No Way Out, Part II: Minority Shareholders Not Entitled to Buy-out

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The Delaware Supreme Court recently affirmed the Court of Chancery’s dismissal of a suit seeking a corporate buy-out of a minority shareholder’s interest in a closely-held corporation. In Blaustein v. Lord Baltimore Capital Corp., the plaintiff owned about 17% of the voting stock of a closely-held corporation called Lord Baltimore Capital Corporation (“LBCC”).  The plaintiff alleged that she invested in LBCC based on the controlling shareholder’s oral promise to repurchase her shares at full value after 10 years.  However, this arrangement was never incorporated into the corporate shareholders’ agreement.  Ten years came and went, and when plaintiff sought to enforce … Continue reading

No Way Out? Delaware Court of Chancery Finds LLC Agreement Waived Members’ Right to Judicial Dissolution

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The Delaware Court of Chancery recently took the concept of freedom of contract to a new level.   Under Delaware’s LLC statute, 6 Del. C. § 18-802, an LLC member may apply to the Court of Chancery for judicial dissolution of an LLC “whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement.”  The Court of Chancery has already determined that this statutory right to judicial dissolution is not mandatory, but, instead, may be expressly waived by the terms of an LLC agreement.  But what happens when waiver language in an … Continue reading

Everyone Wants a Say: Determining Who Gets to Vote on an LLC Derivative Suit

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The Massachusetts Appeals Court recently issued an interesting decision concerning the authority a group of LLC members needs to bring a derivative suit under Massachusetts law. The case, Williams v. Charles, involved an LLC called Frowmica, which was organized for the purpose of negotiating and financing the purchase of a taxicab business.  Within a year after entering into the operating agreement, relations between the LLC members began to deteriorate.  Some members claimed that the managing member, Jean Bernard Charles (“Charles”), had taken various actions adverse to Frowmica, such as terminating the operations manager without cause, wrongly paying himself a salary … Continue reading

No Duty To Buy Back Minority Shares

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A Court of Chancery of Delaware recently held that majority shareholders of a close corporation have no fiduciary duty in the buy back of a minority shareholder’s interest in the corporation.  The decision specifically mentions that Massachusetts differs from Delaware in that shareholders of a Massachusetts close corporation owe each other a fiduciary duty.  After reading the Delaware decision, one might jump to the erroneous conclusion that majority shareholders of a Massachusetts close corporation have a duty to purchase shares from minority owners who want to liquidate their investment.  But that is not true. As a blanket rule under the … Continue reading