Liquidating a close corporation

The shareholder has suffered harm only indirectly, as a consequence of damage done to the corporation. The wrongful conduct relates to the shareholder only through the medium of the corporation, i.e., by reducing the value of the shareholder’s stock. This article seeks to improve matters by (1) examining and proposing a remedy for the fundamental conceptual flaw and (2) providing a conceptual framework for making the fine distinctions necessary in the close corporation context. As background, Part II describes direct and derivative claims in their pure forms.

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The first part determines whether the business opportunity at issue is a “corporate” opportunity. The second part of the test determines whether the corporate director, in acquiring the corporate opportunity, violated his or her fiduciary duties of loyalty, good faith and fair dealing toward the corporation.

Part III describes the special problems faced by derivative plaintiffs as contrasted with direct plaintiffs and thereby shows why the direct/derivative distinction matters.

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