The Implementation of Additional Rights of Shareholders (Poison Pills) as Defensive Measures within the Scopes of the Best Interests of the Corporation (Critical Analysis)

Davit Maisuradze


In the modern corporate law, Public Joint Stock Companies, which trade with securities on Stock Exchange Markets, actively use the corporate defensive measures. Public Joint Stock Companies (hereafter - JSC) can become the targets of the friendly and hostile acquisitions. Implementation of corporate defensive measures is one of the ways of protecting the target corporation. The main aim of the corporate legal defesinve measures is securing the target corporation from the possible hostile aqcuisitions, and also protecting the safe implementation of the transaction between the parties and preventing it from involvement of the third parties. The court cases prove that these measures support the safety, free and strategic development of the corporations against any hostile offer. Furtheremore, these measures maintain and increase the price on shares. The court practice of USA confirms that the most important ground for implementing the corporate defensive measures are the protection of the best interests of the corporation. Management of the corporation has to act in accordance with the best interests of the corporation. Moreover, this court practice considers the Board of the Corporation as the actor responsible for implementation of the corporate defesinve measures. Among the corporate defensive measures one of the most popular and complex are the rights that can be granted to the shareholders of the target corporation. Most importantly these rights are interesting within the context of the selective equal treatment of the shareholders that is legitimated by the protection of the best interests of the corporation. Among the corporate defensive measures, particularly important is Poison Pills, Shareholder Rights Plan, the implementation of which started from the 80-ies of the 20th century against hostile acquisitions. Nowadays, Posion Pills are envisaged by more than 1000 USA Public JSCs and by more than a half of the 500 biggest corporations. This makes Poison Pills as one of the most widespread corporate defensive measures. It is acknowledged that the basement for implementation of the corporate defensive measures is the protection of the best interests of the corporation. Therefore, it is vital to discuss the Poison Pills within the scopes of the best interests of the corporation. Hence, it is important to define the best interests of the corporation and whether or not to consider the interests of the shareholders and the stakeholders for determining the concept of the best interests of the corporation. Moreover, it is crucial to specify which governing body has the athourity to make a decision in accordance to the best interests of the corporation and implement the defensive measures, respectively. The aim of the article is to analyze the Poison Pills, determine the grounds for its implementation, define the creation and development of the Poison Pills and show the governing body responsible for the implementation of the Poison Pills in accordance to the best interests of the corporation. The Article below is based on the comparative legal analysis of the Delaware and Georgian corporate law. Delaware is acknowledged to have as one of the most successful corporate law and court practice that supported the creation of the most important institutes of corporate law. Though the Law of Georgia “On Entrepreneurs” was under heavy influence of German Law that was also caused by the active participation of German scholars in the process of elaboration of the Law of Georgia “On Entrepreneurs”, from 2008, after the enactment of various amendments, the mentioned law started to be more influenced by the Anglo-American legal institutes. One of the aims of the given research is to analyze the possibilities of implementation of Poison Pills as American legal institute, in Georgian corporate law. Shareholder rights plan is regulated based on the corporate law and bylaws of the corporations. Therefore, corporations can further envisage various models of implementation of Poison Pills. Hence, it is important to analyze the implementation of the Poison Pills base on the bylaws, most importantly whithin the broad autonomous model of bylaws that is offered by the law of Georgia “On Entrepreneurs”.


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