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Tagged Posts: business judgment rule’

Maryland Law Update: How a Board Might Exercise Business Judgment When a Shareholder Makes a Demand (Part III)

August 11, 2016

In Oliveira v. Sugarman,[1] the Court of Special Appeals of Maryland said that, in reviewing corporate decisions made by a board of directors, it needs to consider the business judgment rule—a presumption that the board acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company. The court explained that a shareholder derivative action, like this one, begins with a demand on the board and the board is required to make a decision as to whether to pursue the demanded lawsuit.… Read the rest

Maryland Law Update: How a Board Might Exercise Business Judgment When a Shareholder Makes a Demand (Part II)

August 4, 2016

In Oliveira v. Sugarman,[1] two shareholders of iStar Financial Inc. (“iStar”), a Maryland corporation, sued former and current members of the company’s board of directors and senior management regarding employee compensation plans. In 2009, iStar approved an executive compensation plan to award shares of the company based on stock performance in order to retain key employees and to reduce the company’s tax burden. During the financial crisis, however, iStar became concerned that it did not have enough shares available for the performance-based awards and that key employees might leave for better-paying opportunities.… Read the rest

Maryland Law Update: How a Board Might Exercise Business Judgment When a Shareholder Makes a Demand (Part I)

July 28, 2016

In our previous blog series on Texas Double-Derivative Shareholder Suit, we introduced the concept of business judgment rule—the presumption that directors or managers, in performing their functions, were honest and well-meaning and that their decisions were informed and in the best interests of the company. We then delved a little deeper into the concept in another blog on the business judgment rule under New York law and discussed when board decisions might not be protected under the business judgment rule.… Read the rest

Delaware law update: Futility of Pre-Suit Demand

March 29, 2016

In our previous blog series on Texas Double-Derivative Shareholder Suit, we touched briefly on the concept of business judgment rule when we discussed a board of directors’ decision to pursue or forgo corporate causes of action in the context of closely held corporations.  In another recent blog post on Tsui v. Chou, we discussed a recent New York appellate court’s decision that held that board decisions were not protected under the business judgment rule because there was no evidence that the board discussed or informed themselves as to those matters.… Read the rest

New York Law Update: Business Judgment Rule

March 8, 2016

In our previous blog series on Texas Double-Derivative Shareholder Suit, we touched briefly on the concept of business judgment rule when we discussed a board of directors’ decision to pursue or forgo corporate causes of action in the context of closely held corporations in Sneed v. Webre.[1]  While the case we discussed was decided under Texas law, the principles underlying business judgment rule are similar in other jurisdictions: the rule generally presumes that directors or managers, in performing their functions, were honest and well-meaning and that their decisions were informed and rationally undertaken, thereby protecting board decisions from judicial review. … Read the rest

Can a Shareholder Bring a Lawsuit on Behalf of a Wholly Owned Subsidiary over Board Objections? (Part 3)

September 24, 2015

Double-Derivative Action.

The court next addressed whether Webre, a shareholder of the parent corporation, could bring a derivative suit on behalf of the wholly owned subsidiary.  The court noted that “[i]n a ‘double derivative’ action, the shareholder is effectively maintaining the derivative action on behalf of the subsidiary, based upon the fact that the parent or holding company has derivative rights to the cause of action by the subsidiary.”[1]  Webre argued that his status as a shareholder of USC’s only shareholder provided him with a beneficial or equitable ownership interest in USC.… Read the rest

Can a Shareholder Bring a Lawsuit on Behalf of a Wholly Owned Subsidiary over Board Objections? (Part 2)

September 17, 2015

Business Judgment Rule.

The court first addressed whether the business judgment rule, which, among other things, protects the board of directors’ decision to pursue or forgo corporate causes of action, applies to closely held corporations so as to bar Webre’s derivative lawsuit.  In Texas, the statute that governed shareholder derivative suits during the relevant time in this case requires a shareholder to first file a written demand with the corporation and wait ninety days before commending a derivative proceeding.[1]  Moreover, under the statute, if the board determines in good faith that such suit is not in the best interests of the corporation and asks the court to dismiss the suit, the court must do so.… Read the rest

Can a Shareholder Bring a Lawsuit on Behalf of a Wholly Owned Subsidiary over Board Objections?

September 8, 2015

Sneed v. Webre.

In our previous blog post on Ritchie v. Rupe (available here), we discussed the rights of Texas minority shareholders in a closely held corporation in the context of shareholder oppression.  Closely held corporations and many small companies whose shares are not publicly traded present unique legal issues, especially with respect to shareholder rights, because of their distinct characteristics.

In Sneed v. Webre,[1] the Supreme Court of Texas addressed whether a shareholder of a closely held corporation can bring a double-derivative lawsuit on behalf of the parent corporation’s wholly owned subsidiary over board objections.  … Read the rest

All postings are intended to be planning tools to familiarize readers with some of the high-level issues discussed therein. No posting is intended to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.