Opinion ID: 1381928
Heading Depth: 1
Heading Rank: 3

Heading: Closely Held Corporations

Text: Closely held corporations are unique creatures. Because of their small size, these corporations require close cooperation and mutual respect between shareholders. Meiselman v. Meiselman, 309 N.C. 279, 307 S.E.2d 551 (N.C.1983). Shareholders in closely held corporations often reasonably expect their ownership to lead to a position in corporate management or corporate employment. McCauley v. Tom McCauley & Son, Inc., 104 N.M. 523, 724 P.2d 232 (Ct.App.1986); see also, Action Cmty. Televison Broad. Network, Inc. v. Livesay, 151 N.C.App. 125, 564 S.E.2d 566 (2002); Longwell v. Custom Benefit Programs Midwest, Inc., 627 N.W.2d 396 (S.D.2001). As one court put it, the shareholder in a close corporation considers himself or herself a co-owner of the business and wants the privileges and powers that go with ownership. Mueller v. Cedar Shore Resort, Inc., 643 N.W.2d 56 (S.D.2002). Only in the close corporation does the power to manage carry with it the de facto power to allocate the benefits of ownership arbitrarily among the shareholders and to discriminate against the minority whose investment is imprisoned in the enterprise. Meiselman, supra, at 559. A limited market exists for the shares of closely held corporations because investors are extremely reluctant to buy a non-controlling interest when the majority shareholder wields the power to freeze out the minority. McCauley, supra . This limited market share means that the minority shareholders are powerless to vindicate their representative expectations by force and they have no way to escape a bad investment. Because of the potential for oppression, several jurisdictions recognize claims by minority shareholders to vindicate their reasonable expectations. e.g. McCauley, supra . at 236. Construing Arkansas's statute prohibiting oppressive conduct by directors, this state, in 1994, joined these jurisdictions. Smith, supra . (interpreting Ark.Code Ann. § 4-26-1108(a)(1)(B)).