Business Law Prof Blog: Guest Post by Itai Fiegenbaum – How Overturning Gentile Widens the Controlling Shareholder Enforcement Gap (October 9, 2021)

Professor Itai Fiegenbaum, of Willamette University College of Law, on the Business Law Prof Blog, has made available for download his article, “Guest Post by Itai Fiegenbaum – How Overturning Gentile Widens the Controlling Shareholder Enforcement Gap.” The abstract is as follows:

Minority expropriation by a controlling shareholder manifests in a variety of forms. Controllers can cause the corporation to sell them an asset at a steep discount. Or purchase from them an asset for an inflated price. These self-dealing transactions share a common thread: Unfair pricing transfers value away from the corporation, and, by extension, from its minority shareholders, to the controller. An additional complication arises when the corporation’s stock is issued to the controller. In this case, a sweetheart deal dilutes the value of their relative voting and dividend rights.  

Shareholder litigation is designed to keep transaction planners honest. Not all manner of minority expropriation, however, is subject to the same enforcement procedure. Long-standing corporate law principles distinguish between transactions that harm shareholders directly and transactions that harm them derivatively, through a reduction in their share price. Challenges against the former can proceed directly; challenges against the latter, by contrast, must overcome several procedural hurdles before a court will adjudicate a claim on its merits.

To see full post, click: Business Law Prof Blog

Posted by Anthony Tran, Associate Editor, Wealth Strategies Journal

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