January 2024

When a corporation disposes of “all or substantially all” assets, shareholders opposed to the transaction are entitled to dissent and demand fair value for their shares in an appraisal proceeding. Does a corporation’s transfer of its assets to another entity with retention of “beneficial” ownership trigger the statutory right to dissent and seek fair value? Learn the answer in this week’s New York Business Divorce.
Continue Reading Direct to Beneficial: Change of Corporate Ownership Structure Yields No Right to Dissent and Seek Appraisal

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When a closely-held business is profitable, self-interested owners naturally want a bigger slice of the pie, especially where the personal relationships among the owners are frayed.  Perhaps that’s why we often discuss the value of freeze-out mergers as a mechanism for those in control of a closely-held corporation or limited liability company to squeeze a minority owner out of the business’ future profits. 

Equity dilution is another common method by which those in control of a corporation or LLC attempt to squeeze out a minority owner.  For one, stock dilution impairs the minority owner’s ability to influence company action by voting his shares, and it lessens the owner’s right to participate pari passu in the distributions or dividends of the company.  Perhaps more importantly, a minority owner can see his or her ownership interest diluted below certain critical thresholds—for instance, the 20% ownership required to petition for dissolution under BCL 1104-a.

Despite the potentially drastic consequences of stock dilution, many closely-held businesses we encounter fail to adequately address the issue of dilution in their governing documents.  And New York caselaw on the issue leaves plenty to be desired.  Let’s interpret those factors as an invitation to review the basics, key caselaw, and the current status of the improper dilution claim.Continue Reading Let’s Talk About Dilution

Welcome to this year’s Winter Case Notes where, amidst the arctic blast currently sweeping most of the nation, I offer shortish takes on several court decisions in recent business divorce cases.

This year’s edition features notable decisions by New York courts stemming from cases with, shall we say, not your typical fact patterns:

  • Affirming the lower court’s post-trial verdict rejecting a shareholder’s claim to enforce an alleged agreement requiring the defendant shareholder, following the plaintiff’s acquittal on murder charges, to transfer back to the plaintiff shares he sold to the plaintiff in the course of the plaintiff’s lengthy criminal proceedings;
  • Without deciding whether the death — accidental in this case — of an LLC member qualifies as a withdrawal for purposes of LLC Law § 509’s buyout provision, ordering the surviving member to turn over books and records to the estate representative but only through the date of death; and
  • Denying interim injunctive relief restoring a minority shareholder to his former management position in a group of auto dealerships upon the court’s finding that the plaintiff failed to establish a likelihood of success on his claims of minority shareholder oppression and that the governing agreements were never effective.

Continue Reading Winter Case Notes: Murder, Forgery, Accidental Death, Oppression, Oh My!

In this week’s New York Business Divorce, we consider the problem of concurrent, overlapping business and marital dissolution proceedings, including a small but growing body of case law addressing how to prioritize one over the other. For judges and lawyers accustomed to commercial courts exercising their jurisdictional powers broadly, the result may be surprising.
Continue Reading Parallel Business and Matrimonial Divorce Proceedings