USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Vinita Sithapathy, Kristina Trauger, Pierre-Emmanuel Perais, Clara Pang and Gregory Gewirtz, Linklaters
lish a bright-line ownership rule for actual control, and a minority stockholder could be deemed a controlling stockholder if found to exercise managerial control over a corporation. Section 144, as amended, now defines a “controlling stockholder” as a stockholder with: • majority voting power; • the contractual right to elect a majority of directors or directors with majority voting power; or • at least one third voting power, plus manage- rial authority over the corporation’s business and affairs. The Amendments also limit the scope of controlling stockholders’ fiduciary duty liability. They provide that a controlling stockholder cannot be liable for damages for breach of the duty of care and can only be liable for damages for: • a breach of the duty of loyalty to the corporation or the other stockholders; • acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or • any transaction from which the person derived an improper personal benefit. Section 220, as amended, modifies and supplements rules applicable to stockholder inspections of books and records to reduce increasingly costly and bur- densome stockholder demands related to books and records inspections. There is a growing focus on diligence related to the use and integration of AI, open-source software, and software ownership due to their relevance to deal valuation. AI diligence has become more prominent as recent litigation concerning training data, increased regulatory oversight under new state AI regulations, and questions about model output ownership have introduced potential risks that could impact a target’s value. Open-source diligence, once a box-ticking exercise, has gained importance because of increased 9. Due Diligence/Data Privacy 9.1 Due Diligence Process
copyleft licence contamination and software supply chain vulnerabilities, which can lead to integration challenges and disclosure requirements for buyers if identified after closing. Broader intellectual property diligence has also inten- sified. Gaps in contractor assignments, dependence on third-party rights and weak trade secret protections are common in fast-growing technology companies and can affect enforceability and deal value. These issues increasingly require specific risk management in the deal process, including through indemnities, escrows and remediation covenants. 9.2 Technology Company Due Diligence Generally, public companies may share material non-public information with third parties for legiti- mate business purposes, such as evaluating poten- tial acquisitions, subject to the bidder’s adherence to confidentiality obligations. Consequently, a public company generally has broad latitude to provide due diligence information beyond publicly available infor- mation to bidders if it so chooses, including finan- cial data, strategic plans, customer information, and details of its technology assets and infrastructure, keeping in mind any potential antitrust sensitivities. Companies are not legally obligated to provide identi- cal information to all bidders in a sale process, and practical considerations often necessitate differentiat- ed disclosure based on the type of buyer. When man- aging multiple bidders that include both strategic buy- ers (competitors or those with overlapping business activities) and financial buyers (such as private equity firms without competitive overlap), sellers face differ- ent risks that justify tailored information sharing. Com- panies should provide redacted versions of sensitive documents to strategic buyers or use “clean team” arrangements where competitively sensitive informa- tion is accessible only to the bidder’s outside advis- ers, and should manage the disclosure of information based on the competitive profile of each bidder. As long as confidentiality agreements are in place and the bidder has a legitimate business purpose in having access to the company’s technology, the board of directors has discretion in determining the level of technology due diligence that the board of
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