1 By “states,” I refer not to the 50 political entities that comprise the United States, but rather the political entities that are equivalent to “nations” or “countries.” See Covey T. Oliver et al., The International Legal System 82 (4th ed. 1995).
2 See infra notes 77–86, 101–05, 141, 171–72, 179 and accompanying text (discussing minority shareholder protections in the Czech Republic, Germany, and the United States).
3 See Terence L. Blackburn, The Unification of Corporate Laws: The United States, the European Community and the Race to Laxity, 3 Geo. Mason Indep. L. Rev. 1, 17–18 (1994); William C. Philbrick, The Paving of Wall Street in Eastern Europe: Establishing the Legal Infrastructure for Stock Markets in the Formerly Centrally Planned Economies, 25 Law & Pol’y Int’l Bus. 565, 565–66 (1994).
4 See Hendrick F. Jordaan, A Comparative Analysis of Corporate Fiduciary Law: Why Delaware Should Look Beyond the United States in Formulating a Standard of Care, 31 Int’l Law. 133, 133 (1997); Philbrick, supra note 3, at 565–66. “Global investing,” as used in this article, refers to movements of capital either to foreign or multinational companies or to foreign countries. See Mary E. Kissane, Global Gadflies: Applications and Implementations of U.S.-Style Corporate Governance Abroad, 17 N.Y.L. Sch. J. Int’l & Comp. L. 621, 621 (1997); Patrick Speeckaert, Corporate Governance in Europe, 2 Fordham Fin. Sec. & Tax L.F. 31, 39 (1997).
5 See Kissane, supra note 4, at 621; Philbrick, supra note 3, at 565–67; Speeckaert, supra note 4, at 39. “Emerging economies,” as used in this article, refers to those states that have recently been making the transition from planned economies to market economies. See Bernard Black & Reinier Kraakman, A Self-Enforcing Model of Corporate Law, 109 Harv. L. Rev. 1911, 1912–13 (1996).
6 See Kissane, supra note 4, at 621; Philbrick, supra note 3, at 590.
7 See infra notes 44–64, 77–86 and accompanying text (discussing privatizations in the Czech Republic and the development of investor protections).
8 See Josef Bejcek, The New Commercial Code of the Czech Republic, 30 J. Marshall L. Rev. 699, 706 (1997); Kissane, supra note 4, at 674; Philbrick, supra note 3, at 593; Sergio Salani & Jerry Sloan, An Overview of Legal and Financing Aspects for Doing Business in Hungary, Poland, and the Czech Republic, 9 Temp. Int’l & Comp. L.J. 27, 28–29, 53 (1995); Speeckaert, supra note 4, at 38. For example, in 1992, Kmart purchased several department stores in the Czech Republic (at that time part of Czechoslovakia). See Robert C. Toth, Kmart Buys Up a Dozen Department Stores in Czechoslovakia, L.A. Times, May 8, 1992, at 12. In addition to purchasing the stores, Kmart planned to introduce retailing, technology, and distribution know-how to the Czech Republic. See id.
9 See Jordaan, supra note 4, at 134.
10 See infra notes 324–38 and accompanying text (discussing suggestions for improving investor protections in the Czech Republic based on German and U.S. protections).
11 For a definition of a close corporation, see infra note 134 and accompanying text.
12 See infra notes 77–86, 101–05, 141, 171–72, 179 and accompanying text (outlining minority shareholder protections in the close corporation context). It is important to note that while investors may derive protection from duties owed by corporate directors, directors in a close corporation, in many cases, are also shareholders. See, e.g., Donahue v. Rodd Electrotype, 328 N.E.2d 505, 511 (Mass. 1975). A full discussion of director duties, however, falls beyond the scope of this Note. The protections based on duties owed by other shareholders shall be referred to generally as “minority shareholder protections” for the remainder of this Note.
13 See Sandra K. Miller, Minority Shareholder Oppression in the Private Company in the European Community: A Comparative Analysis of the German, United Kingdom, and French “Close Corporation Problem,” 30 Cornell Int’l L.J. 381, 382 (1997).
14 See Adam Chernichaw, Note, Oppressed Shareholders in Close Corporations: A Market-Oriented Statutory Remedy, 16 Cardozo L. Rev. 501, 507–08 (1994).
