If a controlling shareholder transaction is approved by an independent committee but not by a majority of minority stockholders, which standard of review applies?

• A. Entire fairness standard applies.
• B. Business judgment rule applies.
• C. Revlon standard applies.
• D. No fiduciary duty applies.

Answer: (A)

The key idea is that the standard of review in a controlling-shareholder transaction hinges on whether a majority of the minority stockholders approves the deal. If the minority votes to ratify, the transaction can be reviewed under the business judgment rule, reflecting weaker scrutiny. But if the majority of the minority stockholders does not approve, the deal falls outside that ratification, and the entire fairness standard applies.

Here, even though an independent committee approved the transaction, the majority of minority stockholders did not approve. That lack of minority ratification means the court does not apply business judgment rule; instead, it employs entire fairness, requiring the controlling-shareholder transaction to be proven fair in both process (fair dealing) and price (fair price). The independent committee matters for fairness of the process, but it does not replace the burden to demonstrate entire fairness when the minority did not ratify. Revlon isn’t triggered here, and no fiduciary duty gap is assumed.