Where your corporation is organized can make a big difference in what self-dealing (sometimes litigated as “misappropriation of corporate opportunities”) is allowed. The New York Times pointed out the advantages of Nevada incorporation over Delaware for the major owner of Dish Network’s possible purchase of LightSquared, Inc., a broadband wireless company. See http://nyti.ms/1bfXsQe.
The story reports that a majority owner of Dish Network used a purchase of LightSquared debt by an equity fund he also controlled to better position himself for control of Lightsquared, which is going through bankruptcy court supervised reorganization. Nevada, the state where Dish Network is incorporated, does not have the Delaware requirement that a committee of independent directors approve all dealings which affect the company’s business opportunities. A Nevada court ruled, that elimination of the majority and “most experienced” owner from the bidding process would harm Dish Network, and refused to reinstate an independent committee of directors that had previously recommended the LightSquared acquisition. How is this relevant to mergers, acquisitions, and recapitalization? Analysis of rights and liabilities of officers and directors by your lawyers, and use of states which permit more freedom for such owners, can determine which transactions are possible, and which could be effectively challenged in court. Most buyers and sellers want uncontested closings without a lot of litigation expenses after a deal is done.