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A Shareholder's Freedom of Contract in Close Corporations – Shareholder Agreements in the USA and Germany

Published online by Cambridge University Press:  17 February 2009

Rainer Kulms
Rainer Kulms
Affiliation:
Dr. iur.LL.M. (Michigan), Max Planck Institute, Hamburg.
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Extract

“A well-drawn stockholders' agreement entered into contemporaneously with the formation of a corporation is (generally acknowledged to be) the most effective means of protecting the minority shareholder”. In authorizing such agreements courts have come to recognize the needs of shareholders in close corporations who want to protect themselves from each other and from hostile invaders. Nowadays, shareholders experience little difficulty in enforcing voting or pooling agreements. But courts feel much more uncomfortable about the implications of shareholder agreements defining the business strategy of the corporation and interfering with the core function of the directors. Both, under German and US states' laws there is uncertainty about the shareholders' freedom of contract and the ground rules governing a contractual relationship between shareholders. This contribution will examine the common intellectual origins of shareholders' agreements under German and US laws. It will demonstrate where German and US corporate laws began to move apart and it will analyze to what extent one legal system might instruct the other.

Type
Research Article
Information
European Business Organization Law Review (EBOR) , Volume 2 , Issue 3-4 , September 2001 , pp. 685 - 701
Copyright
Copyright © T.M.C. Asser Press and the Authors 2001

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References

1 Blount v. Taft, 246 S.E. 2d 763 (770) (N.C., 1978).

2 See generally I, O'Neal'sClose Corporations, 3rd ed. (1997) § 4.03 et seq.Google Scholar; 5 Fletcher Cyclopedia of the Law of Private Corporations, (1996 ed.) § 2064 et seq.; Clark, , Corporate Law (1986) 773 et seq.Google Scholar; Klein, / Ramseyer, , Business Associations (1997) 564 et seq.Google Scholar; for the German law perspective see infra part 3.

3 Weil v. Beresth, 220 A. 2d 456 (Conn., 1966); Echols v. Brewer, 524 S.W. 2d 731 (Tex.Civ.App., 1975); Zion v. Kurtz, 428 N.Y.S. 2d 199 (N.Y., 1980); Brenner v. Hart Systems, Inc., 493 N.Y.S. 2d 881 (A.D. 2nd Dept., 1985); Ramos v. Estrada, 10 Cal Rptr. 2d 833 (Cal.App. 2nd Dist., 1992); Harrington v. Batchelor, 2001 WL 193791 (Fla.App. 3rd Dist., 2001); Bundesgerichtshof (BGH) May 29, 1967, BGHZ 48, 163 (172 et seq.); 20 January 1983, NJW [1983] 1910, 1911; 27 October 1986, ZIP [1987] 293, 295; 7 June 1993 BGHZ 123, 15, 19.

4 This is notably a problem for courts in the US: McQuade v. Stoneham, 189 N.E. 234 (N. Y., 1934) Long-Park, Inc. v. Trenton-New Brunswick Theatres Co. et al, 11 N.E. 2d 633 (N.Y., 1948); Wells Fargo Bank v. Superior Court, 811 P.2d 1025 (1033, per Kennard, J.) (Cal., 1991); 1 Fletcher Cyclopedia, supra n. 2, § 280; McDonald v. Dalheim, 683 N.E. 2d 447 (Ohio App. 11 th Dist., 1996).

5 Gage v. Fisher, 65 N.W. 809 (N.D., 1895); Harvey v. Improvement Co., 24 S.E. 489 (N.C., 1896); Morel v. Hoge, 61 S.E. 487 (Ga., 1908).

