Delaware Corporate Law Myth-Busting: The “Expanding Definition” of Controlling Stockholder
This note is the first in a series intended to bust several burgeoning myths about the history and trajectory of Delaware common law governing controlling stockholders. These myths are being framed as new and dangerous problems that must be solved if Delaware is to remain the preferred domicile in the United States for corporations, and […]
Ben Potts is a Senior Counsel, and Andrew Blumberg and Tom James are Partners, at Bernstein Litowitz Berger & Grossmann LLP. This post is based on a BLB&G memorandum by Mr. Potts, Mr. Blumberg, Mr. James, and James Janison, and is part of the Delaware law series; links to other posts in the series are available here.
This note is the first in a series intended to bust several burgeoning myths about the history and trajectory of Delaware common law governing controlling stockholders. These myths are being framed as new and dangerous problems that must be solved if Delaware is to remain the preferred domicile in the United States for corporations, and especially for controlled corporations. In the words of one commentator, “Delaware courts need a course correction” because “[t]hey have pushed the law governing controlling shareholders far beyond legitimate policing into unnecessary and unwise overregulation.”[1]
We argue that the as-framed “problems” are not new, dangerous, or real. The judicial decisions on which the commentators seize uphold Delaware law’s uncontroversial purpose to minimize agency costs, including by preventing or remedying controllers’ tunneling of value away from corporations and their minority stockholders. Rather than a dramatic or unexpected shift in the law of controllers, the decisions represent a conservative and common-sense application of longstanding equitable principles. The result is a clear and approachable framework that appropriately accounts for the ways control rights are allocated in modern corporations. That makes for both good law and good policy and best facilitates wealth creation.
