The Corporate Charter

The corporate charter consists of the articles of incorporation and corporate bylaws that establish the governance rules of the firm. The corporate charter establishes the conditions that allow for a takeover. Firms frequently amend corporate charters to make acquisitions more difficult. For example, usually, two-thirds (67 percent) of the shareholders of record must approve a merger. Firms can make it more difficult to be acquired by changing this required percentage to 80 percent or so. Such a change is called a supermajority amendment.

Another device is to stagger the election of the board members. This makes it more difficult to elect a new board of directors quickly. We discussed staggered elections in Chapter 8.

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