6 Morel v. Hoge, 61 S.E. 487,490 (Ga., 1908); cf. 5 Fletcher Cyclopedia, supra n. 2, § 2064.

7 Cone v. Russell, 21 A. 847, 849 et seq. (N.J.Ch., 1891).

8 Harvey v. Improvement Co., 24 S.E. 489, 490 (N.C., 1896).

9 Ibid.

10 White v. Thomas Inflatable Tire Co., 28 A. 75, 79 (N.J.Ch., 1893); Morel v. Hoge, 61 S.E. 487,490 (Ga., 1908).

11 Cf. Ribstein, , “Limited Liability and Theories of the Corporation”, 50 Md. L. Rev. (1991) 80, 82.Google Scholar

12 CTS Corporation v. Dynamics Corporation of America, 481 U.S. 69, 89 (1987).

13 Trustees of Dartmouth College v. Woodward, 17 U.S. 518, 636 (1819)

14 Ibid.

15 Ribstein, supra n. 11, at p. 92; for a modern statement on the freedom of contract in corporation law see: Bebchuk, , “Limiting Contractual Freedom in Corporate Law: The Desirable Constraints on Charter Amendments”, 102 Harv. L. Rev. (1989) 1820CrossRefGoogle Scholar; Gordon, , “The Mandatory Structure of Corporate Law”, 89 Colum. L. Rev. (1989) 1549CrossRefGoogle Scholar; Coffee, , “The Mandatory/Enabling Balance in Corporate Law: An Essay on the Judicial Role”, 89 Colum. L. Rev. (1989) 1648CrossRefGoogle Scholar; Easterbrook, / Fischel, , The Economic Structure of Corporate Law (Cambridge, Mass.: Harvard University Press paperback ed. 1996) 15 et seq.Google Scholar

16 Jackson v. Hooper, 75 A. 568, 571 (N.J. Err. & App., 1910).

17 Ibid.

18 Brightman v. Bates, 55 N.E. 809 (Mass., 1900); Venner v. Chicago City Ry., 101 N.E.949 (Ill., 1913); Manson v. Curtis, 119 N.E. 559 (N.Y., 1918); Hayden v. Beane, 199 N.E. 755 (Mass., 1936); Stott v. Stott, 242 N.W. 747 (Mich., 1932); Galler v. Galler, 203 N.E. 2d 577, 581 et seq. (Ill., 1965); Blount v. Taft, 246 S.E. 2d 763, 769 et seq. (N.C., 1978); Neuman v. Pike, 59 I F.2d 191,194(2nd Cir., 1979) (New York law); Lane v. Abel-Bey, 430 N.Y.S. 2d 41 (N.Y., 1980); Penley v. Penley, 332 S.E. 51 (N.C., 1985); 5 Fletcher Cyclopedia, supra n. 2, §§2064,2064.1.

19 See Blount v. Taft, 246 S.E. 2d 763, 769 et seq. (N.C., 1978).

20 O'Neals Close Corporations, supra n. 2, §§ 5.02,5.03; Krüger, , “Corporate Pooling Agreements and Restriction-of-Directors Agreements”, 10 Anglo-Am. L.J. (1981) 73.CrossRefGoogle Scholar

21 Brightman v. Bates, 55 N.E. 809, 810 et seq. (Mass., 1900).

22 Klein/ Ramseyer, supra n. 2, 564 et seq., 578 et seq.; 5 Fletcher Cyclopedia, supra n. 2, § 2066 (Cumulative Supplement 2000).

23 Fletcher Cyclopedia, supra n. 2, § 2066 (Cumulative Supplement 2000).

24 Bostwick v. Chapman, 24 A. 32 (Conn. Super., 1890); Kreissl v. Distilling Co. of America, 47 A 471 (N.J.Ch., 1900); White v. Snell, 100P. 927 (Utah, 1909); Bowditch v. Jackson Co., 82 A. 1014 (N.H., 1912); Luedke v. Oleen, 4N.W. 2d 201 (N.D., 1942); Ringling v. Ringling Brothers – Barnum & Bailey, Comb. Shows., 49 A. 2d 603 (Del. Ch., 1946); Schwartz v. Miner, 146 A. 2d 801 (Del.Ch., 1958).

25 Hoggett v. Brown, 971 S.W. 2d 472 (Tex.App., 1997).

26 Oceanic Exploration Company v. Grynberg, 428 A. 2d 1 (5 et seq.) (Del., 1981), overruling Abercrombie v. Davies, 130 A. 2d 338, 346 et seq. (Del., 1957).

27 Del. C § 218; cf. Peyton v. William Peyton Corporation, 194 A. 106, 111 (Del.Ch., 1937).

28 Schreiber v. Carney, 447 A. 2d 17, 25 (Del.Ch., 1982).

29 Hochstetter, /Svejda, , “tatutory Needs of Close Corporations – An Empirical Study: Special Close Corporation Legislation or Flexible Corporation Law?” 10 J. Corp. L. (1985) 852, 904 et seq.Google Scholar, 933 et seq.; Garza, , “Rethinking Corporate Governance: The Role of Minority Shareholders – A Comparative Study”, 31 St. Mary's L.J. (2000) 615, 649 et seq.Google Scholar; cf. Blount v. Taft, 246 S.E. 763, 769 et seq. (N.C., 1978); Donahue v. Rodd Electrotype Company of New England, Inc., 328 N.E. 2d 505, 515 et seq. (Mass., 1975).

