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Do S/Hs owe a fiduciary duties to each other or to the corporation?
CLOSE CORPORATION: YES shareholders (esp. CONTROLLING S/Hs) owe each other and the corp. fiduciary duties
1) May she sell her SHARES at a premium?
2) Can she sell her shares to whomever she likes?
3) Can she sell BOD positions?
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) What is a freeze-out?
2) Will a court uphold one?
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
Consequences of market TRADING on inside information?
- BREACH OF DUTY to corp. by D/O
- corp. may sue to RECOVER D/O's profit (possible derivative suit)
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