In valuing the shares of a minority shareholder, a trial court must consider any valuation technique that is generally acceptable in the financial communities. Determining fair value is an art, not a science. Directors that hold a majority interest in a closely held business have a duty to deal fairly…
The Business Divorce Law Report
Single Business or Amalgamation Theory Applies to Related Businesses
The Single Business Theory permits a court to treat related businesses as though they were one enterprise. Courts apply the single business theory in rare cases to prevent injustice. Pertuis v. Front Roe Rests., Inc., 2018 S.C. LEXIS 85 (2018) Statutes: S.C. Code Ann. § 33-18-420; S.C. Code Ann. §…
Minority Shareholder Lacks Standing to Sue for Dissolution
New York’s BCL requires at least 50 percent of shares to petition for dissolution based on deadlock, unless there has been a failure to elect directors. The fact that a shareholders agreement required the election of two deadlocked directors was not a basis to waive the statutory requirement. Parties avoid…
Deadlock Resolved by Appointment of Custodian
Courts use their authority to appoint a custodian to take control of a closely held corporation as a remedy to deadlocked directors or shareholders. A showing of serious or irreparable harm is required before a court will intervene in a deadlock among shareholders or directors; more than dissension is required.…
Shareholder Oppression is Frustration of Minority Shareholder’s Reasonable Expectations
This seminal case by the New Jersey Supreme Court identifies minority oppression as the frustration of a shareholder’s reasonable expectations. A court may order the compelled purchase of a shareholder’s interest as a remedy for shareholder oppression when it is the only practical alternative to judicial dissolution. The minority shareholder…
Deadlock Requires Finding of Harm to Corporation
Deadlock is more than an inability to make a decision. It is an inability to act under circumstances that present the real threat of harm to the business. Deadlock is triggered by the shareholders’ inability to elect directors. When there are no alternatives to prevent harm to the business, like…
Deadlock in the Closely Held Business
Deadlock is the inability of the owners of a business to make critical decisions, a paralysis of the management of closely held corporation, limited liability company or partnership. The inability to maintain normal operations is a characteristic of a deadlocked business. Courts will intervene to prevent harm to a deadlocked…
Failure to Object to Business Practices Waives Minority Shareholder Rights
Digital Camera International, Ltd. v. Antebi, et al., 11-cv-1823 (E.D.N,.Y. July 13, 2017) Statutes: N.J.S.A. 14A:12-7(1)(c) Facts:Shareholders of a New Jersey corporation participated in a variety of activities that would be classified as oppressive behavior, including the payment of persona expenses with corporate funds, operating a competing business, insider contracts…
Unanimous Consent Signed by LLC Members Operates as Amendment to Operating Agreement
Clark v. Butoku Karate Sch., LLC, No. 326638 (Mich. App., 2016) Statutes: MCL 450.4101, MCL 450.4305, MCL 450.4509 Plaintiff Joby Clark and Defendant were the sole members of a Michigan Limited Liability Company operating a karate school. Clark was the subject of a rumor that he had a sexual relationship…
Business Divorce: Sources of the Law
The law that controls any business organizations is a creature of state law, and disputes among owners in a business divorce involve the application of the law where the business was formed. More often than not that means the law of the state in which the dispute is being heard,…