30 See analysis in: Nixon v. Blackwell, 626 A 2d 1366,1379 (Del., 1993); G & NAircraft, Inc. v. Boehm, 743 N.E. 227, 244 (Ind., 2001); Simmons v. Miller, 544 S.E. 2d 666, 675 (Va., 2001) and Peeples, , “The Use and Misuse of the Business Judgement in the Close Corporation”, 60 Notre Dame L. Rev. (1985) 456, 469 et seq.Google Scholar

31 In fact, corporation law serves an incentive to negotiate: Bagdon v. Bridgestone/Firestone, Inc., 916 F. 2d 379, 384 (7th Cir., 1990): “…Corporations are not partnerships. Whether to incorporate entails a choice of many formalities. Commercial rules should be predictable; this objective is best served by treating corporations as what they are, allowing the investors and other participants to vary the rules by contract if they think deviations are warranted…” (Delaware law); but see the sceptical approach towards bargaining processes in: Meiselman v. Meiselman, 307 S.E. 2d 551, 558 (N.C., 1983).

32 Crowder Construction Co. v. Kiser, 517 S.E. 2d 178,190 et seq. (N.C.App., 1999) (Book value clause in Shareholder Stock Purchase Agreement); Royals et al. v. Piedmont Electric Repair Co., 529 S.E. 2d 515, 517 et seq. (N.C.App., 2000) (Shareholder Restriction Agreement); and Delaware's refusal to develop special rules for a “closely-held corporation”: Nixon v. Blackwell, 626 A. 2d 1366, 1379 et seq. (Del., 1993); Ragazzo, , “Toward a Delaware Common Law of Closely Held Corporations”, 77 Wash.U.LQ. (1999) 1099.Google Scholar

33 See the detailed analysis of the various approaches towards the fairness test in the majority-minority relationship: Lerner v. Lerner Corporation, 750 A. 2d 709, 721 et seq. (Md. App., 2000) (all fairness test); Meiselman v. Meiselman, 307 S.E. 2d 551, 563 et seq. (N.C., 1983) (Reasonable expectations); Exadalctilos v. Cinnaminson Realty Co., Inc., 400 A. 2d 554, 559 (NJ.Super.L., 1979) (Business Judgment Rule). – Courts are reluctant to allow minority shareholders to sue under an individual or derivative action in case of breach of a fiduciary duty: Bordelon v. Cochrane, 533 So. 2d 82, 85 et seq. (La.App., 1988); G & NAircraft, Inc. v. Boehm, 743 N.E. 2d 227,244 et seq. (Ind., 2001); Simmons v. Miller, 544 S.E. 2d 666,675 (Va., 2001).

34 8 Del.Code Ann. § 218; Hawaii Rev. Stat. § 415-34; Mich.Stat.Ann. § 21.200 (461); Minn.Stat.Ann. §§ 302A 455, 302A 457 (West); Ohio Rev.Code Ann. § 1701.49; Tenn.Code Ann. § 48-17-302; Tex.Bus.Corp.Act Ann. (Vernon) Art. 2.30B; W.Va. Code Ann. § 31-1-94.

35 § 7.31 MBCA: “(a) Two or more shareholders may provide for the manner in which they will vote their shares by signing an agreement for that purpose. A voting agreement created under this section is not subject to the provisions of section 7.30. (b) A voting agreement created under this section is specifically enforceable.”

Ala.Code § 10-2B-7.31; Ark.Code Ann. § 4-27-731; Ariz.Rev.Stat.Ann. § 10-731; Cal.Cor-porations Code Ann. § 706; Colo.Rev.Stat. § 7-107-302; Conn.Gen.Stat.sec. 33-716; Ga.Code Ann. § 14-2-731; Fla.Stat.Ann. § 607.0731; Idaho Code § 30-1-731; Ill.C.S.Ann. Ch. 805 § 5/ 7.70; Ind.Stat.Ann. § 23-1-31-2; Iowa Code Ann. § 490.731; Me.Rev.Stat.Ann.tit 13A § 617; Mass.ALM.GL.c.156 § 41 A; Miss.Code Ann. § 79-4-7.31; Mont.Code Ann. § 35-1-533; N.H.Rev.Stat.Ann. § 293-A: 7.31; Neb.Rev.Stat. § 21-2068; N.J.Stat.Ann. § 14A:5-21; N.Y.Bus.Corp.L.Ann. § 620; N.C.Gen.Stat § 55-7-31; 15 Pa.Cons.Stat.Ann. § 1768(b); S.C. Code Ann. § 33-7-310; Vt.Stat.Ann.tit 11A § 7.31; Va.Code Ann § 13.1.671; Wash.Rev. Code Ann. § 23.B.07.310; Wis.Stat.Ann. § 180.0731; Wyo.Stat.Ann. § 17-16-731.

