2008 • Volume 33 • Number 3

Freedom and Its Limits in the Delaware General Corporation Law

Edward P. Welch and Robert S. Saunders

This article examines the concept of ‘freedom of contract” in Delaware corporation law. We first summarize some of the important enabling provisions of the Delaware General Corporation Law (DGCL) that give stockholders broad freedom to set the terms that will govern their corporation, and also identify three mandatory provisions that appear to limit that freedom. We then examine the competing arguments scholars have offered for and against freedom of contract in corporation law. We argue that most of the scholars’arguments are outdated because they fail to account for the availability of other forms of business entity that permit even greater freedom of contract-in particular, Delaware limited partnerships and limited liability companies. Finally, we suggest an alternative explanation for the limited set of mandatory terms in the DGCL: specifically, that the existence of mandatory terms guaranteeing certain core qualities benefits all Delaware corporations by saving the expense investors would otherwise incur to investigate whether a particular corporation had or lacked those core qualities.