Who Is In Control? Considerations For Significant Equityholders In The Current Business Environment

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Equity investors and sponsors are actively reviewing the financial needs and business operations of their portfolio companies. As a result of the economic upheaval and government-mandated social restrictions imposed by the blistering spread of COVID-19 around the world, there are a number of challenging decisions that will need to be made with significant speed and limited information. Accordingly, it is important to consider the responsibilities and duties that attach to equity investors and sponsors who are deemed "controlling equityholders" under applicable law.

In Delaware, courts have long held that controlling equityholders, which can include minority equityholders in certain cases, owe fiduciary duties to the company and their fellow equityholders. These duties are substantially similar to the fiduciary duties owed by individuals serving on boards of directors of a corporation.