36 Utah Code Ann. § 16-10a-731

37 Ga.CodeAnn. § 14-2-731; Tenn.Code Ann. §48-17-302

38 § 7.32 MBCA: “(a) An agreement among the shareholders of a corporation that complies with this section is effective among the shareholders and the corporation even though it is inconsistent with one or more other provisions of this Act in that it:

(1) eliminates the board of directors or restricts the discretion or powers of the board of directors;

(2) governs the authorization or making of distributions whether or not in proportion to ownership of shares, subject to limitations in section 6.40;

(3) establishes who shall be directors of officers of the corporation, or their terms of office or manner of selection or removal;

(4) governs, in general or in regard to specific matters, the exercise or division of voting power by or between the shareholders and directors or by or among any of them, including use of weighted voting rights or director proxies;

(5) establishes the terms and conditions of any agreement for the transfer or use of property or the provision of services between the corporation and any shareholder, director, officer or employee of the corporation or among any of them;

(6) transfers to one or more shareholders or other persons all or a part of the authority to exercise the corporate powers or to manage the business and affairs of the corporation, including the resolution of any issue about which there exists a deadlock among directors or shareholders;

(7) requires dissolution of the corporation at the request of one or more of the shareholders or upon the occurrence of a specified event or contingency; or

(8) otherwise governs the exercise of the corporate powers or the management of the business and affairs of the corporation or the relationship among the shareholders, the directors and the corporation, or among any of them, and is not contrary to public policy.

(b) An agreement authorized by this section shall be:

(1) set forth (A) in the articles of incorporation or bylaws and approved by all persons who are shareholders at the time of the agreement or (B) in a written agreement that is signed by all persons who are shareholders at the time of the agreement and is made known to the corporation;

(2) subject to amendment only by all persons who are shareholders at the time of the amendment, unless the agreement provides otherwise; and

(3) valid for 10 years, unless the agreement provides otherwise.

(c) The existence of an agreement authorized by this section shall be noted conspicuously on the front or back each certificate for outstanding shares or on the information statement required by section 6.26 (b). If at the time of the agreement the corporation has shares outstanding represented by certificates, the corporation shall recall the outstanding certificates and issue substitute certificates that comply with this subsection. The failure to note the existence of the agreement on the certificate or information statement shall not affect the validity of the agreement or any action taken pursuant to it. Any purchaser of shares who, at the time of purchase, did not have knowledge of the existence of the agreement shall be entitled to rescission of the purchase. A purchaser shall be deemed to have knowledge of the existence of the agreement if its existence is noted on the certificate or information statement for the shares in compliance with this subsection and, if the shares are not represented by a certificate, the information statement is delivered to the purchaser at or prior to the time of purchase of the shares. An action to enforce the right of rescission authorized by this subsection must be commenced within the earlier of 90 days after discovery of the existence of the agreement or two years after the time of purchase of the shares.

(d) An agreement authorized by this section shall cease to be effective when shares of the corporation are listed on a national securities exchange or regularly traded in a market maintained by one or more members of a national or affiliated securities association. If the agreement ceases to be effective for any reason, the board of directors may, if the agreement is contained or referred to in the corporation's articles of incorporation or bylaws, adopt an amendment to the articles of incorporation or bylaws, without shareholder action, to delete the agreement and any references to it.

(e) An agreement authorized by this section that limits the discretion or powers of the board of directors shall relieve the directors of, and impose upon the person or persons in whom such discretion or powers are vested, liability for acts or omissions imposed by law on directors to the extent that the discretion or powers of the directors are limited by the agreement.

(f) The existence or performance of an agreement authorized by this section shall not be a ground for imposing personal liability on any shareholder for the acts or debts of the corporation even if it were a partnership or results in failure to observe the corporate formalities otherwise applicable to the matters governed by the agreement.

(g) Incorporators or subscribers for shares may act as shareholders with respect to an agreement authorized by this section if no shares have been issued when the agreement is made.

