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DIVORCE BUSINESS STYLE: LITIGATION AMONGST CORPORATE SHAREHOLDERS OR LLC MEMBERS. BY VINCE LOUWAGIE ANTHONY OSTLUND & BAER. COMMON SOURCES OF GOVERNANCE RULES. Articles and By-laws Minn. Ch. 302A/322B Common Law Company Policy or Practice Shareholder Voting or Control Agreements

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divorce business style litigation amongst corporate shareholders or llc members

DIVORCE BUSINESS STYLE:LITIGATION AMONGST CORPORATE SHAREHOLDERS OR LLC MEMBERS

BY

VINCE LOUWAGIE

ANTHONY OSTLUND & BAER

common sources of governance rules
COMMON SOURCES OF GOVERNANCE RULES
  • Articles and By-laws
  • Minn. Ch. 302A/322B
  • Common Law
  • Company Policy or Practice
  • Shareholder Voting or Control Agreements
  • Employment Agreements
  • Buy Sell Agreements
buy sell agreement
BUY-SELL AGREEMENT
  • Can be found in bylaws, shareholder control agreement, or elsewhere
  • Provides for events that give rise to right or obligation to purchase or sell
  • Provides mechanism for determining price
  • Provides payment terms
freeze out
FREEZE-OUT
  • Terminating minority shareholder’s employment
  • Terminating minority shareholders board or management participation
  • Terminating minority shareholder’s access to information
  • Terminating minority shareholder’s return on investment
  • Other means as varied as the imagination
sources of court authority
SOURCES OF COURT AUTHORITY
  • Broad equitable authority
    • 302A.467
    • 302A.751
    • Common Law
buyout under 302a 751
Buyout Under 302A.751
  • Deadlock
  • Fraud or illegality
  • Unfairly prejudicial conduct – reasonable expectations
  • Corporate assets being misapplied or wasted – but see Wessin
direct v derivative
DIRECT V. DERIVATIVE

Derivative claims are those claims which belong directly to the corporation, but which can be asserted indirectly, by a shareholder, on behalf of the corporation under certain circumstances.

assessing shareholder expectations
ASSESSING SHAREHOLDER EXPECTATIONS
  • Written agreements not dispositive
  • Controlling shareholder have a substantive obligation of fairness
  • Obligation of complete candor in negotiations
    • But see Berreman v. West Pub.
  • “Associative bargaining”
reasonableness of employment expectation
REASONABLENESS OF EMPLOYMENT EXPECTATION
  • Employment part of investment?
  • Known and accepted by other shareholders?
  • Shareholder misconduct or incompetence?
  • Agreement specifically providing for termination?
  • Any capital investment? Or part of compensation package?
discounts
DISCOUNTS
  • Minority Discount
    • Not allowed. MT Properties v. CMC Real Estate Corp.
  • Marketability Discount
    • Allowed to prevent an unfair wealth transfer
valuation date
VALUATION DATE
  • “as of the date of the commencement of the action or as of another date found equitable by the court.”
valuation formula
Valuation Formula
  • “if the shares in question are then subject to sale and purchase pursuant to the bylaws of the corporation . . . unless the court determines that the price or terms are unreasonable under all the circumstances of the case.”
best means of avoiding shareholder disputes
Best Means of Avoiding Shareholder Disputes
  • Clear agreements.
  • Exit strategy understood and accepted by all.
  • Clearly articulated expectations for sharing the benefits of ownership.
  • Avoid secrecy of compensation.
beware of conflict
BEWARE OF CONFLICT
  • Evans v. Blesi
  • Miller Waste Mills v. Mackay