In a prior post, we discussed the dissolution of “joint venture” entities under 8 Del. C. Section 273, along with the requirement that such entities only have two 50/50 stockholders.  Under the statute and related case law, if an entity does not solely have two 50/50 shareholders then it does not qualify as a “joint venture” for purposes of seeking dissolution under Section 273.

This 50/50 stockholder requirement was recently addressed in the lengthy decision of In re Shawe & Elting, LLC, C.A. No. 9661-CB (Del. Ch. Aug. 13, 2015).  There, the company was primarily owned by two controlling shareholders, Elting and Shawe (who were also co-directors), and who owned 99% of its stock. A third stockholder (Shawe’s mother), who was “firmly aligned with Shawe”, owned the remaining 1% of the company stock.

Initially, petitioner Elting among other things sought dissolution of the company under Section 273.  Even though the company was essentially a “de-facto” 50/50 entity, run by two shareholders who had equal control of the company and virtually all of the company stock, the Court found it appropriate that the Section 273 claim was withdrawn.  See n. 7, (“Elting initially asserted a claim for dissolution in C.A. No. 9700-CB under 8 Del. C. § 273. Ms. Shawe’s legal ownership of one percent of TPG made that statute inapplicable, and Elting appropriately withdrew that claim.”); see also n. 312 (“Although 8 Del. C. § 273 technically does not apply because TPG has three stockholders, this case in substance involves the type of 50-50 deadlock that Section 273 was intended to address.”).

This decision further demonstrates the necessity that only a true 50/50 corporation will qualify as a “joint venture” for purposes of Section 273.

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.