Rainbow Mountain, Inc. v Begeman, C.A. No. 2018-0403-PAF (Del. Ch. Aug. 25, 2025)
In this case, the Court of Chancery concluded that a written member consent validly replaced the nonstock corporation’s governing body, and that the subsequent attempt by the old board to remove one of the members was not valid. The Court also found that the attempted amendment of the certificate of incorporation was invalid. Finally, the Court ordered the corporation to hold an annual meeting of the members to elect a governing body, which would be overseen by a Magistrate in Chancery.
The Delaware nonstock family corporation was formed to hold a 97-acre Virginia property. In 2017, five relatives delivered membership notices claiming the right to Class A voting status under the bylaws. Together with existing Class A members, they executed a written consent that removed the sitting nine-member board, elected a new board, purported to amend the certificate of incorporation to eliminate a nonprofit designation, among other things. Two months later, the ousted directors met, rejected the new board, and voted to terminate one sibling’s membership. Litigation followed under 8 Del. C. § 225 to determine the corporation’s proper governing body and the validity of the competing actions.
The Court found that the written consent was valid because the persons signing it constituted a majority of the Class A members. The bylaws granted automatic Class A membership to descendants over age 35 who submitted a signed notice, and the notices here complied. Under the bylaws, only a majority of the board could delay automatic admission within 60 days, and no such board action occurred. Thus, with the five new members counted, the nine consent signers held a voting majority. Under DGCL § 141(k), members may remove directors with or without cause by written consent unless the certificate limits that right, and here it did not. The consent here met statutory timing and delivery requirements and validly replaced the board. However, the consent’s attempt to amend the certificate of incorporation was ineffective. For nonstock corporations, the board (not the members) is vested with the power to amend the certificate of incorporation, unless the certificate states otherwise, and here it did not. Additionally, the Court declined fee reimbursement and other requests. Due to a delay of many years between annual meetings to elect directors, the Court ordered an annual meeting under the supervision of a Magistrate in Chancery.