39 Ala.Code § 10-2B-7.32; Alaska Stat. § 10.06.424; Ariz.Rev.Stat.Ann. § 10-732; Conn.Gen.Stat. § 33-717; Fla.Stat.Ann. § 607.0732; Ga.Code Ann. § 14-2-732; Idaho Code § 30-1-732; Ill.C.S.Ann. Ch. 805 § 5/7.71; Me.Rev.Stat.Ann. tit. 13A § 618; Mich.Stat.Ann. § 21.200 (488); MinnStat.Ann. § 302A. 457; Miss.Code Ann. § 79-4-7.32; N.C.Gen.Stat. § 55-7-31 (outsiders may be a party to the agreement); Neb.Rev.Stat. § 21-2069; N.H.§ 293 -A:7.32; Or.Rev.Stat. § 60.265; Tenn.Code Ann. § 48-17-302; Tex.Bus.CorpActAnn. (Vernon) Art. 2.30-1. Utah § 16-10a-732; Va.Code Ann. § 13.1.-671.1; Wash.Rev.Code Ann. § 23B.07.320; Wyo.Stat.Ann. § 17-15-732.

40 Alabama, Alaska, Arizona, Connecticut, Florida, Georgia, Idaho, Maine, Michigan, Mississippi, North Carolina, Nebraska, New Hampshire, Oregon, Texas, Utah, Virginia (applicable to corporations with 300 shareholders or less), Washington, Wyoming; see supra N. 39.

41 Alabama, Connecticut, Florida, Georgia, Idaho, Michigan, Minnesota, Mississippi, North Carolina, Nebraska, New Hampshire, Oregon, Tennessee, Texas, Utah, Washington, Wyoming; see supra N. 39.

42 Alabama, Connecticut, Florida, Georgia, Idaho, Michigan, Mississippi, Nebraska, New Hampshire, Oregon, Texas, Utah, Washington, Wyoming; see supra N. 39.

43 Entwurf eines Gesetzes betreffend die Kommanditgesellschaft auf Aktien über die Aktiengesellschaft of 7 March 1887; in: Schubert, / Hommelhoff, (eds.), Hundert Jahre modernes Aktienrecht (1985) 386, 412 (translated by author).Google Scholar

44 Ibid., 466.

45 Gierke, , Die Genossenschaftstheorie unddie Deutsche Rechtsprechung (1887) 637.Google Scholar

46 Gierke, ibid., 249

47 RGB1. 477; cf. Birkenbihl, , Das Reichsgesetz betreffend die Gesellschafien mit beschränkter Haftung vom 20. April 1892 (1893) 1 et seq.Google Scholar, on the legislative history of the 1892 law on close corporations (GmbH-Gesetz).

48 Birkenbihl, ibid., 9.

49 Quoted from Birkenbihl, supra n. 47, 10; on current GmbH law and on the importance of the close corporation (GmbH) as a standard type of business organization in Germany cf. Lutter, / Hommelhoff, , GmbH-Gesetz, 15th ed. (2000)Google Scholar Einleitung Rn. 1 et seq.

50 Birkenbihl, supra n. 47, 104.

51 Baumann, / Reiß, , “Satzungserganzende Vereinbarungen – Nebenverträge im Gesellschafts-recht”, ZGR [1989] 157, 184Google Scholar; Zöllner, , in: Henze, / Timm, / Westermann, (eds.), RWS-Forum 8, Gesellschaftsrecht (1996) 89, 93Google Scholar; Noack, , Gesellschaftervereinbarungen bei Kapitalgesell-schaften (1994), 282 et seq.Google Scholar; cf. Lutter, , “Die Rechte und Pflichten des Vorstands bei der Ubertragung vinkulierter Namensaktien”, AG [1992] 369Google Scholar; Reichert, / Winter, , in: Lutter, / Ulmer, / Zöllner, (eds.), Festschrift WOJahre GmbH-Gesetz (1992) 209, 210 et seq.Google Scholar; Hoffmann-Becking, , “Der Einfluß schuldrechtlicher Gesellschaftervereinbarungen auf die Rechtsbeziehungen in der Kapitalgesellschaft”, ZGR [1994] 442, 443.Google Scholar

52 See § 37 GmbH-Gesetz, and Hommelhoff, , “Unternehmensführung in der mitbestimmten GmbH”, ZGR [1978] 119, 121.Google Scholar

