Over the past two decades in Delaware, two schools of thought coexisted regarding non-majority control. One school took a formal approach that (i) focused on control over the board of directors, (ii) discounted sources of influence other than stock ownership, and (iii) treated 35% ownership as a de facto floor at which voting power became significant. Decisions applying those principles regularly dismissed cases alleging non-majority control at the pleading stage. Another school took a functional approach that (i) focused on control over corporate conduct, (ii) considered multiple sources of influence, and (iii) recognized that lower levels of voting power could support control. Decisions applying those principles dismissed cases less frequently at the pleading stage. After Vice Chancellor Slights used the functional approach in 2018 to infer that Elon Musk controlled Tesla in litigation over its SolarCity acquisition,[1] and particularly after Chancellor McCormick used the functional approach in 2024 to find that Musk controlled Tesla in litigation over his compensation,[2] prominent commentators attacked the functional approach as novel and anomalous.

In a new article, I examine more than a century of American jurisprudence to understand how courts have approached non-majority control. History shows that, contrary to recent claims, the functional approach is neither novel nor anomalous. It has been dominant. The historical article is one of two companion pieces. A forthcoming article in the same journal examines definitions of control in statutes that regulate relationships akin to those governed by fiduciary duties. It finds that functionalism is dominant there as well.

The Origins of Functionalism

In the late nineteenth century, American courts began imposing fiduciary duties on controlling stockholders. Although early cases involved majority ownership, their rationale was functional. Courts looked to the stockholder’s practical ability to influence corporate conduct, not the stockholder’s formal legal rights. In 1912, the United States Supreme Court used functional principles to find that a non-majority stockholder (Union Pacific) exercised control.[3]The justices considered multiple sources of influence, including Union Pacific’s “dominating stock interest”[4] (37.5%, later increased to 46%), the fact that Union Pacific accumulated the stock for the express purpose of securing control, and the subsequent appointment of Union Pacific’s president to the powerful roles of president and chairman of the executive committee at the controlled company.

During the 1920s and 1930s, leading commentators endorsed a functional approach. Scholars emphasized that control often arose from multiple sources, including powerful managerial roles, boardroom influence, and a relatively small block of stock amid otherwise dispersed ownership. Adolf A. Berle, Jr. and Gardiner Means went further and recognized that control did not inherently depend on stockholder status, observing that “[c]onceivably it can be exercised without any such interest.”[5] After studying John D. Rockefeller, Jr.’s proxy fight at Standard Oil Company of Indiana, an event that influenced discussions of non-majority control for decades, they argued that Rockefeller’s 15% ownership probably marked the floor at which a stockholder could exercise control without management support. They adopted 20% as a more reasonable floor for presuming stockholder control.[6]

The New Deal era made functionalism dominant. Confronting the Great Depression and in response to the Crash of 1929, the New Deal Congress enacted a series of statutes that deployed Berle’s functional approach. When addressing non-majority control, courts consistently considered multiple sources and rejected brightline rules. In decisions such as Slattery (1937)[7] and Rochester Telephone (1939),[8] the United States Supreme Court refused to hold that non-majority control could not conceivably exist at levels of voting power below one-third. Both decisions regarded stock ownership as just one of multiple sources of potential influence, including managerial and board-level roles, historical ties, financial dependence, and contract rights.

Delaware’s Functionalism

During the 20^th century, Delaware courts used the functional approach. The first example is Guth v. Loft, Inc.(1939),[9] where Charles G. Guth claimed that the board had allowed him to take the corporate opportunity to develop Pepsi-Cola. Chancellor Wolcott found that any approval was ineffective because Guth exercised non-majority control as the corporation’s president, chairman, and holder of approximately 11% of its stock.[10] Another example is Burry Biscuit (1948),[11] a decision that foreshadowed Musk’s compensation case. A stockholder sued to invalidate a large equity grant to George W. Burry, the corporation’s founder, president and CEO, a director, and a 10% stockholder. Then-Vice Chancellor Seitz credited for pleading-stage purposes that “a controlled board of directors” approved the grant and denied a motion to dismiss.[12]

Importantly, functionalism did not uniformly generate findings of non-majority control. While some decisions found control to exist,[13] others held after trial (and sometimes on a pre-trial motion for summary judgment[14]) that an allegedly dominant non-majority stockholder did not exercise control.[15] Pleading-stage rulings addressing non-majority control, however, were rare. Until 1988,[16] Burry Biscuit remained the only pleading-stage decision,[17]suggesting that parties viewed control allegations as generally sufficient to support a motion-defeating inference. Although demand futility motions touched on the influence of dominant stockholders,[18] motions directly challenging the court’s ability to draw an inference of non-majority control did not become common until after the rise of the formal school.