15 See Miller, supra note 13, at 382; Charles W. Murdock, The Evolution of Effective Remedies for Minority Shareholders and Its Impact Upon Valuation of Minority Shares, 65 Notre Dame L. Rev. 425, 426 (1990).
16 See infra notes 77–86, 101–05, 141, 171–72, 179 and accompanying text (discussing how the Czech Republic, Germany, and the United States have responded to minority shareholder concerns).
17 See Bejcek, supra note 8, at 707; Richard Pivnicka & Mark Kreisl, Czech Republic: Investment in Freedom and the Future, 1 Int’l Dimensions 6, 8 (1997).
18 See Pivnicka & Kreisl, supra note 17, at 6. Prior to World War II, the Czech Republic (then part of Czechoslovakia) was the sixth wealthiest and one of the ten largest industrialized countries in the world. See Bejcek, supra note 8, at 699; Frederick Kempe & Cacilie Rohwedder, Top Executives Name Czech Republic Most Attractive for Future Investments, Wall St. J., July 9, 1993, at A6.
19 See Salani & Sloan, supra note 8, at 28–29, 53.
20 See Henry W. Lavine et al., Czech and Slovak Privatization: Issues and Approaches for Western Investors, in Joint Ventures and Other Financing Techniques in Poland, Hungary, Czechoslovakia, and Romania 61, 66 (1992); Pivnicka & Kreisl, supra note 17, at 6; Salani & Sloan, supra note 8, at 29; Kempe & Rohwedder, supra note 18, at A6.
21 See id.
22 See Salani & Sloan, supra note 8, at 29.
23 See Pivnicka & Kreisl, supra note 17, at 6; Kempe & Rohwedder, supra note 18, at A6.
24 See Lavine et al., supra note 20, at 67; Pivnicka & Kreisl, supra note 17, at 6; Kempe & Rohwedder, supra note 18, at A6.
25 See Medicine for the Czech Stock Market, E./W. Executive Guide, Feb. 1, 1997 [hereinafter Medicine].
26 See Philbrick, supra note 3, at 593. Due to the insufficiency of domestic savings, Eastern European stock markets need to look to foreign sources of investment in order to maintain adequate capitalization. See id.
27 Czechoslovakia peacefully split into the Czech Republic and Slovakia on January 1, 1993. See Tami Pickerell Carroll, Giving Banks a Blank Czech: An Emerging Eastern European Corporate Governance Model, 7 Int’l Legal Persp. 25, 26 (1995).
28 See Bejcek, supra note 8, at 702.
29 See The New Bohemians: The Czech Republic, Economist, Oct. 22, 1994, at 23 [hereinafter The New Bohemians].
30 See Bejcek, supra note 8, at 702; The New Bohemians, supra note 29, at 23.
31 See Bejcek, supra note 8, at 701. The Civil Code regulated relations between citizens and “socialist organizations”; the Economic Code set forth the laws for the management and governance of these “socialist organizations”; and the Code of International Trade governed relations with foreign business partners. See id. at 702, 705. The government determined whether an organization qualified as a “socialist organization” in rather ideological and arbitrary manners. See id. at 702.
32 See Pivnicka & Kreisl, supra note 17, at 6.
33 See Carroll, supra note 27, at 25–26.
34 See Bejcek, supra note 8, at 706.
35 See Karel Fiala & Filip Hruska, Current Financial and Investment Environment in the Czech Republic, 49 Consumer Fin. L.Q. Rep. 296, 296 (1995).
36 See Bejcek, supra note 8, at 707.
37 See Salani & Sloan, supra note 8, at 45. The Commercial Code was codified in Act No. 513/1991 Sbírka zákon (Collection of Laws), cited in Bejcek, supra note 8, at 700 n.3.
38 See Sarah Andrus, The Czech Republic and Slovakia: Foreign Participation in Changing Economies, 17 Hastings Int’l & Comp. L. Rev. 611, 620, 631 (1994); Bejcek, supra note 8, at 705, 708.
39 See Carroll, supra note 27, at 28.
40 See Andrus, supra note 38, at 620.
41 See Carroll, supra note 27, at 26; Fiala & Hruska, supra note 35, at 296.
42 See Carroll, supra note 27, at 27; Fiala & Hruska, supra note 35, at 296.
43 See Andrus, supra note 38, at 620–21; Bejcek, supra note 8, at 700; Fiala & Hruska, supra note 35, at 296.
44 See John Regis Coogan et al., International Legal Developments in Review: 1996—Central European Law, 31 Int’l Law. 495, 495 (1997).