53 Reichsgericht (RG) 16 March 1904, RGZ 57,205, 208.

54 Ibid.

55 See also: RG 7 June 1908, RGZ 69, 134, 137, and Müller-Erzbach, , Das private Recht der Mitgliedschaft als Prüfstein eines kausalen Rechtsdenkens (1948) 249.Google Scholar

56 Fischer, R., in: Festschrift Kunze (1969) 95, 99.Google Scholar

57 RG 19 June 1923, RGZ 107, 67.

58 RG 19 June 1923, RGZ 107, 67, 70; see also RG 11 June 1931, RGZ 133, 90, 95.

59 RG 20 November 1925, RGZ 112,273,279; 10 January 1928, RGZ 119,386,390; 12 October 1940, RGZ 165, 68, 78 et seq.; see comment by Fischer, supra n. 56, 103.

60 See criticism by Fischer, , “Zulässigkeit und Wirkung von Abstimmungsvereinbarungen”, GmbHR [1953] 65, 68Google Scholar; generally on aspects of minority protection: Zöllner, in: Henze/ Timm/ Westermann, supra n. 51, 89, 104.

61 Supra n. 45.

62 Supra n. 46.

63 Cf. Exadaktilos v. Cinnaminson Realty Co., 400 A 2d 554,561 (N.J.Super.L., 1979); Balvik v. Sylvester, 411 N.W. 2d 383, 386 (N.D., 1987); and Moll, , “Shareholder Oppression in Close Corporations: The Unanswered Question of Perspective”, 53 Vanderbilt L. Rev. (2000) 749, 793 et seq.Google Scholar, on the investment interests of shareholders in a close corporation. From an agency theory point of view: Fama, , “Agency Problems and the Theory of the Firm”, 88 J. Pol. Econ. (1980) 288CrossRefGoogle Scholar. German law tends to resolve this conflict by alluding to “membership” aspects (Mitgliedschaft) of being a shareholder, see: Schmidt, K., Gesellschaftsrecht, 3rd ed. (1997) 556 et seq.Google Scholar, and Lutter, , “Theorie der Mitgliedschaft – Prolegomena zu einem Allgemeinen Teil des Korporationsrechts”, 180 AcP (1980), 84, 88 et seq.Google Scholar

64 Cf. Brightman v. Bates, 55 N.E. 809, 810 (Mass., 1900); Venner v. Chicago City Ry., 101 N.E. 949,953(Ill., 1913).

65 See Noack's analysis, supra n. 51, 75; and Hoffmann-Becking, supra n. 51, 445.

66 Bundesgerichtshof (BGH) 29 May 1967, BGHZ 48, 163, 172 et seq.; and BGH 20 January 1983, NJW [1983] 1910, 1911; 27 October 1986, ZIP [1987] 293, 295.

67 BGH 7 June 1993, BGHZ 123, 15, 19, and Priester, , “Satzungsänderungen und Satzungs-durchbrechung”, 151 ZHR [1987] 40, 52 et seq.Google Scholar; Habersack, , “Unwirksamkeit ‘zustandsbegründender’ Durchbrechungen der GmbH-Satzung sowie darauf gerichteter schuldrechtlicher Nebenabreden”, ZGR [1994] 354, 363 et seq.Google Scholar

68 See cases cited supra n. 66,67.

69 Cf. Venner v. Chicago City Ry., 101 N.E. 949, 953 (Ill., 1913).

70 § 37 GmbH-Gesetz; for a detailed commentary on this section: Lutter/ Hommelhoff, supra n. 49, § 37 Rn. 1 et seq.

71 Fischer's proposal, “Das Recht der OHG als ergänzende Rechtsquelle zum GmbH-Gesetz”, GmbHR [1953] 131, 132 et seq.Google Scholar, to supplement the law on close corporations by partnership rules has not been taken up. Cf. K. Schmidt, Gesellschaftsrecht, supra n. 63, 983 et seq.

72 Cf. Westermann, , “Das Verhältnis von Satzung und Nebenordnungen in der Kapitalgesellschaft”, Hachenburg-Gedächtnisvorlesung (1994) 42 et seq.Google Scholar, and Zöllner's cautious analysis in: Henze/ Timm/ Zimmermann, supra n. 51,104. See generally on side-agreements ensuring the realization of corporate strategies: Bamberg, / Coenenberg, , Betriebswirtschaftliche Entscheidungslehre, 9th ed. (1996) 183Google Scholar; Ramakrishnan, / Thakor, , “Cooperation versus Competition in Agency”, 7 J. L. Econ. & Org. (1991) 248, 249 et seq.Google Scholar; and Easterbrook/ Fischel, supra n. 15, 16 et seq. on the corporate contract.

