How to Evaluate Non-Majority Control: What History and Statutes Tell Us—Part II: The Definitional Consensus

This Article and a companion piece explore the claim that the functional school was novel and anomalous. The companion article examines the approaches that courts have historically taken when evaluating non-majority control (the “Historical Article”). The Historical Article demonstrates that functionalism has been the dominant approach since at least 1912, while the formal school is a recent innovation. Its tenets emerged in 2006 and coalesced in a recognizable framework around 2014. The Historical Article identifies the core claims of the two schools.  This Article examines statutory definitions of control. It focuses on statutory regimes that use the concept of control (1) in business settings where fiduciary duties would apply and (2) for the same policy reasons that equity imposes fiduciary duties on controllers, viz. (a) ensuring that the law reaches those actually responsible for exercising power, not merely figureheads nominally empowered to act, and (b) constraining the ability of those in control to impose unfair transactions. Using the Historical Article’s identification of the two schools’ core claims, this Article examines statutory definitions of control to evaluate whether they are functional or formal. All are functional.  This Article’s review of statutory definitions reveals consensus features. Although some authorities have asserted that definitions of control vary widely across different areas of the law, that claim is not accurate. Statutory regimes that govern situations where fiduciary duties also apply and that deploy the concept of control for similar purposes invariably take a functional approach.  This Article and the Historical Article point to the same conclusion. Both sources of evidence—the history of non-majority control and the statutory consensus—demonstrate that functionalism constitutes the dominant approach to control in American law. Accounts that attempted to paint the functional approach as novel and anomalous were and remain inaccurate.