Delaware Corporate Law Update

Updates on Delaware Corporate Law by Evan O. Williford, Esq., Delaware Corporate Litigation Attorney.

Owners of a Delaware Business Entity

In talking about how a Delaware business entity functions, it is important to keep in mind three groups of people: (1) the managers; (2) the directors; and (3) the owners.  Not all business entities will have all three, and in some (particularly small) entities they might be the same people.

But each of these groups have different jobs.  The managers (or officers) run the entity on a day-to-day basis.  The directors hire and fire the managers and oversee their performance and the entity’s business.

And then there are the owners.  The owners of a Delaware corporation are its “stockholders;” and the owners of a Delaware LLC are its “members”.  As important as the managers are, as powerful as the directors can be, none of them own the entity – the stockholders or members do.

So what rights do the owners have?  We can think about their rights as generally dividing into three categories – transfer rights, other financial rights, and voting rights.

The first category of rights the owner has stems from the fact that they have a percentage ownership in the entity itself.  For example, stock in a well-known and publicly traded Delaware corporation like The Walt Disney Company will have a recognized price; the stockholder can sell their stock for that price.  To many stockholders that may be only right they care about.  An entity’s organizational documents could limit those rights.

Owners can have other financial rights.  An entity may choose to return a share of its profits to stockholders through “dividends”.  When a corporation is liquidated, the money left after it has paid its debts and sold its assets (if any) is divided among the stockholders.  And if a corporation is acquired through a merger, its stockholders could receive an amount equal to their interest in its fair value.

All of these rights would be worthless if not for the right to vote.  Owners have the right to vote on certain important matters, such as who will manage and run the entity.  For instance, a stockholder in a corporation may have the right to elect directors.  Stockholders may also vote on certain fundamental corporate changes such as mergers, dissolutions, and amendments to the articles of incorporation.

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Filed under: Basic Law of Corporations

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Disclaimer

Delaware Corporate Law Update solely reflect the views of Evan Williford of The Williford Firm, LLP. Its purpose is to provide general information concerning Delaware law; no representation is made about the accuracy of any information contained herein, and it may or may not be updated to reflect subsequent relevant events. This website is not intended to provide legal advice. It does not form any attorney-client relationship and it is not a substitute for one.