Rights Offers and Delaware Law

49 Pages Posted: 29 Jun 2021 Last revised: 8 Jul 2021

See all articles by Jesse M. Fried

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

Date Written: June 17, 2021


Under Delaware law, a securities issuance in which all existing investors may participate pro rata (a “rights offer”) is often seen as treating insiders and outsiders equally, making it difficult for nonparticipating outsiders to prevail on a claim that insiders sold themselves cheap securities. I show that insiders can use rights offers to sell themselves cheap securities, even if outsiders are sophisticated and well-capitalized. My analysis suggests courts applying Delaware law should more aggressively probe rights offers for substantive fairness. I conclude by describing red flags indicating a heightened risk of expropriation.

Keywords: Delaware, Rights Offer, Controlling Stockholder, Insider Trading, Dilution, Equity Issuances

JEL Classification: G14, G34, K22

Suggested Citation

Fried, Jesse M., Rights Offers and Delaware Law (June 17, 2021). European Corporate Governance Institute - Law Working Paper No. 596/2021, Available at SSRN: https://ssrn.com/abstract=3869188 or http://dx.doi.org/10.2139/ssrn.3869188

Jesse M. Fried (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)

HOME PAGE: http://www.law.harvard.edu/faculty/directory/10289/Fried

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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