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Tagged Posts: Closely held corporation’

New York Law Update: Shareholder Oppression and Forced Buyout (Post III)

December 1, 2016

When Piazza filed a lawsuit seeking judicial dissolution of the company based on oppression, Gioia Jr. responded that the action triggered Piazza’s obligation to sell his shares under the shareholders’ agreement.[1]  Indeed, the shareholders’ agreement provided that a judicial dissolution proceeding would be deemed a voluntary offer to sell and trigger buyout rights.  The court said, however, that such provision is not controlling “when the sale is the result of claimed majority oppression or other wrongdoing—in effect, a forced buyout.”  Under New York Business Corporations Law, there are two types of judicial dissolution proceedings—one under Section 1104 where there is corporate deadlock and another under Section 1104-a “to provide a remedy to minority shareholders who have suffered abuse at the hands of the majority and lacked a means for salvaging the value of their investment.”  For a shareholder agreement to trigger buyout rights, as Gioia Jr.… Read the rest

New York Law Update: Shareholder Oppression and Forced Buyout (Post II)

November 29, 2016

In Piazza v. Gioia,[1] Piazza and Gioia Sr. founded Kings County Waterproofing Corp. (KCWC) in 1979 and held 40% and 60% of the shares, respectively.  Gioia Sr.’s son also worked for the company eventually became a 1/3 owner, along with his father and Piazza.  Their shareholders’ agreement contained stock transfer restrictions and buyout provisions, which, among other things, gave the non-selling shareholder an option to purchase the selling shareholder’s shares at “the last stipulated price preceding the date of the notice to sell the shares.”  In 1996, Gioia Sr.… Read the rest

New York Law Update: Shareholder Oppression and Forced Buyout (Post I)

November 22, 2016

We write frequently about minority shareholder rights.  Really frequently.  We previously talked about Ritchie v. Rupe, a Texas Supreme Court case that made it harder for minority shareholders to bring lawsuits based on oppressive conduct by majority shareholders (see here).  We also discussed Bontempo v. Lare (available here), a Maryland case on remedies for shareholder oppression, which, in addition to dissolution, recognized equitable remedies, and Sneed v. Webre (available here), another Texas case, which held that the business judgment rule does not prevent minority shareholders of a closely held corporation from bringing a lawsuit on behalf of the corporation over the board’s objection. … Read the rest

New York Law Update: Shareholders’ Inspection Rights

April 5, 2016

In our previous blog series on Shareholders’ Right To Inspect Corporate Books and Records, we discussed under what circumstances shareholders may inspect corporate books and records and what constitutes proper purposes reasonably related to shareholder interests.  For New York law, we looked at Tatko v. Tatko Bros. Slate Co.,[1] which held that a shareholder’s quest to determine the value of his shares was a proper purpose for inspecting the corporation’s financial records, and Ret. Plan for Gen. Employees of the City of North Miami Beach v.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.