While external factors such as regulatory approvals and contract consents often dominate M&A discussions, a range of internal corporate governance and fiduciary obligations can be equally critical, and equally capable of derailing a transaction. The governing documents, shareholder rights, and board responsibilities within the buyer and seller entities create a legal framework that must be carefully navigated to ensure the deal is valid, enforceable, and free of post-closing disputes.
At the heart of this framework are the fiduciary duties owed by directors and officers, particularly those of the selling company. In sale scenarios, these fiduciary duties—primarily the duties of care and loyalty, require directors to act in the best interests of the company and its shareholders. For public companies, this includes conducting a robust sale process, evaluating offers fairly, and avoiding conflicts of interest. Any perceived failure to uphold these duties may expose board members to litigation, often in the form of shareholder derivative suits or class actions. In private companies, while the scrutiny may be lower, legal risk still exists, particularly when controlling shareholders or insiders stand to benefit from the transaction.
Another key governance issue involves appraisal and dissenters’ rights, which are typically granted to minority shareholders under corporate law statutes in many jurisdictions. These rights allow dissenting shareholders to oppose the deal and demand a judicial determination of the “fair value” of their shares, which could exceed the agreed-upon purchase price. While relatively rare in amicable transactions, these claims can introduce legal complexity, delay post-closing integration, and create contingent liabilities for the buyer.
The deal process may also be constrained by charter and bylaw provisions that create procedural or structural barriers to a transaction. These include anti-takeover mechanisms such as poison pills, which dilute share value upon a triggering event, or staggered boards, which prevent full board turnover in a single election cycle. Although these provisions are often intended to protect companies from hostile takeovers, they can also slow down or block friendly transactions if not addressed early. Even seemingly benign requirements—such as supermajority voting thresholds or notice periods—can complicate timelines and introduce legal risk if improperly followed.
To navigate these challenges, buyers and sellers must conduct thorough reviews of their respective governance frameworks early in the deal process. This includes analyzing corporate charters, bylaws, shareholder agreements, and board policies to identify and mitigate potential roadblocks. In many cases, advance planning—such as securing board resolutions, amending governing documents, or negotiating waivers—can neutralize these internal obstacles and ensure compliance with fiduciary and legal obligations. Proper governance not only protects the transaction from challenge but also reinforces the legitimacy and transparency of the overall deal process.
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How Commercial Contracts Can Make or Break Your M&A Deal
Consents and Approvals: The First Gate to Closing an M&A Transaction
The Overlooked Obstacle in M&A: Existing Debt and Its Hidden Risks
For guidance, contact Vincent Costa at vcosta@cmmllp.com or 631-738-9100.