BUY-SELL AGREEMENTS AND SHAREHOLDER BUYOUT CASES

Words by Peter W. Zuger, Attorney Serkland Law Firm

The officers, directors, or those in control of a corporation owe the shareholders of a corporation fiduciary duties. If those fiduciary duties are breached, the court may grant equitable relief it considers just and reasonable in the circumstances and award expenses, including attorney’s fees and disbursements, to the injured shareholders. The court has broad enough discretion under North Dakota law to grant whatever relief is just and equitable in the circumstances of the case.

N.D.C.C. § 10-19.1-115 provides courts with additional authority to grant “any equitable relief” in an action by a shareholder when the directors or those in control of a corporation have acted fraudulently, illegally, in a manner that is unfairly prejudicial toward a shareholder, director, or employee. That relief may include dissolving the corporation, but usually involves the less drastic remedy of awarding the wronged shareholder a buyout from the corporation. One potential problem that a shareholder may have in obtaining relief when that shareholder has been wronged is that a shareholder may have signed a buy-sell agreement prior to becoming a shareholder in the corporation. Without a buy-sell agreement a wronged shareholder may be entitled to a fair value buyout or fair market value buyout from the corporation. The buy-sell agreement can restrict the buyout so that the wronged shareholder may only be entitled to a buyout in whatever amount is stated in the buy-sell agreement.

A shareholder in a corporation should take special care to pay attention to any buy-sell agreement the other shareholders in the corporation wish to use. Even when a buy-sell agreement exists, there are circumstances when a court may determine that a wronged shareholder is nonetheless entitled to a fair value buyout if the wronged shareholder has been treated fraudulently, illegally, or in a manner that is unfairly prejudicial.

This article was written and prepared by Peter Zuger, an attorney with the Serkland Law Firm in Fargo, North Dakota. For more information call 232.8957, email at pzuger@serklandlaw. com or visit www.serklandlaw.com.