A Delaware court held that there was a reasonable inference that the CEO who held only 17.3% of the company’s issued shares possessed “both latent and active control” over the company because the company had made statements to this effect.

The company had filed a form in connection with a proposed merger which referred to the CEO as the company’s “controlling shareholder”. The document implied that the CEO had latent control over the company and might have the ability to impede a competing bid. The CEO had active control over the company’s daily operations which relied heavily on his management of the business. His departure was said to carry the risk of a material adverse effect on the company.

A final court decision has not yet been made on these factual issues.

The question who controls the company is often relevant in the regulatory space, especially conflicts of interest, so be careful what you say about who controls your company.

The Delaware case is In re Zhongpin Inc. Stockholders Litigation.