When a Minority Stockholder May Be Deemed a Controller

In just the past three months, the Delaware Court of Chancery has issued four opinions (In re KKR Financial Holdings LLC Shareholder Litigation, Consol. C.A. No. 9210-CB; In re Crimson Exploration Stockholder Litigation, C.A. No. 8541-VCP; In re Sanchez Energy Derivative Litigation, Consol. C.A. No. 9132-VG; and In re Zhongpin Stockholders Litigation, Consol. C.A. No. 7393-VCN) addressing the circumstances in which a minority stockholder may be deemed a controlling stockholder under Delaware law.

It is well settled that a stockholder is deemed to be a “controlling” stockholder only where: (1) it owns more than 50 percent of the voting power of a corporation, or (2) it exercises actual control over the corporation’s board of directors. The above referenced opinions, which are discussed below, provide valuable guidance as to the circumstances under which minority stockholders may be deemed a controller under the second part of this test. Specifically, the cases make clear that actual board control in the transaction at issue is the “defining and necessary feature of a minority controlling stockholder.”

In re KKR