Restating the Law of Conflicted Controller Transactions: Part 4

My proposal

This is the last in a series of posts on the draft Restatement of the Law of Corporate Governance’s approach to policing conflicted controller transactions. Such transactions have been much in the news of late, not least because the Delaware judiciary’s approach to regulating such transactions led,many controllers of Delaware corporations to reconsider whether they wanted their companies to be incorporated in Delaware (most notably Elon Musk of Tesla), which in turn led to major legislative action this spring with the passage of SB 21.

In prior posts, I discussed pre-SB 21 Delaware law, the Restatement’s definition of who is a controlling shareholder, how the Restatement proposes to cleanse conflicted controller transactions, and how Delaware SB 21 regulates such transactions.

The developments in the law present the Restatement drafters with two questions: (1) Which transactions involving the corporation’s controlling shareholder present a sufficient conflict of interest to justify invoking the entire fairness standard? (2) How should such conflicted controller transactions be cleansed.

I do not have strong views on the latter issue. But I do have quite strong views on the former, so it is on that question that this post focuses.