The regulation of controlling shareholder related-party transactions is one of corporate law's animating concerns. A recent Chancery Court decision extends the double approval framework endorsed by the Delaware Supreme Courtindependent director committees and a majority of the minority shareholders-to non-freezeout transactions. This article explains why the Chancery Court's innovation does not decrease the risk faced by minority shareholders. Subjecting a transaction to the double approval framework is a voluntary decision. Transaction planners will willingly traverse this path if the benefits outweigh the loss in deal certainty and attendant costs. When almost every freezeout is challenged in court, the voluntary application of this framework is the logical outcome. The calculus in the non-freezeout context leads to a different result. Non-freezeouts must be challenged by a derivative lawsuit. The procedural hurdles inherent in the derivative mechanism affect both the demand for the ratification framework and the incentive to comply. Without a tangible threat of a lawsuit to coax voluntary compliance in the non-freezeout setting, transaction planners have nothing to gain by subjecting the deal to the double approval gauntlet. This article's analysis reveals a large gap in the enforcement of self-dealing transactions. Recent high-profile litigation exposes questionable adherence to the double approval framework for obviously conflicted non-freezeout transactions. The paucity of derivative lawsuits foretells a troubling fate for similar transactions at less enticing litigation targets. Worse yet, the superficial step toward improved minority shareholder protection stifles the discussion on additional reform. errors and inaccuracies are my own.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.