The burden of proof and the applicable standard of evaluation of a transaction will often be determinative of challenges to transactions where corporate directors are interested parties. “Entire Fairness” is a demanding standard that is applied when shareholders have not ratified the transaction. “Business Judgment” is deferential and is applied where shareholders have ratified the transaction. Despite the efforts of the Delaware Supreme Court to clarify the circumstances in which shareholder ratification affects the evaluation of director-interested transactions, there are still gray areas and differences in the statutes and precedent among the jurisdictions.
In Gantler v. Stephens, 965 A.2d 695 (Del. 2009), the Delaware Supreme Court sought to clarify and limit the circumstances in which shareholder approval reallocates the burden of proof and alters the applicable standard of evaluation by holding that shareholder approval does not result in application of the business judgment rule if the proposal is one that the shareholders are required to vote on, such as a charter amendment. Gantler has not been universally followed on this aspect of the ruling.
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