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James G. McMillan III

In an opinion issued June 6, Nguyen v. View, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery ruled that Section 204 of the Delaware General Corporation Law, which allows a “defective corporate act” to be ratified, cannot be used to validate an “unauthorized” corporate act. In a case of first impression, the plaintiff, Paul Nguyen, held a majority of the corporation’s common stock and was entitled to a class vote when the company sought to issue new rounds of preferred stock. Although Nguyen vetoed the first new round, the company issued that round and several more anyway, to the tune of over $500 million. Years later, when the transactions were invalidated, the company’s initial preferred stockholders converted their shares to common stock and voted as a majority of the common to ratify the transactions under Section 204.

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