By Tod Northman and Catherine Mandry

A Delaware Chancery Court decision from September underscores the potential profound risk of a corporation’s not observing strict corporate formalities.

Foley v. Session Corp. turned on a chief executive officer’s unilateral attempt to cancel and redeem shares of the company’s four co-founders. Such an act of “fundamental legal significance” under Delaware law demands strict board authorization, the court found.

Corporate records and trial testimony revealed there were four directors, not one. That rendered the CEO’s solo written consent and the purported stock redemption and stock cancellation agreements ineffective, even though all four founders signed the agreements.

Read the article on Bloomberg Law’s website here.