Court Opinion

ID: 9648398
Source: CourtListenerOpinion
Date Created: 2023-08-23 14:19:13.603705+00
Date Added: 2024-06-11T18:12:00.256463
License: Public Domain

John A. Fogleman, Justice, dissenting. I must respectfully dissent because I do not agree that the statute rejected either of the four means of valuation of shares on an option to repurchase. The wide latitude of interpretation relates to the question whether the restraint on alienation is unreasonable, not on the question of ascertainment of a “fair price.” Par value or flat price may, under appropriate circumstances, be a fairer price to all parties in a closely held corporation than book value or a multiple of average net earnings. The price paid by the purchaser to the corporation may be a fairer price to all concerned than either of the four other methods of valuation. In this case this was the par value, because the company was new and no other value had been established. The agreement afforded employees entering into these contracts the opportunity to share in the profits of the company, if it was successful, and to have certain rights of ownership which could give them a voice in management. This agreement permitted the free alienation of 10% of this stock every year and thus was no unduly restrictive if the market value turned out to be in excess of the purchase price. In the revised text of Vol. 12, Fletcher, Cyclopedia Corporations, Perm. Ed., § 5461.8 seems to have replaced the section quoted in the majority opinion and points up the reason why the closely held corporation and its stockholder should have great freedom in agreeing upon the method of valuation. The first paragraph of that section reads: The determination of the price to be paid on the transfer of restricted shares is one of the most troublesome questions. The difficulty, of course, arises from the fact that the shares of a close corporation are not traded in the market and hence their fair market value cannot be readily ascertained. But such contracts as these under consideration usually provide a method for arriving at the value of the stock. In order to induce desired individuals into investing their capital in closely held corporations with stock restrictions often imposed, the price must be attractive as well as the prospects of future earnings. While a precise method of evaluating the stock might be desirable, restrictive agreements often allow a lot of leeway. I am authorized to state that the Chief Justice joins in this dissent.