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Special Committees: A Primer

April 27, 2007, John F. Grossbauer, Michael K. Reilly

For more than twenty years, corporations have turned to special committees for their legal and practical benefits where a transaction, for one reason or another, may be tainted by the interest of a director, officer or controlling stockholder.  For transactions involving a controlling stockholder or a conflicted board, a special committee provides certain legal benefits that protect both the transaction and the directors.  In that context, an understanding of the general body of case law that has developed relating to the proper formation and functioning of special committees is critical to ensure that the transaction, and the directors, benefit from the use of the special committee.  Even where a transaction does not involve a controlling stockholder, or where less than a majority of the directors are conflicted, a board may find a special committee, more properly referred to as a “transaction committee” in that context, to have certain practical advantages.

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