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Court of Chancery Clarifies Duties Under Stockholder Agreements

Posted In Fiduciary Duty

Latesco, L.P. v. Wayport, Inc., C.A. 4167-VCL (July 24, 2009).

The question sometimes arises over what are the disclosure duties of the buyer under a stockholder agreement that compels a stockholder to sell her stock upon some triggering event, such as retirement. This decision clarifies the rules that apply.

In general, when the sale is strictly pursuant to the stockholder agreement, then that agreement determines if any disclosure is required. However, it is not always clear whether the sale is "strictly" pursuant to the agreement as sometime other terms are discussed, extra stock added [as was the case here] and the agreement for some reason not followed. When that happens, the rules change.

While the corporation itself may not have any disclosure duties, the directors as fiduciaries do have those duties. Thus, if they are the buyers, then they need to disclose material facts when they purchase a stockholder's shares outside the provisions of a stockholder's agreement.

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