discuss shareholder agreements closely held corporations and the circumstances under which a court will lift the corporate veil
Shareholder Agreements and Business Law Sample Answer
Closely held corporations present unique legal issues since the limited ownership groups brings complex personal relations and increase volatility among the group (Cheeseman, 2012). In this regard, the owners of the company tend to be more involved in the operations of the company as opposed to companies with large ownership. Most of the legal issues that arise in closely held corporations result from the inequality of the ownership between the few available shareholders. The shareholder with the lesser interest is obviously the minority shareholder when the two shareholders have unequal interest, however, everyone who owns less than 50% of the company can be a minority shareholder even if he owns the greater stake in the company. This is possible where shareholder A owns 40% of the stock, B owns 30% of the stock, and stock C owns 30% of the stock. When shareholder B and C are jointly decided on one course of action, the shareholder A is automatically considered the minority shareholder despite owning the largest portion of the stock. In this regard, the law of closely held corporations allows the minority shareholders to form small groups that can be used by control the oppressive behavior of the majority shareholders. Therefore, the law affords the minority shareholders special protections with regards to possible oppressive conducts of the majority shareholder in the case of closely held corporations (Cheeseman, 2012). In most cases, the shareholders take significant roles within the business such that they assume the role of directors, employees, and other relevant officers depending on the nature of the organization. In closely held corporations, the courts may lift the corporate veil when the members agree to dissolve their business operations or when the corporation decides to operate in illegal business.
Shareholder Agreements and Business Law Reference
Cheeseman, H.R. (2012). Business Law 8th Edition. Prentice Hall