45 See Carroll, supra note 27, at 29; Philbrick, supra note 3, at 577.
46 See Michele Balfour & Cameron Crise, A Privatization Test: The Czech Republic, Slovakia and Poland, 17 Fordham Int’l L.J. 84, 85 (1993).
47 See Carroll, supra note 27, at 26.
48 See Richard L. Holman, Czech Sell-Off Round Ends, Wall St. J., Nov. 28, 1994, at A14. For example, Russia modeled its privatization on the Czechoslovak plans. See Philbrick, supra note 3, at 581–82; Toth, supra note 8, at 12.
49 See Balfour & Crise, supra note 46, at 93–94; Philbrick, supra note 3, at 580.
50 See Law No. 427 of 15 October 1990, the Act on the Transfer of the State Ownership of Some Property to Other Juridicial or Natural Persons, cited in Philbrick, supra note 3, at 580 n.77; Salani & Sloan, supra note 8, at 47.
51 See Lavine et al., supra note 20, app. at 87.
52 See Balfour & Crise, supra note 46, at 93.
53 See Andrus, supra note 38, at 615.
54 See Law No. 92 of 26 February 1991, the Act on Conditions of Transferring State Property to Other Persons, cited in Philbrick, supra note 3, at 580 n.78; Andrus, supra note 38, at 615.
55 See Andrus, supra note 38, at 615–16.
56 See id. at 616.
57 See Balfour & Crise, supra note 46, at 94. Coupon privatization (also called voucher privatization), involved the purchase of investment coupons by Czech citizens. See Andrus, supra note 38, at 616; Balfour & Crise, supra note 46, at 86. Each citizen over the age of 18 was permitted to purchase a booklet of coupons. See Carroll, supra note 27, at 30. These coupons could then be used to purchase shares in joint stock companies or investment funds. See id.
58 See Balfour & Crise, supra note 46, at 95. The first round of privatization was a joint effort between the two entities that would eventually become the Czech Republic and Slovakia. See id.
59 See Carroll, supra note 27, at 29.
60 See Balfour & Crise, supra note 46, at 95.
61 See Richard L. Holman, More Czech Privatizations Set, Wall St. J., July 21, 1993, at A11.
62 See Holman, supra note 48, at A14.
63 See Medicine, supra note 25. According to another estimate, however, approximately 80% of Czech citizens purchased shares. See Bejcek, supra note 8, at 707 n.36.
64 See Medicine, supra note 25.
65 See Salani & Sloan, supra note 8, at 45.
66 See Fiala & Hruska, supra note 35, at 297.
67 See Pivnicka & Kreisl, supra note 17, at 6; Salani & Sloan, supra note 8, at 45.
68 As of Thursday, April 1, 1999, one United States dollar would purchase 35.788 Czech crowns (Koruna). See Currency Trading—Exchange Rates, Wall St. J., Apr. 1, 1999, at C11.
69 See Fiala & Hruska, supra note 35, at 297.
70 See id.
71 See Andrus, supra note 38, at 623 & n.100.
72 See Salani & Sloan, supra note 8, at 45.
73 See Fiala & Hruska, supra note 35, at 297; Pivnicka & Kreisl, supra note 17, at 7.
74 See Pivnicka & Kreisl, supra note 17, at 7.
75 See Salani & Sloan, supra note 8, at 45.
76 See Andrus, supra note 38, at 625.
77 See Act No. 142/1996 Sbírka zákon (Collection of Laws) Amending the Commercial Code and the Civil Code, cited in Coogan et al., supra note 44, at 499; Legislative Changes Will Bring Greater Transparency and Shareholder Protection to Czech Capital Market, E./W. Executive Guide, July 1, 1996 [hereinafter Legislative Changes]. Foreign investors are equally protected by the amendment because the Commercial Code provides that all foreign investors may conduct business under the same conditions as Czech investors. See Fiala & Hruska, supra note 35, at 297.
