October 31, 2022

Stockholders v. Shareholders: What’s in a Name?

Now that the Twitter case is over, we can all turn our attention to the things in Delaware corporate law that really matter to us. Francis Pileggi recently provided a reminder about one of them:

The Delaware Court of Chancery prefers “stockholder” as the term uniformly used in the Delaware General Corporation Law for those owning a corporation, though in the past, especially prior to the 2010 DGCL amendments, there were inconsistent references–and court decisions in the past have not always been scrupulous in observing the distinction. See generally In Re Adams Golf Shareholder Litigation, C.A. No. 7354-VCL, transcript (Del. Ch. Oct. 3, 2012) (yes, that’s 10 years ago.)

Does this matter? Well, kind of, I suppose. But I think we lawyers all have a tendency to get a little goofy about this type of thing. For example, I used to have a partner who would absolutely freak out when he saw accountants use the term “common stock” in an Ohio corporation’s financial statements (we’re a “common shares” jurisdiction).

Once, my former colleague was so flummoxed by an accounting firm’s repeated sloppiness in this area that he wrote a letter to the partner at the firm correcting him. This has gone down in firm lore as the “red birds/blue birds” letter. That’s because, in explaining the distinction between common stock and common shares to the accountant, he said something like “there are red birds and blue birds, but although they are both birds, red birds aren’t blue birds, and blue birds aren’t red birds.”

We were subsequently working on an IPO in another city with an accountant from this same firm. One of the other lawyers made a comment about common stock and common shares, and the accountant made the correction and then smiled and said something about how only lawyers care. He then said “Oh, you know there’s this letter that’s been passed around our firm for years that some crazy lawyer wrote about red birds not being blue birds. . .” I didn’t have the heart to tell my colleague of his notoriety among multiple offices of a Big 4 accounting firm.

John Jenkins