Forum Selection Clause
(Bylaws or Certificate of Incorporation) (NJ Corporation)

Summary

This Forum Selection Clause (Bylaws or Certificate of Incorporation) (NJ Corporation) should be used in certificate of incorporation or the bylaws (or both) of a New Jersey corporation to select an exclusive forum for intra-entity disputes. This clause contains practical guidance and drafting notes. Following Delaware’s lead, many New Jersey corporations have charter or bylaw provisions for forum selection for intra-entity disputes. This forum selection practice was established in dicta by In re Revlon Inc., 990 A2d 940 (Del. Ch., 2010), and is frequently modeled by corporations formed in other states. Forum selection clauses may eliminate forum shopping, which is generally predicated on the notion that certain states are more sympathetic to shareholder suits than others. Moreover, forum selection clauses may reduce the expense of multijurisdictional litigation as well as the possibility of potentially inconsistent outcomes. When forum selection clauses began to proliferate, there was some initial concern that they would be valid only if originally included in either or both of the corporation’s formation documents—not if the corporation were already formed and such clause was then unilaterally adopted by a sitting board of directors. However, a preeminent public policy doctrine common to all states is that “freedom of contract” also applies to relations between a corporation and its shareholders. In this regard, corporate by-laws are generally adjudged to be living contracts between a corporation and its shareholders, especially given that the by-laws also generally contain procedures whereby the shareholders may repeal, amend and replace them. In fact, many corporate charters provide that boards of directors and shareholders have shared authority for the corporation’s charter for certain matters. For more information, see Formation and Qualification (NJ Corporation).