PROTECTION FOR MINORITY SHAREHOLDERS IN CLOSE CORPORATIONS Sample Clauses

PROTECTION FOR MINORITY SHAREHOLDERS IN CLOSE CORPORATIONS. A close corporation is the perfect environment for majority opportunism62. Majority opportunism is possible if the following aspects are combined together in a close corporation63: i) application of the majority rule64; ii) separation of functions among shareholders, directors and officers; iii) lack of guaranteed employment or dividend rights for shareholders; and iv) impossibility to apply the unilateral dissolution mechanism. In a close corporation, the traditional norms of corporate governance structure plus the lack of a public market for shares65 leave the minority shareholder vulnerable to the majority.66 Under the majority rule, the relationship between majority-minority shareholders might finish in what is called a “freeze out/squeeze- out”67. In a freeze out/squeeze out, a majority shareholder uses his/her control over 58 X’XXxxXx and XXxXxxxx, supra note 14, at 383. See Xxxxxx, supra note 34, at 383-384 (explaining that “[s] hareholder disputes present one of the most difficult and potentially destructive problems which arise in the context of the close corporation. A U.S. study conducted in Chicago, Illinois revealed that shareholder dissension was a major cause of business failures for the close corporation. Shareholder disputes are responsible for a wide a variety of business problems including loss of management time and increased cost.”). 59 xxXXXx, supra note 2, at 384. 60 HornEstEin, supra note 53, at 1041. 61 Xxxxxx, supra note 34, at 417 (commenting that “[p]articularly for the international investor, well-drafted contractual shareholder arrangements can be critical in governing the shareholder relationship. Contractually agreed upon choice of law provisions, buyout provisions, provisions permitting minority veto power in certain circumstances, employment contracts, and other special agreements which provide for dividend payments or other matters are extremely helpful in reducing potential shareholder disputes. Thus, provide for dividend payments or other are matters are extremely helpful in reducing potential shareholder disputes. Thus, contractual arrangements should be encouraged in the case of corporations owned by shareholders of different nations.”). 62 X’XXxxXx and XXxXxxxx, supra note 14, at 383. 63 Id. 64 See Xxxxxx, supra note 34, at 386 (explaining that “[t]he doctrine of majority rule creates the possibility for majority shareholders to make decisions which further their own interest at the expense of the minority owners.”)....