When taking a functional approach, Delaware courts treated non-majority control as a question of fact. The test was whether a person could exercise “actual control of corporate conduct.”[19] The decisions did not claim that non-majority control was easy or hard to show. The issue was what the evidence supported. Delaware courts considered multiple sources of evidence, including boardroom influence, managerial roles, longstanding relationships, historical patterns of deference, contractual rights, significant blocks of stock, and transaction-specific evidence.

The Rise of Formalism

The first decade of the 2000s witnessed growing concern about excessive stockholder litigation. Lawyers working on contingency filed more and more lawsuits of dubious merit. Many of those lawsuits attacked transactions involving allegedly controlling stockholders, prompted by legal innovations favoring those challenges and by more companies where control could credibly be alleged.[20]

Commentators worried that by foreclosing the possibility of pleading-stage dismissal under the business judgment rule, Delaware law facilitated rent-seeking by plaintiffs’ counsel. Although the concerns principally involved the standard of review, the skepticism spilled into the analysis of non-majority control. Creating a path to pleading-stage dismissals would require a more formal approach.

The shift began in 2006 with two opinions – PNB Holding[21] and Superior Vision[22] – that introduced more formal concepts. In a post-trial decision, PNB Holding asserted that non‑majority control was difficult to show. PNB Holding also asserted that non‑majority control should require influence comparable to a majority ownership, including the ability to engage in retribution against non-compliant directors and stockholders, and that ownership below one‑third was unlikely to be significant. Superior Vision reframed the test for non-majority control as requiring control over the board rather than control over corporate conduct. It also discounted the significance of contract rights.

Those innovations paved the way for the formal school, but they did not initially catch on. For the next six years, Delaware cases cited PNB Holding and Superior Vision, but for other propositions.

In 2013, then-Chancellor Strine assembled the elements of the formal approach in Morton’s,[23] holding that a complaint did not support a pleading-stage inference of non-majority control. Citing his decision in PNB Holding, he framed the standard as requiring power equivalent to majority ownership that would enable the non-majority stockholder to engage in retribution. To give content to the test, he incorrectly described his decision in Cysive as “perhaps, [this courtʼs] most aggressive finding that a minority blockholder was a controlling stockholder” and summarized the case as involving a blockholder who “held 35% of the company’s stock,” was “the company’s visionary founder, CEO, and chairman.”[24] With the test framed this way, the application was straightforward. The alleged controller in Morton’s was a private equity sponsor that took a portfolio company public, then sold down to 27.7%. Two of its executives served on the 10-member board, and one served as the de facto chair. Noting that the plead facts “do not rise to the same level” as Cysive,[25] Chancellor Strine rejected the inference of non-majority control.

Shortly after issuing Morton’s, Strine became Chief Justice of the Delaware Supreme Court. A year later, KKRfollowed the Morton’s formula to reject a pleading-stage inference of control.[26] On appeal, Chief Justice Strine authored the first Delaware Supreme Court decision to reference the concepts of board control and majority equivalence. It was also the first Delaware Supreme Court decision to suggest that non-majority control should be hard to show.[27]

After Corwin, the formal school emerged, comprising a series of decisions that treated Morton’s and KKR as establishing a recipe for evaluating non-majority control. They referred to non-majority control as being hard to show. They framed the test as requiring control over the board, often with additional requirements of majority equivalence and retributive capacity. They cited Cysive as a floor. They reasoned that lesser levels of influence could not support a reasonable inference of non-majority control. That recipe consistently resulted in pleading-stage dismissals.

The Persistence of Functionalism and the Commentators’ Reaction

Other Delaware decisions, however, persisted in applying functional principles. Those cases continued to focus on control over corporate conduct, rather than simply control over the board. They also continued to recognize that control could arise from multiple sources, including board-level positions and managerial roles, personal influence, contractual rights, and other forms of leverage. They also considered the significance of blocks of stock smaller than the one considered in Cysive, evaluated historical relationships and patterns of deference, and took into account transaction-specific evidence.

The functional decisions involving Musk generated widespread attention. Prominent commentators responded by criticizing the formal approach as novel and anomalous.[28] Their work proved highly influential, contributing to the Delaware General Assembly’s passage in 2025 of a statute that defines “controlling stockholder” in formal terms.

History shows that the commentators’ criticism rests on erroneous understandings.[29] Most notably, they make the recurring error of treating the formal school as the baseline and the persistence of functionalism as new. By broadening the aperture to look at caselaw from earlier periods, my article shows that functionalism has been dominant and that the formal school is a recent development.

