Document Type

Article

Publication Date

7-10-2024

Abstract

The increasing use of dual class voting structures in public companies, and the frequency with which such structures contain sunset provisions, raises the issue of when and how such sunset provisions should be modified, extending the company’s use of the dual class structure. Recent decisions have applied the entire fairness legal standard to dual class extensions, but, in the recent Trade Desk case, the Delaware Chancery court concluded that the extension complied with the MFW standard and should therefore receive the protection of the business judgment rule. We question the practicality of applying either entire fairness or MFW to dual class extensions. Instead, we argue for a contractual approach in which the initial charter specifies the conditions under which a dual class structure can be extended. The contractual approach increases the information available to shareholders at the IPO stage, thereby improving market efficiency. We argue that extensions that comply with such charter provisions should be insulated from entire fairness review.

Keywords

Dual class voting, capital markets, entire fairness, MFW standard, institutional investors, controlling shareholders, shareholder voting, term-based sunsets, shareholders, IPO market, Trade Desk, corporate charters, Delaware Chancery Court

Publication Title

Theoretical Inquiries in Law

Publication Citation

25 Theoretical Inquiries L. 23 (2024)

DOI

https://doi.org/10.1515/til-2024-0003

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