Contract Rights and Control

Delaware’s definition of controlling shareholder is evolving. After a series of cases taking an expansive approach, on March 25, 2025, the Delaware legislature amended its statute in an effort both to restrict the scope of the concept and to provide greater predictability.

These efforts have overlooked the impact of DGCL section 122(18), which broadened the permissible scope of control rights that can be conferred pursuant to a shareholder agreement. As written, the definition of controlling shareholder focuses exclusively on the power to elect a majority of the board, even though section 122(18) enables contracts that grant shareholders wide authority to displace the board’s role and exercise direct managerial authority.

This article corrects for this lapse. After summarizing the background to the recent amendments, the article explains the implications of contractual control rights for the definition of controlling shareholder and offers a principled solution for when contractual rights warrant treatment as a controlling shareholder.