Shareholders A and B are the sole shareholders of a real estate holding corporation. Their shareholders’ agreement includes provisions that:
- guarantee each of them a seat on the two-member board of directors and appoint each as co-president;
- prohibit their removal from the board with or without cause;
- in the event of death, disability, or resignation, authorize the vacant board seat to be filled by the departing shareholder’s child;
- require majority (i.e., effectively unanimous) board consent for all board actions;
- require 55% (i.e., effectively unanimous) shareholder consent for all actions needing shareholder approval.
Under these provisions, neither A nor B can take any action at the board or shareholder level without the other’s consent. Sounds like a perfect set-up for a deadlock dissolution petition in the event A and B reach impasse on some critical issue jeopardizing the corporation’s viability, doesn’t it?
What if I now add that Shareholders A and B own 49% and 51%, respectively, of the corporation’s common shares? Can Shareholder A still bring a deadlock dissolution petition?
Not according to a recent decision by Manhattan Commercial Division Justice Saliann Scarpulla in Balkind v Nickel, 2018 NY Slip Op 31703(U) [Sup Ct NY County July 16, 2018], in which she dismissed a deadlock dissolution petition filed under Section 1104 of the Business Corporation Law brought by a 49% shareholder, despite his co-equal board and shareholder control. Continue Reading 49% Shareholder Can’t Seek Deadlock Dissolution Despite Shareholders’ Agreement Granting Co-Equal Control