“Is Advisable and in the Best Interests Of”

[Revised 2:00 p.m. Sept. 11 to reflect comment by randomjohn]

It’s commonplace for resolutions in board consents to state that something is advisable and in the best interests of the company. My first instinct was to say that is advisable and is redundant. But responding to my call for input, reader randomjohn pointed out that in a number of provisions, the Delaware General Corporation Law refers to a determination of advisability (see comment below). That being the case, in those contexts using advisable represents the prudent choice. Perhaps alternative words conveying the same general meaning might do, but no one would want to get into a fight over that. It doesn’t necessarily follow, though, that I’d use advisable in other contexts.

radomjohn also says that caselaw attributes significance to a determination that something or other is in the best interests of the company. That’s nothing I’ve looked into, and I’m not inclined to do so, as in the best interests of is as a general matter unobjectionable.

So I’m going to give is advisable and in the best interests of a pass, at least in those contexts where the DGCL refers to advisability. Of course, I have no idea how this plays out in other jurisdictions.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

6 thoughts on ““Is Advisable and in the Best Interests Of””

  1. DGCL s 146 requires a board to determine whether something is advisable before submitting it to stockholders for approval.

    s 275 requires an analysis of advisability on dissolution.

    s 242(b)(1) specifically requires a declaration of advisability prior to amending a certificate of incorporation.

    The specific example you’re using comes out of s 251(b): “(b) The board of directors of each corporation which desires to merge or consolidate shall adopt a resolution approving an agreement of merger or consolidation and declaring its advisability.”

    Because they sit between the stockholders and the corporation, boards frequently have to consider whether they should be advising the stockholders to consider doing something (i.e., whether that something is advisable) and if the board is recommending (advising) the stockholders do it, the board should take a stand that it is in the best interest of the corporation.

    So I would say that this is one of many instances where actual practice dictates the redundancy you so loathe. Indeed, your advice in this case could lead to substantial liability for the too-clever lawyer who tried to omit the phrase.

    And yes, there are similar requirements (more in case law) that a board find an act be in the best interests of the corporation, so that part has to stay, too. (See, e.g., s 145 – the provision nearest and dearest to all directors’ hearts)

  2. randomjohn: Thanks for the input—I’ve rewritten the post. It should come as no surprise that I’m a little, ahem, rusty on the subject of board duties in an M&A context. Ken

  3. Thanks, Ken and randomjohn. I have learnt something today about US Board resolutions.

    The equivalent resolution in the UK would not need the “advisable” bit. Resolutions have tended to refer to “best interests of the company” as acting bona fide in the best interests of the company is the common law test for directors’ actions. A new statutory test has been introduced by the Companies Act 2006 section 172(1): “A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole…” but I haven’t yet seen any different wording being used in light of this development.

  4. Mark Anderson is correct re UK law. However, this does lead to peculiar minutes where a firm precedent is followed which read something like:

    “The directors RESOLVED that X would be in the Company’s best interest” [having earlier said in determining ‘best interest’ they would have regard to the matters laid out in s172 above, plus the non-exhaustive list that follows it].

    The problem? The directors apparently never resolved to do X, just that it would be in the Company’s best interest to do it. I’ve seen this now from 3 firms, so I suspect it’s in one of the more common legal databases as a CA2006 precedent.

  5. The rep on a board’s recommendation should always track the applicable statute, hence “adviseable” in a public company merger or the other transactions noted in the comment above. The term “best interests” goes to fiduciary duties–the board’s duty of loyalty (including its duty to act in good faith) requires that it act in the best interests of the corporation and its shareholders.

  6. randomjohn’s advice is prudent, even though it is hard to imagine a transaction that was inadvisable yet in the company’s best interests. Sigh.


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