Extending Dual Class Stock: A Proposal

Extending Dual Class Stock: A Proposal

David Berger, Jill Fisch, Steven Davidoff Solomon

Series number :

Serial Number: 
707/2023

Date posted :

May 06 2023

Last revised :

May 06 2023
SSRN Share

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

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.

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Published in

Published in: 
Description: 
Theoretical Inquiries in Law, Forthcoming

Authors

Mr
Real name:
David Berger
Practitioner Member
Wilson Sonsini Goodrich & Rosati