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Court of Chancery Limits Use of Interested Directors' Votes

Posted In Directors

Sutherland v. Sutherland, C.A. No. 2399-VCL (Del. Ch. March 23, 2009)

This decision is a good outline of the effect of Section 144 of the Delaware General Corporation Law ("DGCL") that permits transactions to be judged on their merits, even if they are with interested directors. After explaining that law, the Court went on to hold that a certificate of incorporation provision that permitted interested directors' votes to be used to invoke the business judgment rule would be in violation of the DGCL and, thus, invalid.

This is important, because it means that, at least in a Delaware corporation, there are limits on what exculpation can be provided to directors in a certificate of incorporation. The law may well be different in an LLC or LP, of course.



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