Narrative Opinion Summary
The case involves a shareholder dispute in a family-run business, where a shareholder petitioned for corporate dissolution under Business Corporation Law § 1104-a. In response, another shareholder elected to purchase the petitioner's shares at fair value pursuant to § 1118. After the petitioner's death, a shareholder agreement required the shares to be sold to the corporation at a set price, lower than fair value, raising the issue of whether the election remained binding. The court ruled that the election to purchase at fair value was irrevocable and took precedence over the shareholder agreement's buy-out clause. Richard's attempt to revoke his election was denied, as the right to fair value had vested upon his election. The court also addressed the valuation of shares, rejecting any discounts for lack of marketability due to pending dissolution, thereby affirming the fair value determination. The appellate court upheld the ruling, emphasizing the protection of minority shareholder rights and the enforceability of statutory elections over private agreements. Consequently, the petitioner's estate was entitled to receive fair value for the shares, aligning with statutory provisions rather than the lower contractual buy-out price.
Legal Issues Addressed
Effect of Shareholder Agreements Post-Death of a Shareholdersubscribe to see similar legal issues
Application: The court ruled that the mandatory buy-out clause in the shareholder agreement did not override Richard's prior election to purchase shares at fair value under section 1118.
Reasoning: The court needed to determine whether Richard remained bound by his election to purchase Francis' shares at fair value despite this development.
Election to Purchase Shares under Business Corporation Law § 1118subscribe to see similar legal issues
Application: The court determined that once Richard elected to purchase Francis' shares at fair value, this election was irrevocable despite Francis' subsequent death.
Reasoning: The court ultimately held that Richard remained bound by his election to purchase the shares at fair value.
Fair Value Determination Without Discount for Pending Dissolutionsubscribe to see similar legal issues
Application: The court rejected the argument to discount the fair value of shares due to pending dissolution proceedings, emphasizing that such a discount would undermine shareholder rights.
Reasoning: This argument was rejected by the referee, who stated that increasing the illiquidity discount would undermine the statutory rights of dissenting shareholders.
Irrevocability of Section 1118 Electionssubscribe to see similar legal issues
Application: The court emphasized that the election to purchase shares at fair value under section 1118 is irrevocable unless the court allows otherwise, even in the event of the death of the petitioning shareholder.
Reasoning: Originally, section 1118 allowed for revocation of elections; however, amendments made elections irrevocable to prevent abuses by majority shareholders that could delay dissolution proceedings.