Klaassen v. Allegro: Implementing the Stockholders’ Agreement

December 4, 2013

Publication| Corporate Transactions| Corporate & Chancery Litigation

In venture capital financings, fund investors will typically negotiate with founders for various rights and protections, including dedicated board seats and protective provisions, to monitor and protect their investments. Many of these provisions are included in the certificate of incorporation; others, like the provisions identifying the individuals who will serve on the board, are less suited to being placed in the organizational documents and are instead included in stockholders’ agreements. In some cases, the provisions included in stockholders’ agreements are inconsistent with the provisions of the certificate of incorporation or are contrary in some respects to the Delaware General Corporation Law, giving rise to concerns over their enforceability.

In Klaassen v. Allegro Development, C.A. No. 8626-VCL (Del. Ch. Oct. 11, 2013), the Delaware Court of Chancery indicated that governance provisions included in stockholders’ agreements may be enforceable against the parties to those agreements, even if the provisions conflict with the certificate of incorporation or the DGCL. The opinion offers guidance to venture capital investors and founders as they negotiate their respective governance rights.

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