Shareholder agreement harmed no one, no one complained, and while imposing on Management/Directors duties of officers/salary/dividends it’s ok Note: As in Wilderman, the who pay an amount out of corporation to themselves supra, ∆’s will need to show that it was reasonable under Quantum Meruit Note: Galler explicitly called for legislatures to separately regulate Close Corporations, due to the unique characteristics and issues they dealt with 2. Modern Close Corporation Statutes: 1. Integrated Corporation Statute: A Separate sub-chapter, requiring corporation’ in name and Articles of ‘close Incorporation Is an in’ statute, allowing shareholders to participate in management ‘opt follow this type of approach Delaware and New York Delaware: Allows ending of BOD entirely But you must opt in Restriction of director discretion Essentially, blending the alternative entities with that of the corporate structure 2. Provision in Articles of Incorporation: By amending, or placing in Articles that certain authority, normally in board, will be with shareholders 3. MBCA §7.32: (a) A shareholder agreement that complies with 7.32, is effective among shareholders even if it is inconsistent with any other MBCA provision It can eliminate the of directors, or restrict its discretion and power Can govern authorization of making distributions, subject to limitations Establish who shall be officers Govern general corporate matters Agreement must be: In Articles of incorporation or Bylaws and (Signed by all shareholders at time) Unanimous Agreement Conspicuous Notice on stock certificate Policy: To protect creditors, minority shareholders (by making unanimous) and unsuspecting Public who needs to understand they may, based on the agreement, not be allowed as typical to vote for their representative on the board If Public Corporation Does not and becomes invalid (e) A Shareholder agreement under this section imposes on the shareholders the same duties and liabilities of directors (f) A Shareholder agreement, although changing corporate formalities, cannot be used against a shareholder as evidence in proving Piercing Corporate Veil Zion v. Kurtz (NY): New York Approach to Close Corporation Statute: F: 2 shareholders of LBW, entered into shareholder agreement where agreed to only buy LBW stock. ∆ Π had veto power over any other corporate action. When entered into 2 other agreements, sued to ∆ π enforce shareholder agreement. R: Pursuant to Delaware Law, close corporations are specifically allowed to have an agreement that restricts the power or eliminates all power of Directors
Shareholder agreement harmed no one, no one complained, and while imposing on Management/Directors duties of officers/salary/dividends it’s ok Note: As in Wilderman, supra, the ∆’s who pay an amount out of corporation to themselves will need to show that it was reasonable under Quantum Meruit Note: Galler explicitly called for legislatures to separately regulate Close Corporations, due to the unique characteristics and issues they dealt with 2. Modern Close Corporation Statutes: 1. Integrated Corporation Statute: A Separate sub-chapter, requiring ‘close corporation’ in name and Articles of Incorporation Is an ‘opt in’ statute, allowing shareholders to participate in management Delaware and New York follow this type of approach Delaware: Allows ending of BOD entirely But you must opt in Restriction of director discretion Essentially, blending the alternative entities with that of the corporate structure 2. Provision in Articles of Incorporation: By amending, or placing in Articles that certain authority, normally in board, will be with shareholders 3. MBCA §7.32: (a) A shareholder agreement that complies with 7.32, is effective among shareholders even if it is inconsistent with any other MBCA provision It can eliminate the of directors, or restrict its discretion and power Can govern authorization of making distributions, subject to limitations Establish who shall be officers Govern general corporate matters Agreement must be: In Articles of incorporation or Bylaws and Unanimous Agreement (Signed by all shareholders at time) Conspicuous Notice on stock certificate Policy: To protect creditors, minority shareholders (by making unanimous) and unsuspecting Public who needs to understand they may, based on the agreement, not be allowed as typical to vote for their representative on the board If Public Corporation Does not and becomes invalid (e) A Shareholder agreement under this section imposes on the shareholders the same duties and liabilities of directors (f) A Shareholder agreement, although changing corporate formalities, cannot be used against a shareholder as evidence in proving Piercing Corporate Veil New York Approach to Close Corporation Statute: Zion v. Kurtz (NY): F: 2 shareholders of LBW, entered into shareholder agreement where ∆ agreed to only buy LBW stock. Π had veto power over any other corporate action. When ∆ entered into 2 other agreements, π sued to enforce shareholder agreement. R: Pursuant to Delaware Law, close corporations are specifically allowed to have an agreement that restricts the power or eliminates all power of Directors