78 See Medicine, supra note 25. These amendments were modeled on both European Union guidelines and German law. See Susan Tietjen, Recent Amendments to the Czech Commercial Code and Securities Act, Cent. Eur. L. Committee Newsl. (Am. Bar Ass’n Section of Int’l Law and Practice, Washington, D.C.), Summer 1996, at 2. It is important that the Czech Republic model its protections on those of other European states because it currently seeks admission into the European Union. Significantly, the European Union has proposed the adoption of stronger minority shareholder protections as a short-term objective for accession. See Accession Partnership-Czech Republic-October 1999-Draft (visited Dec. 8, 1999) <http://europa.eu.int/comm/enlargement/docs/index.htm> [hereinafter Accession Partnership]. For more specific examples of these similarities, compare infra notes 79–86 and accompanying text with Miller, supra note 13, at 393, 396, 403 (discussing buyout remedies in Germany and the United Kingdom).
79 See Coogan et al., supra note 44, at 499; Legislative Changes, supra note 77. Any acquisition by a person of more than one-half, two-thirds, or three-fourths of the aggregate nominal value of a company’s voting shares constitutes a takeover. See Tietjen, supra note 78, at 3.
80 See Legislative Changes, supra note 77. The average market price for the purpose of the shareholder buyout is calculated according to the price of the stock over the previous six months. See id. Furthermore, in order to prevent circumvention of the strict buyout requirement, the amendment considers a “shareholder” to include any group acting in accord. See id.
81 See Tietjen, supra note 78, at 3.
82 See Coogan et al., supra note 44, at 499; Tietjen, supra note 78, at 4. For a discussion of squeeze-outs, see infra notes 231–35 and accompanying text.
83 See Tietjen, supra note 78, at 4.
84 See id.
85 See id. A majority vote of the shareholders (where each shareholder has one vote regardless of how many shares he or she holds) and a three-fourths vote of those shareholders who will be affected by the change are required in order to cancel the public tradeability of shares. See id. To limit the transferability of shares, a corporation must obtain a two-thirds vote of the shareholders and a three-fourths vote of those shareholders who will be affected by the change. See id.
86 See Tietjen, supra note 78, at 5.
87 See Miller, supra note 13, at 394.
88 See id. at 384, 395.
89 See Hugh T. Scogin, Jr., Withdrawal and Expulsion in Germany: A Comparative Perspective on the “Close Corporation Problem,” 15 Mich. J. Int’l L. 127, 131 (1993).
90 See id. at 134.
91 See Miller, supra note 13, at 395. As of Thursday, April 1, 1999, one United States dollar was equivalent to 1.8126 DM. See Currency Trading—Exchange Rates, supra note 68, at C11.
92 See Miller, supra note 13, at 395.
93 See id. at 394.
94 See id. at 394–95.
95 See Scogin, Jr., supra note 89, at 133 n.20.
96 See H. Jung & J. Gres, Starting Business Operations in Germany 33 (1984), reprinted in Ralph H. Folsom et al., International Business Transactions 954 (3d ed. 1995).
97 See Scogin, Jr., supra note 89, at 133 n.20.
98 See Miller, supra note 13, at 382. The vulnerability of the minority shareholders in a GmbH mirrors the vulnerability of minority shareholders in a U.S. close corporation. See infra notes 139–40, 217–21 and accompanying text.
99 See Miller, supra note 13, at 392, 396.
100 See id. at 396.
101 See Scogin, Jr., supra note 89, at 134.
102 See Miller, supra note 13, at 396. The Gezetz betreffend die Gesellschaften mit beschränkter Haftung (GmbH Law) grants the judiciary this authority in § 61(1). See id. at 396 n.78; Scogin, Jr., supra note 89, at 134–35. Section 61 of the GmbH Law provides that: “[t]he company may be dissolved by a court decision in case it becomes impossible to accomplish the purpose of the company or when there are other substantial causes (wichtige Grund) for the dissolution resulting from the conditions of the company.” Scogin, Jr., supra note 89, at 134.
103 See id.
104 See id. at 135.
105 See Miller, supra note 13, at 396.
106 See Scogin, Jr., supra note 89, at 135.
107 See Miller, supra note 13, at 397; Scogin, Jr., supra note 89, at 154–55. Scogin elaborates on these three theories for withdrawal by providing concrete examples. See Scogin, Jr., supra note 89, at 155. Personal characteristics of the departing shareholder may include financial need, illness, relocation, and an inability to fulfill the shareholder role. See id. Behavior of other shareholders may encompass the arbitrary exercise of majority power or the continuation of a dispute among shareholders. See id. Finally, special factors may include a lack of long-term returns on a shareholder’s investment or a change in the purpose of the company. See id.
