Labels matter. Under Delaware law, few labels are more consequential than that of “controlling stockholder.” Controllers, unlike other stockholders, owe fiduciary duties to their fellow stockholders, and—as the decisions in In re John Q. Hammons Hotels Shareholder Litigation, C.A. No. 758-CC (Del. Ch. Oct. 2, 2009), and, more recently, Southeastern Pennsylvania Transportation Authority v. Volgenau, C.A. No. 6354-VCN (Del. Ch. Apr. 5, 2013), showed—their presence in even a third-party transaction can affect the standard of review applied to such a transaction.
As explained in In re PNB Holding Shareholders Litigation, C.A. No. 28-N (Del. Ch. Aug. 18, 2006), “a controlling shareholder exists when a stockholder: (1) owns more than 50 percent of the voting power of a corporation; or (2) exercises control over the business and affairs of the corporation.” In PNB, then-Vice Chancellor Leo E. Strine Jr. cautioned that “the second test is not an easy one to satisfy,” and that it only applies to “stockholders who, although lacking a clear majority, have such formidable voting and managerial power that they, as a practical matter, are no differently situated than if they had majority voting control.” The test provides a judicial framework for determining whether a stockholder exercises control over the corporate machinery—that is, control over the board, which is vested with the statutory authority to supervise the business and affairs of the corporation—to its own special advantage and to the detriment of the other stockholders.
