The rule seemed well settled. When a controlling shareholder attempts to take a company private, and the minority shareholders challenge the transaction alleging a breach of fiduciary duty, the court reviews the transaction under the entire fairness standard—under which the controlling shareholder has the initial burden to prove the transaction was fair. The only questions were how and when the burden would shift to the minority shareholders to show it was unfair.

Delaware Supreme Court cases from 1981 to 2012—including Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1981), Rosenblatt v. Getty Oil Co., 493 A.2d 929 (Del. 1983), Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110 (Del. 1994), and Americas Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012)—provide the general principle that the controlling shareholder can shift the burden of proving entire fairness if the transaction is approved by either (a) an independent, well-functioning special committee, or (b) a fully informed and uncoerced vote of the majority-of-the-minority shareholders. Because the rule was disjunctive—special committee approval or a majority-of-the-minority vote shifts the burden—controlling shareholders had no incentive to do both and risk rejection of the transaction due to the additional safeguard.

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Tags: controlling shareholder, minority shareholders, transaction