108 See id. at 155. United States fiduciary duties, in contrast to the personal characteristics that may constitute wichtige Grund, include such elements as disloyalty, self-dealing, oppression, and bad faith. See Scogin, Jr., supra note 89, at 135.
109 See id.
110 Id. at 155.
111 See id. at 154. In fact, the withdrawal remedy is available to all shareholders. See id.
112 See Scogin, Jr., supra note 89, at 156.
113 See id.
114 See Miller, supra note 13, at 396.
115 See id.
116 See Scogin, Jr., supra note 89, at 135.
117 See id.
118 See infra notes 257–58 and accompanying text.
119 See Scogin, Jr., supra note 89, at 156. Expulsion, because it is available to any shareholder who establishes wichtige Grund, may, however, be used against a minority shareholder. See Miller, supra note 13, at 399 (discussing how German remedies contrast with U.S. remedies because U.S. remedies are primarily geared toward minority shareholders).
120 See supra note 117 and accompanying text.
121 See Miller, supra note 13, at 399; Scogin, Jr., supra note 89, at 136.
122 See Miller, supra note 13, at 396; Scogin, Jr., supra note 89, at 158.
123 See Scogin, Jr., supra note 89, at 158.
124 See id. at 160. The European Union has taken notice of the Czech capital markets system, as it has emphasized minority shareholder protections and the Securities and Exchange Commission in its most recent proposed Accession Partnership. See Accession Partnership, supra note 78.
125 See Miller, supra note 13, at 397. But see supra note 107 and accompanying text (discussing wichtige Grund in the withdrawal context). Personal characteristics may include such factors as age, illness, or mental incapacity. See Scogin, Jr., supra note 89, at 160. Shareholder conduct may include such acts as breaching the trust of other shareholders, financial mismanagement, causing conflicts among shareholders, and making improper sexual advances. See id.
126 See Entscheidungen des Bundesgerichtshofes in Zivilsachen (Supreme Court) decision of April 1, 1953, BGHZ 9, 157 [hereinafter April 1, 1953 Decision], cited in Miller, supra note 13, at 398 & n.90.
127 See id.
128 See Scogin, Jr., supra note 89, at 157.
129 See id.
130 See id. at 136, 157. In its decision of April 1, 1953, the German court held explicitly that a minority shareholder can expel a majority shareholder if wichtige Grund is established. See April 1, 1953 Decision, cited in Scogin, Jr., supra note 89, at 157 & n.123.
131 See Scogin, Jr., supra note 89, at 157. The general trend is to require a supermajority vote for expulsion. See id. Some commentators, however, argue that only a simple majority should be required. See id.
132 See id. at 158.
133 See Chernichaw, supra note 14, at 501; Miller, supra note 13, at 383.
134 See M. Thomas Arnold, Shareholder Duties Under State Law, 28 Tulsa L.J. 213, 240 (1992). In Donahue v. Rodd Electrotype Co., the Supreme Judicial Court of Massachusetts defined a close corporation as having “(1) a small number of stockholders; (2) no ready market for the corporate stock; and (3) substantial majority stockholder participation in the management, direction and operations of the corporation.” 328 N.E.2d 505, 511 (Mass. 1975).
135 See Arnold, supra note 134, at 240 n.205; Chernichaw, supra note 14, at 507.
136 See Arnold, supra note 134, at 234; Chernichaw, supra note 14, at 507.
137 See Arnold, supra note 134, at 234; Miller, supra note 13, at 383.
138 See Chernichaw, supra note 14, at 501.
139 See Arnold, supra note 134, at 234. A guarantee of employment may be one of the major reasons why a minority shareholder chooses to invest in a close corporation. See Murdock, supra note 15, at 435.
140 See Murdock, supra note 15, at 435.
141 See Scogin, Jr., supra note 89, at 129–30.
142 See Chernichaw, supra note 14, at 517–18.
143 See Murdock, supra note 15, at 453.
144 See id. at 426, 441; Scogin, Jr., supra note 89, at 130.
145 See Murdock, supra note 15, at 455. For example, the Revised Model Business Corporation Act provides for dissolution upon (i) director deadlock, (ii) oppression, (iii) shareholder deadlock, or (iv) waste. Revised Model Bus. Corp. Act § 14.30(2), reprinted in Corporations and Business Associations: Statutes, Rules, Materials, and Forms 480, 660–61 (Melvin Aron Eisenberg ed., 1998) [hereinafter Corporations and Business Associations].
