Abstract:

In this article, Professor Bebchuk takes issue with the increasingly influential view that companies should be completely free to opt out of corporate law rules by adopting appropriate charter provisions. He argues that the contractual view of the corporation, on which supporters of free opting out rely, offers substantial reasons for placing limits on opting out. Professor Bebchuk focuses on opting out done by charter amendment, after a company has been formed, and highlights the differences between opting out by charter amendment and opting out in the initial charter. Analyzing the informational and collective action problems involved in the charter amendment process, he concludes that the case for placing limits on opt-out amendments is so compelling that even strong believers in free markets should recognize the need for such limits. Professor Bebchuk also provides criteria for determining the issues with respect to which, and the circumstances under which, opting out by charter amendment should be prohibited or restricted.