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

 

Kensington Publishing Corporation, founded in 1974 by the late Walter Zacharius, is the largest independent publisher of mass-market books in the United States. When Zacharius died in 2011 at the age of 87, his obituary in the New York Times described Kensington as “a leading purveyor of bodice-rippers and other romance genres.”

Zacharius left behind his second wife, Suzanne, and two children from his first marriage, Steven and Judith. The three of them are now locked in a legal battle for control of Kensington, with Suzanne, who inherited 59% of the voting shares, pitted against her two stepchildren who own most of the remaining voting shares.

Why the battle for control when Suzanne owns a clear majority of the voting equity? The answer lies in a 2005 voting agreement made by Walter and his two children which effectively gave Steven and Judith the power, following Walter’s death, to vote his shares in any election of Kensington’s directors. The children subsequently have used their board control to frustrate Suzanne’s stated goal, to sell her majority interest in Kensington to a “major publishing house,” and allegedly to withhold distributions as part of a squeeze-out plan. Continue Reading Voting Agreement Triggers Fight for Control of Family-Owned Publishing House