146 See Murdock, supra note 15, at 426, 455–61. Courts have addressed the issue of oppressive conduct in several cases, with varying results. See, e.g., Capitol Toyota, Inc. v. Bervin, 381 So.2d 1038, 1039 (Miss. 1980) (finding no oppression where “reasonable expectations have been thwarted, but not grossly so”); Baker v. Commercial Body Builders, Inc., 507 P.2d 387, 394 (Or. 1973) (finding a close tie between oppression and the fiduciary duty of good faith and fair dealing); White v. Perkins, 189 S.E.2d 315, 320 (Va. 1972) (finding oppression to constitue “a visible departure from the standards of fair dealing”); Gidwitz v. Lanzit Corrugated Box Co., 170 N.E.2d 131, 138 (Ill. 1960) (finding oppression where corporation’s president acted “in an arbitrary and high-handed manner”); Fix v. Fix Material Co., 538 S.W.2d 351, 358 (Mo. Ct. App. 1976) (finding that although oppression is closely tied to fiduciary duties, a single breach of fiduciary duty will not constitute oppression unless extremely serious or causes “irreparable injury, imminent danger of loss or miscarriage of justice”).
147 See Murdock, supra note 15, at 455.
148 See id. at 455 & n.199. This Act was the basis for the Revised Model Business Corporation Act. See id. at 455.
149 See 141 N.E.2d 45, 50 (Ill. 1957); see also Gidwitz, 170 N.E.2d at 138 (where the Supreme Court of Illinois held that “[i]t is not necessary that fraud, illegality or even loss be shown”).
150 See Gidwitz, 170 N.E.2d at 138; Notzke v. Art Gallery, Inc., 405 N.E.2d 839, 843 (Ill. App. Ct. 1980); Compton v. Paul K. Harding Realty Co., 285 N.E.2d 574, 581 (Ill. App. Ct. 1972).
151 See Gidwitz, 170 N.E.2d at 135; Compton, 285 N.E.2d at 581.
152 See Ross v. 311 North Central Ave. Bldg. Corp., 264 N.E.2d 406, 409 (Ill. App. Ct. 1970); Murdock, supra note 15, at 457.
153 See Gray v. Hall, 295 N.E.2d 506, 509 (Ill. App. Ct. 1973).
154 See generally Murdock, supra note 15, at 457–61 (discussing the development of oppression in other United States jurisdictions).
155 See id. at 454, 465. A New Jersey decision, however, first introduced the standard of reasonable expectations as a means by which a court could find oppression. See Exadaktilos v. Cinnaminson Realty Co., 400 A.2d 554, 561–62 (Super. Ct. Law Div. 1979), aff’d 414 A.2d 994 (Super. Ct. App. Div. 1980) (finding, however, that plaintiff’s expectations were not frustrated by defendants); Murdock, supra note 15, at 461.
156 See N.Y. Bus. Corp. L. § 1104-a, reprinted in Corporations and Business Associations, supra note 145, at 788, 860–61; Murdock, supra note 15, at 461.
157 433 N.Y.S.2d 359, 361 (Sup. Ct. 1980).
158 Id. at 361–62.
159 Id.
160 Id. at 362. See also In re Taines, 444 N.Y.S.2d 540, 544 (Sup. Ct. 1981) (finding frustration of a shareholder’s reasonable expectations on similar facts).
161 In re Topper, 433 N.Y.S.2d at 365 (finding that these reasonable expectations include participating in management and receiving salary from employment with the business). New York courts have also held that the expectation of fair dealing on the part of other shareholders is a reasonable expectation. See Gimpel v. Bolstein, 477 N.Y.S.2d 1014, 1020 (Sup. Ct. 1984).
162 See generally O’Donnel v. Marine Repair Servs., Inc., 530 F. Supp. 1199 (S.D.N.Y. 1982) (where plaintiff became a shareholder after the corporation was formed); Gimpel, 477 N.Y.S.2d 1014 (where parties were generations removed from the founding of the corporation).
163 See In re Topper, 433 N.Y.S.2d at 365.
164 See O’Donnel, 530 F. Supp. at 1207.
165 See Gimpel, 477 N.Y.S.2d at 1016.
166 473 N.E.2d 1173, 1179 (N.Y. 1984). See also Chernichaw, supra note 14, at 514.
