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Outline

Fiduciary duties in close corporation
- "squeeze out" techniques
  - remove from offices
  - revoke compensation
  - adopt low-dividend policy
  - create hostile atmosphere
- Traditional fiduciary duties: "bad faith"
  - minority: burden to show fraud, bad faith, abuse of discretion
  - majority: rebut by showing business purpose
- Implied partner-like duties
  - theory
    - close corporation tension
    - prerogatives of owning control / majority opportunism
  - equal opportunity doctrine
    - stock dealings with corporation
    - equalize liquidity rights
  - balancing test
    - "legitimate spheres"
    - judicial balancing
      - majority shows legitimate business purpose
      - minority shows less harmful means
  - rejection of partner-type duties
    - no presumed equality
    - look to parties' intent
choice of default rule: withdrawal rights
- Easy withdrawal -- partnership-type rights
  - empahsis on individual rights
  - Heatherington & Dooley
- Hard withdrawal -- corporation-type rights
  - majority control
  - Easterbrook & Fischel
- Tailored withdrawal -- rights based on particular setting
  - reasonable expectations
  - courts: reasonable expectations

Daily Thoughts

Thoughts about bosses

Quote from a recent meeting: "We are going to continue having these meetings, everyday, until I find out why no work is getting done."

Quote from the Boss... "I didn't say it was your fault. I said I was going to blame it on you."

A motivational sign at work: "The beatings will continue until morale improves."

A direct quote from the Boss: "We passed over a lot of good people to get the ones we hired."

My Boss frequently gets lost in thought. That's because it's unfamiliar territory.

He's given automobile accident victims new hope for recovery. He walks, talks and performs rudimentary tasks, all without the benefit of a SPINE.

HR Manager to job candidate "I see you've had no computer training. Although that qualifies you for upper management, it means you're under-qualified for our entry level positions."

Quote from telephone inquiry "We're only hiring one summer intern this year and we won't start interviewing candidates for that position until the Boss' daughter finishes her summer classes.

Problems

Albert, Brenda and Cashin form a corporation and are equal shareholders. All have worked in the business since it was formed five years ago. Albert and Brenda became disillusioned with Cashin, who often wishes they would take more risks and "build the business." Albert and Brenda think of getting rid of Cashin. They stop paying dividends and offer to buy her shares at what they consider to be fair value.

Party A (Cashin) Argue that corporate law should recognize her position as a minority shareholder in a closely-held corporation. Outline the nature of her liquidity rights.
Party B (A & B) Argue that corporate law should not create special rights in minority shareholders of a closely-held corporation. Outline the nature of the Cashin’s liquidity rights.

Bob is a trusted employee of Our Family Corporation, a closely held corporation owned by the Klaus family. A few years back the family gave Bob a 5% shareholding in the corporation, to induce him to stay and to show the family's great regard for his services. Last month the family had a falling out with Bob and let him go. Bob wants to sell his 5% interest back to the corporation, now that he's been fired.

Party A (Bob) Advise Bob on his rights. What further information is important to provide useful advice to Bob?
Party B (Klaus) Advise the Klaus family on its rights. What further information is important to provide useful advice to the Klaus’s?

Readings