USA Law and Practice Contributed by: G. J. Ligelis Jr., Christopher K. Fargo, Alyssa K. Caples and Margaret T. Segall, Cravath, Swaine & Moore LLP
and directors of corporations incorporated in those states. While there had been a trend towards increasing focus on the interests of other stakeholders in order to pre - serve long-term value for stakeholders, particularly driven by large institutional investors and the corpo - rate governance community emphasising environ - mental, social and governance issues, recently, the pendulum appears to be shifting back to a stricter focus on shareholder primacy. In addition to state law, the Securities and Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010 provide a framework of rules and disclosure requirements applicable to public cor - porations; for more details see 5. Capital Markets . In addition to the applicable legal and stock exchange requirements, proxy advisory firms like ISS and Glass Lewis set out corporate governance standards, including matters such as board diversity and direc - tor accountability, which directly impact shareholder voting and are therefore highly relevant for public companies. 4.2 Relationship Between Companies and Minority Investors Controlling Shareholders As set out in 4.1 Corporate Governance Framework , directors and officers of corporations owe fiduciary duties to the corporation and its shareholders. Under Delaware state law, a controlling shareholder may also owe certain fiduciary duties to minority shareholders. These fiduciary duties become relevant in the context of transactions between the controlling shareholder and the corporation, in which the interests of the controller conflict with or diverge from the interests of other shareholders. It is also important to note that shareholders of private LLCs and partnerships may eliminate these fiduciary duties, which can be protec - tive of officers, directors, general partners and control - ling shareholders. Shareholder Litigation One important distinguishing feature of the US cor - porate landscape is the prevalence of shareholder litigation. Litigation by shareholders of public compa - nies, whether on a “derivative” basis on behalf of the
corporation or on a “class action” basis on behalf of a large class of shareholders, is quite common, both in the context of significant corporate transactions (eg, M&A, IPOs) and in the ordinary course (eg, disclosure- based “stock drop” cases). The plaintiff Bar in the USA is continuously searching for potential claims, and both litigating and settling these claims can become very costly for the corporation. 4.3 Disclosure and Reporting Obligations Schedule 13D and 13G of the Securities Exchange Act of 1934 Under the Securities Exchange Act of 1934, any indi - vidual or institutional investor must publicly disclose its ownership of stock in a US public company if the investor directly or indirectly becomes the benefi - cial owner of more than 5% of the public company’s shares. To comply with this reporting obligation, the investor must file a statement on Schedule 13D with the SEC within five business days of the acquisition. However, if certain requirements are met, a shorter form Schedule 13G may be filed instead. Insiders Under the Securities Exchange Act of 1934 Under the Securities Exchange Act of 1934, any direc - tor or officer of a US public company or person who directly or indirectly becomes the beneficial owner of more than 10% of the public company’s shares (each, an insider) must file a statement on Form 3 with the SEC within ten days of becoming an insider. Addi - tionally, an insider under Section 16 may be required to report certain changes in beneficial ownership on Form 4 as well as an annual statement of beneficial ownership on Form 5. An insider is also prohibited from realising short-swing profits resulting from the sale of equity in the public company within six months of purchasing any such equity at a lower price or from the purchase of equity in the public company within six months of selling any such equity at a higher price. An insider is strictly liable to disgorge any short-swing profits realised to the issuer. Filing Thresholds Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), investors in US com -
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