167 In re Kemp & Beatley, Inc., 473 N.E.2d at 1175–76.
168 See Murdock, supra note 15, at 461.
169 See id. at 426.
170 See id. at 427–28; Robert B. Thompson, Corporate Dissolution and Share-holders’ Reasonable Expectations, 66 Wash. U. L.Q. 193, 228–32 (1988).
171 See Thompson, supra note 170, at 228–32.
172 See Murdock, supra note 15, at 464, 470; Thompson, supra note 170, at 228–29. Courts have approved buyouts in several cases. See Balvik v. Sylvester, 411 N.W.2d 383, 388 (N.D. 1987); McCauley v. Tom McCauley & Son, Inc., 724 P.2d 232, 235–36 (N.M. 1986); Stefano v. Coppock, 705 P.2d 443, 446 (Alaska 1985); Sauer v. Moffitt, 363 N.W.2d 269, 275 (Iowa 1984); Maddox v. Norman, 669 P.2d 230, 238 (Mont. 1983); Baker v. Commercial Body Builders, Inc., 507 P.2d 387, 396 (Or. 1973); Davis v. Sheerin, 754 S.W.2d 375, 380 (Tex. Ct. App. 1988).
173 See Thompson, supra note 170, at 228–29.
174 See Murdock, supra note 15, at 470–71; Thompson, supra note 170, at 232.
175 See Murdock, supra note 15, at 473.
176 See Thompson, supra note 170, at 233.
177 See id. at 234.
178 See Murdock, supra note 15, at 473. Particularly if the oppressive conduct involves a waste of assets or excessive compensation, a minority shareholder may want the valuation to take into account what the shares would have been worth had the waste not occurred. See id.
179 See Arnold, supra note 134, at 234; Murdock, supra note 15, at 426–27.
180 See Arnold, supra note 134, at 234, 237–38; Michael R. Pontrelli & John T. Montgomery, Close Corporations and the Duty of Utmost Good Faith and Loyalty, in Massachusetts Corporation Law and Practice 507, 510 (Richard W. Southgate & Donald W. Glazer eds., 1998). Several state court decisions have followed the Donahue doctrine. See Daniels v. Thomas, Dean & Hoskins, Inc., 804 P.2d 359, 366 (Mont. 1990); Fought v. Morris, 543 So.2d 167, 171 (Miss. 1989); Balvik v. Sylvester, 411 N.W.2d 383, 387–88 (N.D. 1987); Alaska Plastics, Inc. v. Coppock, 621 P.2d 270, 276 (Alaska 1980); Hagshenas v. Gaylord, 572 N.E.2d 316, 323 (Ill. App. Ct. 1990); Sundberg v. Lampert Lumber Co., 390 N.W.2d 352, 355–56 (Minn. Ct. App. 1986); Estate of Schroer v. Stamco Supply Inc., 482 N.E.2d 975, 981 (Ohio Ct. App. 1984); 68th Street Apts., Inc. v. Lauricella, 362 A.2d 78, 86 (N.J. Super. Ct. Law Div. 1976).
181 See Arnold, supra note 134, at 237–38.
182 See id. at 234.
183 See Murdock, supra note 15, at 427.
184 See Donahue v. Rodd Electrotype Co., 328 N.E.2d 505, 512 (Mass. 1975); Arnold, supra note 134, at 234; Pontrelli & Montgomery, supra note 180, at 513.
185 See Donahue, 328 N.E.2d at 512; Pontrelli & Montgomery, supra note 180, at 513.
186 See Donahue, 328 N.E.2d at 512.
187 328 N.E.2d 505. See Arnold, supra note 134, at 234–35.
188 Donahue, 328 N.E.2d at 515.
189 Id. at 508. The company refused to purchase Donahue’s shares. Id. at 511.
190 Id. at 515, 518–19.
191 See Pontrelli & Montgomery, supra note 180, at 509.
192 353 N.E.2d 657 (Mass. 1976).
193 Id. at 663.
194 Id.; see also Arnold, supra note 134, at 237.
195 353 N.E.2d at 663.
