Controlling Shareholders and Misc. Flashcards
What is the duty owed by controlling shareholders?
Fiduciary duty to minority shareholders (sometimes to others too, e.g., the corporation)
(can’t use dominant position to gain personal advantage at expense of others)
When will courts intervene against a controlling shareholder sale for premium of control?
- Sale to a person that controlling shareholder knows or should know will harm the corporation (i.e., looters) (Remedy is to disgorge seller’s profit; seller probably liable for all damage done to the corporation)
- De facto sale of an asset (Remedy is to split shareholders)
- Sale of a seat on the board (Remedy is to disgorge the premium)
What are the factors that indicate a freeze-out merger?
(Court views transaction as a whole: must be fair course of dealing and a fair price)
- Whether the deal is tainted by self-dealing or fraud;
- Whether the minority shareholders are dealt with fairly; AND
- Whether there is a legitimate business reason for the merger
What are the rules for market trading on inside information?
(Must be publicly traded!)
Director or officer has breached a duty to the corporation
(Corporation can recover her profit, i.e. price before minus price at a reasonable time after disclosure)
What are the rules for nondisclosure of special facts?
(insider trading family) (Not on the market)
Can’t trade on special facts with non-insiders: Must disclose special facts to place all parties on the same footing
What constitute special facts?
Those that a reasonable investor would consider important in making an investment decision
Who can sue for nondisclosure of special facts?
A shareholder to whom the insider owed a duty of disclosure
What is the measure of damages for nondisclosure of special facts?
The difference between the price paid and the price at a reasonable time after the information becomes public
(Shareholder recovers persoanlly)