73 See: Winter, , “Organisationsrechtliche Sanktionen bei Verletzungen schuldrechtlicher Gesellschaftervereinbarungen?”, 154 ZHR [1990] 259, 261 et seq.Google Scholar; Ulmer, , “Verletzung schuldrechtlicher Nebenverträge als Anfechtungsgrund im GmbH-Recht”, NJW [1987] 1849, 1850 et seq.Google Scholar; Lutter/ Hommelhoff, supra n. 49, § 3 Rn. 47; Hoffmann-Becking, supra n. 51,450.

74 German legal doctrine refuses to apply corporation law rules for listed corporations to close corporations: Martens, in: Lutter, / Ulmer, / Zöllner, (eds.), Festschrift 100 Jahre GmbH-Gesetz (1992), 607, 615Google Scholar; Grunewald, , “Die Auslegung von Gesellschaftsverträgen und Satzungen”, ZGR [1995] 68, 81 et seq.Google Scholar; Zöllner, / Noack, , “Die Geltendmachung von Beschlußmängeln im GmbH-Recht”, ZGR [1989] 525, 541 et seq.Google Scholar; Zöllner, in: Henze/ Timm/ Westermann, supra n. 51, 89, 100 et seq.

75 Compare the language in: Jackson v. Hooper, 75 A. 568,571 (N.J.Err. & App., 1910), with Ulmer, supra n. 73, NJW [1987] 1849, 1853, and Winter, supra n.73, 154 ZHR [1990] 259,270 et seq.

76 Cf. Zöllner, in: Henze/ Timm/ Westermann, supra n. 51,110; Mestmäcker, , Organisationen in spontanen Ordnungen (1992) 23Google Scholar; and Becker's proposition, in: Verwaltungskontrolle durch Gesellschafterrechte (1997) 4 et seq.Google Scholar, 780 et seq., to compensate shareholders for the absence of an efficient control through capital market mechanisms by extending their right to challenge acts of the corporation in court.

77 Donahue v. Rodd Electrotype Co., 328 N.E. 2d 505, 515 (Mass., 1975); Meiselman v. Meiselman, 307 S.E. 551,557 et seq. (N.C. 1983); Easterbrook/Fischel, supra n. 15, 228 et seq.; F. Hodge, O'Neal, “Close Corporations: Existing Legislation and Recommended Reform”, 33 Bus. Law. (1978) 873, 884 et seq.Google Scholar; K. Schmidt, Gesellschaftsrecht, supra n. 63, 996 et seq.

78 Every US state has a dissolution statute now to address issues of shareholder deadlocks or oppression of the majority: Cox, / Hazen, / O'Neal, , Corporations Vol. II (2000)Google Scholar, §§ 14.12,14.14, cf. Meiselman v. Meiselman, 295 S.E. 2d 249,253 (F2) (N.C. App., 1982); Royals v. Piedmont Electric Repair Company, 529 S.E. 2d 515, 517 et seq. (N.C. App., 2000).

79 Courts have given up their hostility to close corporations as secret partnership agreements: Bostwick v. Chapman, 24 A. 32,35 et seq. (Conn. Super., 1890); Benintendi v. Kenton Hotel, Inc., 60 N.E. 829,831 (N.Y., 1945); and recognize that a close corporation may be lawfully organized as a partnership: Arditi v. Dubitzky, 354 F. 2d 483,486 et seq. (2nd Cir., 1965); Donahue v. Rodd Electrotype Co. of New England, 328 N.E. 2d 505,592 et seq. (Mass., 1975); Blount v. Taft, 246 S.E. 2d 763, 771 et seq. (N.C, 1978); Meiselman v. Meiselman, 307 S.E. 2d 551, 557 et seq. (N.C, 1983).

80 Sanders Corporation v. Haves, 541 S.W. 2d 262,264 (Tex.Civ.App. Dallas, 1976); Blount v. Taft, 246 S.E. 2d 763, 771 et seq. (N.C. 1978); Cooper v. Gottlieb, 2000 WL 1277593 (S.D.N.Y., 2000).

