Duty of Loyalty: Special Concerns

Question 1

Closely Held Corporations: Donahue v. Rodd Electrotype (Mass 1975) [Transx w conflict]

Answer 1

Facts: Rodd fam 80% shares, Donahue 20% of shares. Daddi Rodd wants out. $800/share. Donahue wants out, offered $200/share.
Equal Opportunity Rule: Corp must buy out the shares at the same price. Rodd breached duty of loyalty. Reasoning: The Corp has to buy all shares at same price & if can’t afford then needs to buy pro rata.
Efficient? Not really. It makes sure everyone gets same treatment so you can’t just dip but it also doesn’t let you buy out an old S/H manager who you want to retire.

Question 2

Closely Held Corporations: Springside Nursing Home

Answer 2

backs away from equal opportunity rule & Modifies it:
Modified Equal Opportunity Rule: Controlling S/H must demonstrate a legitimate business purpose. Minority S/H must demonstrate that the same legit objective could have been achieves through an alternative course of action less harmful to him