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Court of Chancery Limits Stockholder Agreement Buy Rights

Seidensticker v. The Gasparilla Inn Inc., C.A. No. 2555-CC (June 17, 2007).

Agreements among stockholders of privately held companies usually restrict the sale of company stock and give the other stockholders a right of first refusal. As with any contract, these agreements will be enforced by Delaware courts in accordance with their terms and not as the stockholders may wish years later when a dispute arises. Here, the Court enforced the time limits set out in such an agreement for when the option to acquire a fellow stockholder's shares must be exercised.

 

The Court's specific holding was that a time limit to purchase may be triggered even before the amount to be paid is determined. This illustrates the need for careful drafting as it is a bad idea to require a right to buy be exercised before the price is known. Share

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