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Exploring the Special-Facts Rule: A Key Principle in Corporate Law
Definition & meaning
The special-facts rule is a legal principle that creates a fiduciary duty for corporate directors and officers to disclose significant inside information to shareholders under certain conditions. This duty arises when shareholders are involved in stock transactions under special circumstances, such as:
When a shareholder lacks business expertise.
When shares are closely held and do not have a clear market value.
When a director or officer has initiated a transaction.
This rule is also referred to as the special circumstances rule and serves as an exception to the general principle that corporate directors do not owe fiduciary duties to shareholders, allowing them to engage at arm's length.
Table of content
Legal use & context
The special-facts rule is primarily used in corporate law, particularly in cases involving shareholder transactions and potential conflicts of interest. It ensures that shareholders receive vital information that could affect their investment decisions. Legal practitioners may encounter this rule when advising clients on stock transactions, mergers, or acquisitions. Users can manage related legal matters by utilizing templates available through US Legal Forms, which are drafted by experienced attorneys.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A small company is planning to merge with a larger corporation. The director knows that this merger will significantly increase the value of the shares but does not disclose this information to a shareholder who lacks business expertise. Under the special-facts rule, the director may be required to disclose this information.
Example 2: A closely held company has not publicly traded its shares for years. A shareholder decides to sell their shares but is unaware of an upcoming merger that would greatly increase the share value. The director's failure to inform the shareholder could be a violation of the special-facts rule. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Key Differences
California
Has specific rules regarding disclosure in closely held corporations.
Delaware
Recognizes a broader range of fiduciary duties for directors.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Fiduciary Duty
A legal obligation to act in the best interest of another party.
Special-facts rule applies specifically to disclosures in shareholder transactions.
Arm's Length Transaction
A deal made by two parties who are not related.
Special-facts rule creates exceptions to arm's length dealings when fiduciary duties exist.
Common misunderstandings
What to do if this term applies to you
If you believe the special-facts rule applies to your situation, consider the following steps:
Review any transactions or communications with corporate directors or officers.
Consult with a legal professional to understand your rights and obligations.
Explore US Legal Forms for templates that may assist in documenting your concerns or actions.
For complex matters, seeking professional legal help is advisable.
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