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Close Corporations (III): Involuntary Dissolution (New York (Reasonable…
Close Corporations (III): Involuntary Dissolution
New York
Reasonable Expectation Test
Applies to original participants.
The court can dissolve a closed corporation if the challenged activity is illegal, fraudulent or "oppressive."
In re Kemp & Beatley, Inc.
The majority’s conduct substantially defeats the "reasonable expectations" of minority shareholders (defeat investment).
The corporation reasonably expects that the shareholders will not embezzle money.
Gimpel v. Bolstein
.
A shareholder may reasonably expect dividends, bonuses, voting power, management control, and perhaps a job.
Inherently Oppressive Test
The majority must act without probity and fair dealing, and their conduct must become burdensome, harsh and wrongful on the minority shareholder(s).
Gimpel v. Bolstein
.
Waste Test
A director may have been paid an excessive amount, such that a minority shareholder would be unfairly disadvantaged.
The property or assets of the corporation were being looted, wasted or diverted for a non-corporate purpose.
Remedy
YES
OPPRESSION
The court may involuntarily dissolve the close corporation.
But, the court must consider the totality of the circumstances to determine if there are "alternative means."
Instead of dissolution
Declare dividends or buy back the shares.
Give access to corporate records or distribute stock certificates (to reflect ownership).
Allow the excluded shareholder to participate in business management.
NO
WASTE
Waste alone does not justify involuntary dissolution.