The Historical Dominance of Functionalism

The functional approach is neither novel nor anomalous. Courts for over a century have evaluated non-majority control by considering multiple sources of influence. Starting with Union Pacific (1912), courts have considered powerful roles, historical relationships, financial dependence, transaction-specific evidence, contract rights, and blocks of stock that the formal school would regard as inconsequential. How to approach non-majority control is an important policy issue, worthy of serious debate. That debate should proceed on the merits, without efforts to delegitimize the functional approach or validate the formal approach based on false historical claims.

ENDNOTES

[1] In re Tesla Motors, Inc. Sʼholder Litig., C.A. No. 12711–VCS, 2018 WL 1560293 (Del. Ch. Mar. 28, 2018).

[2] Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024), aff’d as to liability, rev’d as to remedy sub nom., In re Tesla Deriv. Litig., — A.3d — , 2025 WL 3689114 (Del. Dec. 19, 2025).

[3] United States v. Union Pac. R.R. Co., 226 U.S. 61 (1912).

[4] Id. at 86.

[5] Adolf A. Berle, Jr. & Gardiner C. Means, The Modern Corporation And Private Property 69 (1932).

[6] Id. at 82–84.

[7] Nat. Gas Pipeline Co. of Am. v. Slattery, 302 U.S. 300 (1937).

[8] Rochester Tel. Corp. v. United States, 307 U.S. 125 (1939).

[9] Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939).

[10] Loft, Inc. v. Guth, 2 A.2d 225, 237–38 (Del. Ch. 1938), aff’d, 5 A.2d 503 (Del. 1939).

[11] Rosenthal v. Burry Biscuit Corp., 60 A.2d 106 (Del. Ch. 1948).

[12] Id. at 110.

[13] Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110, 1113–15 (Del. 1994); In re Cysive, Inc. Sʼholders Litig., 836 A.2d 531, 551–53 (Del. Ch. 2003); Robbins & Co. v. A. C. Israel Enters., Inc., 1985 WL 149627, at *5 (Del. Ch. Oct. 2, 1985); Greene v. Allen, 114 A.2d 916, 920 (Del. Ch. 1955), rev’d on other grounds sub nom., Johnston v. Greene, 121 A.2d 919 (Del. 1956); see Cheff v. Mathes, 199 A.2d 548, 555 (Del. 1964) (finding after trial that control could exist at 20% ownership); Moran v. Household Intʼl, Inc., 490 A.2d 1059, 1080 (Del. Ch.) (same), aff’d, 500 A.2d 1346 (Del. 1985).

[14] See In re W. Natʼl Corp. Sʼholders Litig., No. 15927, 2000 WL 710192, at *1 (Del. Ch. May 22, 2000); Liboff v. Allen, 1975 WL 1961, at *5 (Del. Ch. Jan. 14, 1975).

[15] See Kaplan v. Centex Corp., 284 A.2d 119, 123 (Del. Ch. 1971); Puma v. Marriott, 283 A.2d 693, 695 (Del. Ch. 1971).

[16] See In re Sea-Land Corp. Sʼholders Litig., CIV. A. No. 8453, 1988 WL 49126 (Del. Ch. May 13, 1988).

[17] The Aronson decision from 1984 did not rule on non-majority control, but on demand futility. See Aronson v. Lewis, 473 A.2d 805, 815 (Del. 1984), overruled in part by Brehm v. Eisner, 746 A.2d 244 (Del. 2000), and in different part by United Food & Com. Workers Union & Participating Food Indus. Emps. Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021). The Delaware Supreme Court did not address whether a 47% stockholder, chairman, and former CEO controlled the corporation, but addressed whether his presence sufficiently compromised the outside directors’ independence for purposes of a decision to sue. In the court’s words, “[t]o date the principal decisions dealing with the issue of control or domination arose only after a full trial on the merits.” Id. at 815–16. “Thus, they are distinguishable in the demand context unless similar particularized facts are alleged to meet the test of Chancery Rule 23.1.” Id. at 816. Delaware decisions have interpreted Aronson as addressing director independence, not control. See, e.g., Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1054 (Del. 2004) (applying Aronson; holding that “Stewartʼs overwhelming voting control of MSO” did not render directors unable to consider a demand); Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 66 (Del. Ch. 2015) (Bouchard, C.) (“Analyzing the plaintiff’s allegations, the Supreme Court appeared to assume that Fink, with his 47% ownership interest, was Meyers’s controlling stockholder. The AronsonCourt nevertheless squarely rejected the notion that a controlling interest in a corporation is itself sufficient to overcome the directors’ presumption of independence.”); In re Cox Commcʼns, Inc. Sʼholders Litig., 879 A.2d 604, 646 (Del. Ch. 2005) (Strine, V.C.) (contrasting the entire fairness framework with the deference “illustrated by the landmark decision in Aronson v. Lewis, which presumes that independent directors can impartially decide whether to cause the company to sue a controlling stockholder” (footnote omitted)).