81 See cases cited supra n. 79, and state laws referred to supra n. 39.

82 Philadelphia Life Insurance Co. v. Crosland, 234 F. 2d 780, 783 (4th Cir., 1956) (sole shareholder of corporation); Snyder v. Freeman, 266 S.E. 2d 593, 597 et seq. (N.C. 1980) (all shareholders of close corporation).

83 Donahue v. Rodd Electrotype Co. of New England, 328 N.E. 2d 505, 515 et seq. (Mass., 1975); Ritchie v. McGrath, 571 P. 2d 17 (Kan.App., 1977); Lerner v. Lerner Corp., 750 A. 2d 709,720 et seq. (Md.App., 2000), cert.den. 757 A. 2d.810 (Md., 2000); Garza, supra n. 29,619 et seq.

84 Cox/ Hazen/ O'Neal, supra n. 78, § 14.16 (Fiduciary Duties in the Close Corporation).

85 Meiselman v. Meiselman, 307 S.E. 2d 551, 563 et seq. (N.C, 1983); Peeples, supra n. 30, 501 et seq.

86 See criticism in: Kiriakides v. Atlas Food Systems & Services, 541 S.E. 2d 257,265 et seq. (S.C., 2001); Lerner v. Lerner Corp., 750 A. 2d 709, 721 et seq. (Md.App., 2000), cert.den. 757 A. 2d 810 (Md., 2000). Cf. Moll, , “Shareholder Oppression in close corporations: The Unanswered Question of Perspective”, 53 Vanderbilt L. Rev. (2000) 749.Google Scholar

87 Easterbrook/ Fischel, supra n. 15,247 et seq.; cf. Nixon v. Blackwell, 626 A. 2d 1366,1379 et seq. (Del., 1993) describing shareholder contracting as part of the normal bargaining process on the capital market: “… The tools of good corporate practice are designed to give a purchasing minority shareholder the opportunity to bargain for protection before parting with consideration. It would do violence to normal corporate practice and our corporation law to fashion an ad hoc ruling which would result in a court imposed stockholder buy-out for which the parties had not contracted.” A Delaware court will not remedy a bad business judgement of a minority shareholder: Sontrol Holding Co. v. Marceau lnvestissements, 607 A. 2d 1177 (Del., 1992).

88 Exadaktilos v. Cinnaminson Realty Co., Inc., 400 A. 2d 554, 559 et seq. (N.J.Super.L., 1979); Delahoussaye v. Newhard, 785 S.W. 2d 609,612 (Mo.App.E.D. 1990); Peeples, supra n. 30; see generally on judicial control of board power and discretion: Green, , “Reasonable Expectations” Define Board Power to Liquidate a Solvent Close Corporation in Bankruptcy”, 41 Drake L. Rev. (1992) 421, 437 et seq.Google Scholar; Kaplan, / Young, , “Corporate ‘Eminent Domain’: Stock Redemption and Reverse Stock Splits”, 57 UMKC L. Rev. (1988) 67, 75 et seq.Google Scholar

89 Moll, supra n. 86, 772 et seq.

90 Moll, ibid., 794 et seq.

91 Courts favoring the fairness test base their findings on various factors which – tacitly – include the hypothetical investment market: cf. Nixon v. Blackwell, 626 A 2d 1366, 1379 et seq. (Del., 1993); Kiriakides v. Atlas Food Systems & Services, Inc., 541 S.E. 2d 257, 265 et seq. (S.C., 2001); Lerner v. Lerner Corporation, 750 A. 2d 709,722 et seq. (Md. App., 2000) cert. den. 757 A. 2d 810 (Md., 2000); Barter v. Diodardo, 2001 WL 337352 (Pa.Super., 2001)

92 See N.C.Gen.Stat. § 55-7-31(c); cf. Zöllner, in: Henze/ Timm/ Westermann, supra n. 51, 104.

93 Supra n. 66, 67

94 Supra n. 90.

95 Cf. Zöllner, in: Henze/ Timm/ Westermann, supra n. 51, 104; Odersky, , “Stimmbindungen im Pool und ‘Unterpool’”, in: Festschrift Marcus Lutter (2000), 557, 568 et seq.Google Scholar

96 Supra n. 41

97 Ribstein, supra n. 11, 129.

98 See: K. Schmidt, supra n. 63, 224 et seq., 1220 et seq.

99 Codified German law has not adopted the liability rules of many US state corporation laws which hold the parties to shareholder control agreement directly liable, but disallow the application of partnership liability law, supra n. 42. For special liability rules in corporate groups see: K. Schmidt, supra n. 63, 1220 et seq.