Corporations 6

CLOSE CORPORATION: YES shareholders (esp. CONTROLLING S/Hs) owe each other and the corp. fiduciary duties

1) YES--and she may keep the premium for herself ("control premium")

2) NO--Must make a REASONABLE INVESTIGATION into who the purchaser is

• EXAMPLE: cannot sell to a looter
• CONSEQUENCES OF BREACH: Disgorage profit AND liable for ALL DAMAGES to corporation

3) NO--May not sell BOD positions (disgorge profit)

1) MERGER designed to cash-out minority shareholders UNFAIRLY

2) LIKELY TO UPHOLD if transaction is fair "as a whole" (fair PRICE and course of dealing). Factors to consider

• Whether the deal is tained by SELF-DEALING or FRAUD
• Whether the minority shareholders were DEALT WITH FAIRLY
• Whether there is LEGITIMATE BUSINESS PURPOSE for the merger

• BREACH OF DUTY to corp. by D/O
• corp. may sue to RECOVER D/O's profit (possible derivative suit)