Document Type
Article
Abstract
Many innovations in U.S. capital markets are not mere contractual novelties but instead rest on inescapably corporate foundations. The special purpose acquisition company, or SPAC, is perhaps the most sensational illustration of this neglected insight. Despite all their novelty and complexity, SPACs are nearly always organized as standard Delaware corporations. This Article demonstrates that SPACs have nevertheless exhibited a striking disregard of corporate law. The standard SPAC adopts a governance structure that, for a public corporation, is highly unusual: All corporate control is vested in the hands of a single shareholder (known as the sponsor), who suffers from a deep conflict of interest with public stockholders but nevertheless acts free of any conventional disinterested constraints. The SPAC industry kept its collective head in the sand on the consequences of this model for SPAC fiduciaries: under existing Delaware law, the standard SPAC very likely triggers the entire fairness test, and very likely for all the reasons it can be triggered. SPACs have also failed to comply with basic corporate statutory requirements in ways that are positively bizarre for large commercial transactions. SPACs now face a corporate law reckoning, forcing Delaware to examine the SPAC in light of basic corporate expectations. This Article argues that the normative touchstone in that examination should be to enforce privately-ordered bargains. For a SPAC that has elected to organize as a corporation, in Delaware, and sold shares ofcommon stock to the public, the core attributes of the privately-ordered bargain are deceptively simple: (1) the mandatory loyalty obligation for fiduciaries and (2) the limited ways to satisfy that obligation short of a judicial inquiry. This corporate reckoning has direct implications for the future of capital market activity, as the fundamental obligations of the SPAC's corporate form will profoundly shape the future course of SPAC behavior and organization.
Recommended Citation
Myers, Minor, "SPACs and the Corporate Foundations of Capital Market Innovation" (2024). Faculty Articles and Papers. 655.
https://digitalcommons.lib.uconn.edu/law_papers/655