Void or Voidable? — Curing Defects in Stock Issuances Under Delaware Law


Bigler, C. Stephen and Tillman, Seth Barrett (2010) Void or Voidable? — Curing Defects in Stock Issuances Under Delaware Law. In: Acquisitions and Mergers: Negotiated and Contested Transactions. Clark Boardman Callaghan, Deerfield, IL, pp. 1109-1151. ISBN 9780876324622

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Abstract

It is not unusual for a Delaware corporation’s stock records to have omissions or procedural defects raising questions as to the valid authorization of some of the outstanding stock. Confronted with such irregularities, most corporate lawyers would likely attempt to cure the defect through board and, if necessary, stockholder ratification. However, in a number of leading cases, the Delaware Supreme Court has treated the statutory formalities for the issuance of stock as substantive prerequisites to the validity of the stock being issued, and the court has determined that failure to comply with such formalities renders the stock in question void, i.e., not curable by ratification. Unfortunately, the decisions issued by the Delaware courts have not afforded the necessary certainty to allow practitioners to decide whether a particular defect in stock issuance is a substantive defect that renders stock void or a mere technical defect that renders stock voidable. This Article analyzes the cases giving rise to this lack of clarity and proposes that the Delaware courts apply the policy underlying Article 8 of the Delaware Uniform Commercial Code to validate stock in the hands of innocent purchasers for value in determining whether stock is void or voidable.

Item Type: Book Section
Additional Information: Postprint version of article published in Bigler, C Stephen & Tillman, Seth Barrett (2010) 'Void or Voidable? -- Curing Defects in Stock Issuances Under Delaware Law'. Bryan, Joy Marlene & Lorne, Simon M, Acquisitions and Mergers: Negotiated and Contested Transactions
Keywords: Void; Voidable; Stock Issuances; Delaware; Law; Delaware Uniform Commercial Code; ratification;
Academic Unit: Faculty of Social Sciences > Law
Item ID: 5200
Depositing User: Seth Tillman
Date Deposited: 22 Jul 2014 15:39
Publisher: Clark Boardman Callaghan
Refereed: Yes
URI:

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