Sunrise, Sunset: An Empirical And Theoretical Assessment of Dual-Class Stock Structures

Winden, Andrew

A battle is brewing for control of America’s most dynamic companies. Entrepreneurs are increasingly seeking protection from interference or dismissal by public investors through the adoption of dual-class stock structures in initial public offerings. Institutional investors are pushing back, demanding that sucks structures be abandoned or strictly limited through subset provisions. The actual terms of dual-class stock structures, however, have been remarkably understudied, so the debate between proponents of prohibition and private ordering is ill-informed. This paper presents the first empirical analysis of the initial, or sunrise, and terminal, or sunset, provisions found in the charters of dual-class companies, with a data set of 139 U.S. pubic companies. Careful selection of such provisions can satisfy both the desire of entrepreneurs to pursue their idiosyncratic visions for value creation without fear of interference or dismissal and the need of investors for a voice to ensure management accountability. Private law firms representing entrepreneurs in initial public offerings play a critical role in the selection of charter provisions, so the onus is on such firms to ensure that private ordering produces a satisfactory resolution before momentum builds for a regulatory solution to investors’ concerns.

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Columbia Business Law Review

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December 3, 2019