Where a shareholder sufficiently alleged she owned some interest in the closely held company at the time she filed her lawsuit, the size of her interest was not relevant to her request for dissolution. Flynn v. Pierce, 2020 NCBC 94 (J. Bledsoe). As a result, Plaintiff could maintain her claim for dissolution of the business, even though she owned as little as 0.04% in the company.
Plaintiff was a minority shareholder in the Pierce Insurance Agency, Inc. (“PIA”), owning anywhere between 0.04% and 2% of the business. Defendants Pierce and Combs are Plaintiff’s siblings and the only other owners of PIA (with each owning at least 49%). After Defendants allegedly paid themselves excessive salaries and bonuses rather than make appropriate distributions to all shareholders, Plaintiff filed a lawsuit asserting multiple claims including a claim for breach of fiduciary duty and a request to dissolve PIA. Defendants moved to dismiss, contending Plaintiff’s share in PIA was too small to obtain the extraordinary remedy of a judicial dissolution.
The Business Court disagreed. Noting that as an owner, Plaintiff had a reasonable expectation of receiving a pro rata share of what other owners received– regardless of the size of her ownership– the Business Court held that Plaintiff was entitled to liquidation if necessary to protect her rights and interests in PIA. The Business Court specifically found the statute imposes no minimum share ownership in order to seek judicial dissolution (Opinion, ¶32), especially where the statute permits the corporation to purchase the complaining shareholder’s shares in lieu of actual dissolution of the company. Id.
Based upon this decision, a business should understand that a disgruntled shareholder can seek dissolution of a closely held company regardless of the size of the shareholder’s interest in the business.
Additional Legal Points in Decision
- Minority shareholders who collectively own a majority interest may owe fiduciary duties to minority shareholders, including a requirement to pay the minority shareholder a “just proportion” of the business’ income. (Opinion, ¶23-24).
Categories: Key Business Court Decisions