[18] See Rales v. Blasband, 634 A.2d 927, 937 (Del. 1993) (Rule 23.1 motion; drawing inference at the pleading stage that the Rales brothers exercised control where Steven Rales served as Chairman of the Board, Mitchell Rales served as Chairman of the Executive Committee, and the brothers together owned 44% of the corporation’s stock); In re Ply Gem Indus., Inc. Sʼholders Litig., No. CIV.A. 15779–NC, 2001 WL 755133, at *7–9 (Del. Ch. June 26, 2001) (Rule 23.1 motion; drawing inference that Chairman and CEO who also owned 25% block exercised control); Mizel v. Connelly, No. Civ.A. 16638, 1999 WL 550369, at *3 (Del. Ch. July 22, 1999) (Rule 23.1 motion; drawing inference at the pleading stage that Chairman, President, and CEO who owned 32.7% block exercised control).

[19] Citron v. Fairchild Camera & Instr. Corp., 569 A.2d 53, 70 (Del. 1989); accord Ivanhoe P’rs v. Newmont Mining Corp., 535 A.2d 1334, 1344 (Del. 1987); Gilbert v. El Paso Co., 490 A.2d 1050, 1055 (Del. Ch. 1984), aff’d, 575 A.2d 1131 (Del. 1990).

[20] See Ann M. Lipton, After Corwin: Down the Controlling Shareholder Rabbit Hole, 72 Vand. L. Rev. 1977, 1987–2005 (2019).

[21] In re PNB Hldg. Co. Sʼholders Litig., No. Civ.A. 28-N, 2006 WL 2403999 (Del. Ch. Aug. 18, 2006).

[22] Superior Vision Servs., Inc. v. ReliaStar Life Ins. Co., No. Civ.A. 1668-N, 2006 WL 2521426 (Del. Ch. Aug. 25, 2006).

[23] In re Mortonʼs Rest. Gp., Inc. Sʼholders Litig., 74 A.3d 656 (Del. Ch. 2013).

[24] Id. at 665.

[25] Id. at 666.

[26] In re KKR Fin. Hldgs. LLC Sʼholder Litig., 101 A.3d 980, 991–93 (Del. Ch. 2014) (noting that the complaint’s allegations demonstrated “KKR, through its affiliate, managed the day-to-day operations of KFN” but that they did “not support a reasonable inference that KKR controlled the KFN board—which is the operative question under Delaware law—such that the directors of KFN could not freely exercise their judgment in determining whether or not to approve and recommend to the stockholders a merger with KKR”), aff’d sub nom., Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015).

[27] Corwin, 125 A.3d at 307.

[28] See Jill E. Fisch & Steven Davidoff Solomon, Control and Its Discontents, 173 U. Pa. L. Rev. 641 (2025); Lawrence A. Hamermesh, Jack B. Jacobs & Leo E. Strine, Jr., Optimizing the World’s Leading Corporate Law: A Twenty-Year Retrospective and Look Ahead, 77 Bus. Law. 321 (2022); Stephen M. Bainbridge, A Course Correction for Controlling Shareholder Transactions, 49 Del. J. Corp. L. 525 (2025); Elizabeth Pollman & Lori W. Will, The Lost History of Transaction-Specific Control, 50 J. Corp. L. 1095 (2025).

[29] The section addressing Fisch and Davidoff Solomon’s article makes a mistake of its own. Like their fellow commentators, Fisch and Davidoff Solomon rely on Puma v. Marriott, 283 A.2d 693 (Del. Ch. 1971), as evidencing that even 46% voting power cannot support an inference of control. See Control and Its Discontents, supra note 28, at 660, 681. At one point, they cite Puma to support their argument that courts should dismiss claims asserting non-majority control at the pleading stage, and they describe Puma as a pleading-stage case. Id. at 681 n.226 (describing Puma as “granting a motion to dismiss where the complaint failed to allege that the Marriott family, which owned forty-six percent of the stock, dominated the independent directors”). That’s wrong. The Court of Chancery rendered its decision after a “final hearing,” i.e., a trial, where the directors testified. Puma v. Marriott, 283 A.2d 693, 694 (Del. Ch. 1971). My article notes the error but cites page 660 as the source, rather than page 681 n.226. See How to Evaluate Non-Majority Control, supra note 3, at 86 n.369.

J. Travis Laster is a vice chancellor of the Delaware Court of Chancery. This post is based on his new article, “How to Evaluate Non-Majority Control: What History and Statutes,” available here.