By: Marc Casarino and Lori Smith

In Busch v. Richardson Electronics, Ltd.,^[1] the Delaware Court of Chancery held that a board of director’s decision not to pursue litigation on behalf of the corporation did not require the heightened two-step demand futility analysis developed in Zapata v. Maldonado^[2] because the board was not disqualified by lack of independence from making a valid business decision regarding the litigation. Although deference to the business judgment of an independent and disinterested board is not a controversial concept, the path to its decision in this case required the court to address the unique issue of whether a board’s alleged pre-litigation deception of a stockholder should trigger a Zapata-like analysis of the board’s post-litigation decision-making. The court affirmed that Zapata applies only in the limited circumstance where a disqualified board uses an independent committee to cleanse the board’s decision to not pursue litigation, and refused to expand a Zapata-like analysis to alleged deceptive conduct affiliated with an independent board. (more…)

By: Jeremy Miller

California Governor Jerry Brown recently signed legislation requiring all publicly-held domestic corporations and publicly-held foreign corporations headquartered within the state to comply with certain minimum gender-based requirements related to the composition of their board of directors. The new law could be viewed as a step in the right direction to advance gender equality at the highest levels of management, but is not without both proponents and opponents. (more…)

By: Lori Smith and Melissa Nott Davis

The Delaware Chancery Court recently reaffirmed several important contract interpretation principles in Post Holdings, Inc. v. NPE Seller Rep LLC, Civil Action No. 2017-0772-AGB. The case highlights the fact that a party claiming its contractual obligations were excused by a material breach by the other party may not seek or continue to receive any benefits under the contract after the alleged material breach. The court also clarified set-off rights under a stock purchase agreement. (more…)

By: John Eagan

The Internal Revenue Service (IRS) recently issued significant guidance regarding the implementation of the 2017 Tax Act provisions involving opportunity zones and the potential for both capital gain deferral and capital gain exclusion for investments related to these zones. Under the 2017 Tax Act, certain low-income communities can be designated as “qualified opportunity zones” and, after a nomination process, the IRS announced that more than 8,700 communities in all 50 states, the District of Columbia and five U.S. territories (American Samoa, Guam, Puerto Rico, the Northern Mariana Islands and the U.S. Virgin Islands) received the designation. (more…)

By: Michael Mentzel

If you just bought a brand new car, would you drive it off the lot without insurance? Of course you wouldn’t, but many entrepreneurs in a hurry to get their business going set up corporations without considering the risks of proceeding without a shareholders agreement.

Like insurance, you are likely to give a shareholders agreement little thought when things are going well, but if the relationships among the shareholders become contentious, you will find that the time and effort put into crafting a shareholders agreement was worthwhile.

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By: Marc Casarino and Lori Smith

The Delaware Court of Chancery in Manti Holdings LLC v. Authentix Acquisition Company recently confirmed that a stockholder agreement may contractually restrict the exercise of statutory appraisal rights. Although the court has previously ruled on the enforceability of waivers of preferred stockholders’ appraisal right, this marks the first time that a Delaware court has ruled on the enforceability of contractual restriction of appraisal rights for common stockholders. The decision provides guidance for negotiating and drafting investment-related documents to properly address effective waiver of appraisal rights when a triggering event occurs. (more…)

By: John McCarrick, Lori Smith, Ryan Udell and Sedgwick Jeanite

In this post, we summarize some of the highlights from AIG’s recently published Mergers and Acquisitions 2018 Claims Report, and include our own observations on the role that Representations and Warranties Insurance (R&W Insurance) is increasingly playing in M&A transactions. (more…)

By: Marc Casarino

The business and affairs of a Delaware corporation are managed by its board of directors. The board’s managerial oversight includes deciding whether to pursue a claim belonging to the corporation. A stockholder may demand that the board pursue a claim on behalf of the corporation. By doing so, the stockholder concedes the board’s capacity to properly evaluate pursuit of the claim. Delaware courts defer to the business judgment of the board in such circumstances, and therefore it is very difficult for a stockholder to successfully challenge a board’s decision not to pursue the claim. (more…)

By: Alexandria Kane and Jamie Wang

On August 10, 2018, the U.S. Securities and Exchange Commission (SEC) issued a Small Entity Compliance Guide for Issuers (the Guide) on the recently amended smaller reporting company (SRC) definition. On June 28, 2018, the SEC adopted amendments to the definition of SRC which expand the number of companies that qualify as SRCs and can thereby take advantage of the scaled disclosure requirements applicable to such companies. The expanded definition of SRC will be effective on September 10, 2018. (more…)

By: George Morrison

The State of New York is seeking comments on draft guidance from employers on mandatory sexual harassment prevention policies and annual employee training. Effective October 9, 2018, New York employers will be required to adopt the state’s written model sexual harassment prevention policy or issue a substantially similar policy to employees. A copy of New York’s draft model policy can be found here. (more…)