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When the American Law Institute's Corporate Governance Project meets this month, one of the most hotly debated agenda items is likely to be its new rules governing shareholder litigation, which are now up for final approval.

The proposed change means that corporate boards will now have to prove in court that a decision to dismiss a shareholder claim alleging self-dealing was in the corporation's best interest. In addition, the requirement for a formal "demand" on the board by shareholders will be uniform, rather than subject to excuse, as it is under Delaware law and in the majority of states.

Drafters of the proposal say it will allow courts necessary scrutiny of self-dealing; critics charge it will tie up corporate boards in needless litigation.

Debating the issue are the project's reporter, John C. Coffee, a Columbia University law professor, and Michael P Dooley, a University of Virginia law professor. Coffee says the proposals strike a balance between oversight and efficient operation, while Dooley contends that the new rules will drive up the settlement value of shareholder suits.


Business Organizations Law | Law


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