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Smith Case

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Subject

Business Law

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Homework

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creary0999

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ANSWER 1

The issue is whether a shareholder of a closely held corporation has a right to

inspect corporate books and records to determine a fair price of his shares. The rule

under New York Business Corporations Law (BCL) is that a shareholder in any

corporation has various rights regarding a right to inspect corporate books and

records. There exists a common law right of access or right to inspect. While it is

not clear how broad or far-reaching this common law right is, it provides reasonable

access for a shareholder.

Shareholders also have the right to demand the minutes from corporation

meetings, both shareholder meetings and board of director meetings. Upon request,

a corporation may require the requesting to provide an affidavit that their interest is

none other than to support the interest of the corporation and that they have not sold

shareholder lists to anyone within the last 5 years. Upon receipt of such an affidavit,

a corporation must provide the notes or transcript of the meetings. In a closed

corporation which is not sold on a major publicly-traded stock exchange, there is no

reasonable way to determine the value of a shareholder's stock without looking to

the corporation's minutes or notes or discussion regarding the topic.

Par value is the minimum price for which an issued stock is sold.

Shareholders also a right to a copy of the corporation's most recent financial

statements. Here, it appears that Smith has no means of assessing the value of his

stock without access to corporate books and records. The stock is not traded publicly,

e.g. on Nasdaq, so there is no reasonable way to assess the reasonable value. If given

reasonable access to notes of corporate books and records, Smith will likely be able

to gain an accurate idea of the value of his stock is. He is essentially attempting to

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determine the par value of the stock, which would be the minimum value if traded

publicly. Thus, pursuant to his shareholder rights under the BCL and/or common

law, Smith does have a right to access the corporate books and records to evaluate

the fair market value of his shares.

ANSWER 2.

The issue is whether a shareholder bringing a suit to compel payment of a

dividend must first make a demand on the corporation. The rule is that a shareholder

bringing suit on behalf of the corporation, in what is known as a shareholder

derivative suit, must make a demand on the corporation unless to do so would be

futile. Demand involves are quest that the corporation perform the requested action,

here pay a dividend. Demand is futile if the directors are interested or oppressive and

making such a demand would reasonably result in any corporate change.

If the suit is not on behalf of the corporation but is purely personal in nature,

a demand would not be required. Here, it is not entirely clear if the suit is personal

in nature or on behalf of the corporation, i.e. derivative in nature. If the court

determines that Smith is suing solely on his own behalf to receive money he feels he

is personally entitled to, then it would considered purely personal in nature and

demand would not be required. If the court determines that Smith is bringing an

action on behalf of the corporation because he feels it is in the corporation's best

interests to pay a dividend, it would be considered a shareholder derivative action.

However, Baker and Jones have already refused to reveal their salaries and refused

to give Smith information regarding the value of his share. Thus it appears they are

not helpful or cooperative with Smith and thus demand would be futile. In that case,

demand would also not be required. Thus, whether the court deems the action

personal or derivative in nature, demand would be not required. It should be noted

that in a shareholder derivative action, the party bringing the suit must also post a

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ANSWER 1 The issue is whether a shareholder of a closely held corporation has a right to inspect corporate books and records to determine a fair price of his shares. The rule under New York Business Corporations Law (BCL) is that a shareholder in any corporation has various rights regarding a right to inspect corporate books and records. There exists a common law right of access or right to inspect. While it is not clear how broad or far-reaching this common law right is, it provides reasonable access for a shareholder. Shareholders also have the right to demand the minutes from corporation meetings, both shareholder meetings and board of director meetings. Upon request, a corporation may require the requesting to provide an affidavit that their interest is none other than to support the interest of the corporation and that they have not sold shareholder lists to anyone within the last 5 years. Upon receipt of such an affidavit, a corporation must provide the notes or transcript of the meetings. In a closed corporation which is not sold on a major publicly-traded stock exchange, there is no reasonable way to determine the value of a shareholder's stock without looking to the corpor ...
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