Mr.Ace of Oink Inc.,a closely held corporation,is one of three shareholders.After several years of considerable success,the corporation hit hard times.The other shareholders,Mr.Bane and Mr.Curr,in the best interests of the corporation,voted Mr.Ace out as a director and voted not to renew his employment contract.Upset by these events,Mr.Ace wanted to sell his interest and leave the corporation.The other two shareholders,however,refused to buy his shares.Furthermore,when Mr.Ace attempted to sell his shares to his brother,who was interested in the corporation,the other shareholders refused to register the brother as a member.Which of the following is true?
A)Mr.Ace could sue the corporation for breach of its fiduciary duty.
B)Mr.Ace could have avoided such a dilemma through the provisions of a shareholders' agreement.
C)The court would "lift the corporate veil" because Mr.Bane and Mr.Curr were hiding behind the corporation to commit a fraud.
D)Mr.Ace could sell his shares to whomever he chose and the remaining shareholders must register the new owner.
E)Because of statutory pre-emptive right provisions,if Ace wants out,the other shareholders must buy him out.

Question

Quizplus · Accepted Answer

A shareholders' agreement could have outlined the procedures for buying and selling shares, as well as the rights and responsibilities of each shareholder. Without such an agreement, Mr. Ace is at the mercy of the other shareholders' decisions. Option A is incorrect because the corporation did not breach its fiduciary duty by voting Mr. Ace out as a director and not renewing his employment contract. Option C is incorrect because there is no evidence of fraud or abuse of the corporate form. Option D is incorrect because the remaining shareholders have the right to approve or disapprove of new members, as long as their actions are not discriminatory or in violation of the company's bylaws or articles of incorporation. Option E is incorrect because there are no statutory pre-emptive right provisions that mandate the purchase of shares from an unwilling shareholder.

MrAce of Oink Inc