amendments to the governing documents, and asserting that these changes contravened the will of the general members, disenfranchised general members, and were not consistent with Delaware corporate law. Chen requested that the Board restore the general members with the power to adopt, amend, or repeal bylaws. The Board refused.
Chen filed a complaint against the Foundation, arguing that the Board breached its fiduciary duties to its members. Chen argued that the divestment of general members’ power to vote on bylaws violates Delaware corporate law because the law states that, “in the case of a nonstock corporation, the power to adopt, amend or repeal bylaws shall be in its members entitled to vote.” The Foundation argued that this section of the law should be interpreted to read that only members entitled to vote may vote on the bylaws. In other words, only the members that are also on the Board are entitled to vote.
The Court found that the statute was not ambiguous, and the plain language requires that all members have the right and power to vote on the corporation’s bylaws. The Court stated that if the Foundation had different classes of members for director members and general members, and if general members were part of a non-voting class of members, the outcome of the case may be different. However, since the general members are voting members, and have the power to vote for Board members, they are entitled to vote on the bylaws.
Chen v. Taipei American School Foundation (Del. Ch. Jan. 27, 2023) 2023 WL 447692.
While this case is from Delaware and not binding in California, it shows how a court decided on board governance issues for a school organized as a member corporation.