Enforcing Fiduciary Duties in Founder Controlled Corporate Entities
Enforcing fiduciary duties against insulated founders requires pre-suit 220 inspections, defeating demand futility, and forcing entire fairness review.
Majority of the Minority
Meaning
Governance provisions in acquisition agreements require approval from an unconflicted subset of public shareholders to alter standard judicial review. Conditioned approval by a majority of the minority secures deference under the business judgment standard in controller transactions. The requirement measures whether disinterested equity holders independently endorse a proposed merger or buyout without pressure from controlling entities.
The protection stops applying if the controlling shareholder exerts financial coercion or threatens to retrench if the vote fails.
Vote Structure
Voting mechanics require isolating shares held by unaffiliated investors from those controlled by the buy-out group. Obtaining approval from a majority of the minority demands that more than half of the disinterested shares cast ballots in favor of the deal. Abstentions and unvoted shares must be processed according to explicit terms set in the proxy statement.
Conflict Clearance
Neutralizing conflicts of interest in squeeze-out transactions depends on two distinct procedural protections established prior to negotiation. Combining an empowered special committee with a majority of the minority vote shifts the burden of proof under Delaware corporate law. This dual structure shields controlling stockholders from claims of unfair dealing.
Standard Review
Judicial scrutiny shifts from entire fairness to the deferential business judgment rule when protective conditions are properly implemented. A failure in the majority of the minority approval re-exposes the transaction to strict judicial examination. Defendants then bear the burden of demonstrating substantive and procedural fairness.