196 Id. at 658–59.
197 Id. at 665.
198 See Murdock, supra note 15, at 436; Pontrelli & Montgomery, supra note 180, at 532.
199 See Arnold, supra note 134, at 240; Murdock, supra note 15, at 436. But cf. Coggins v. New England Patriots Football Club, Inc., 492 N.E.2d 1112, 1117 (Mass. 1986) (where the Supreme Judicial Court of Massachusetts cited the legitimate business purpose scrutiny in Wilkes in a case involving a non-closely held corporation).
200 328 N.E.2d 505, 511 (Mass. 1975). But cf. Sundberg v. Lampert Lumber Co., 390 N.W.2d 352, 356 (Minn. Ct. App. 1986) (citing Minnesota Business Corporation Act § 302A.011, subd. 6a for the requirement that a close corporation have fewer than 35 shareholders).
201 See Murdock, supra note 15, at 436.
202 421 N.W.2d 350, 353 (Minn. Ct. App. 1988).
203 Id. at 353. If a shareholder, however, was both an employee and a partner, that shareholder will be owed fiduciary duties. See, e.g., Wilkes v. Springside Nursing Home, Inc., 353 N.E.2d 657 (Mass. 1976) (where minority shareholder employee was owed fiduciary duties); supra notes 196–97 and accompanying text.
204 See supra note 106 and accompanying text.
205 See Donahue v. Rodd Electrotype Co., 328 N.E.2d 505, 518 n.24 (Mass. 1975). The Donahue court noted that waiver may be effectuated either through prior agreement—in the articles of incorporation or the by-laws—or through ratification. Id.; see also Arnold, supra note 134, at 240; Pontrelli & Montgomery, supra note 180, at 535.
206 King v. Driscoll, 638 N.E.2d 488, 490 (Mass. 1994); Evangelista v. Holland, 537 N.E.2d 589, 591 (Mass. App. Ct. 1989).
207 537 N.E.2d at 592–93.
208 638 N.E.2d at 494.
209 Id. at 490.
210 Id. at 494. Cf. Blank v. Chelmsford OB/GYN, P.C., 649 N.E.2d 1102, 1106 (Mass. 1995) (holding that where a stock purchase provision was triggered upon termination of employee and employment was terminated pursuant to an agreement that permitted termination without cause, controlling shareholder’s conduct would not violate fiduciary duties).
211 See Arnold, supra note 134, at 241.
212 See Pontrelli & Montgomery, supra note 180, at 510 & n.5.
213 See Nixon v. Blackwell, 626 A.2d 1366 (Del. 1993).
214 Id. at 1370, 1375–76.
215 Id. at 1370, 1376.
216 Id. at 1375–76. The “entire fairness” scrutiny takes into account two factors: fair dealing and fair price. Id. at 1376. Neither of these factors encompasses the strict fiduciary duties outlined in Donahue. Compare Nixon, 626 A.2d at 1375–76 with Donahue v. Rodd Electrotype Co., 328 N.E.2d 505, 515–16 (Mass. 1975) (contrasting the strict fiduciary duties required under Massachusetts law with the fairness standard of conduct).
217 See Kerry M. Lavelle, Drafting Shareholder Agreements for the Closely-Held Business, 4 DePaul Bus. L.J. 109, 109 (1991); Miller, supra note 13, at 386.
218 See Murdock, supra note 15, at 488.
219 See id. at 425; F. Hodge O’Neal, Oppression of Minority Shareholders: Protecting Minority Rights, 35 Clev. St. L. Rev. 121, 121 (1987). One commentator notes that these types of behaviors are so widespread that they constitute “a national business scandal.” O’Neal, supra, at 121.
220 See infra notes 227–30 and accompanying text.
221 See Murdock, supra note 15, at 425–26; O’Neal, supra note 219, at 125.
222 See Medicine, supra note 25; Legislative Changes, supra note 77.
223 See Medicine, supra note 25; Legislative Changes, supra note 77. Investment funds enticed coupon holders by offering to redeem coupons at ten to fifty times their value. See Balfour & Crise, supra note 46, at 94.
224 See More Than Half Way There, Economist, Mar. 3, 1993, at E6.
225 See Carroll, supra note 27, at 31. Conflicts of interest may arise because the banks that manage investment funds often play a dual role: shareholder and lender. See The New Bohemians, supra note 29, at 23. See also Carroll, supra note 27, at 23.
226 See Medicine, supra note 25; Legislative Changes, supra note 77. But see generally Carroll, supra note 27 (discussing the benefits of bank participation in company ownership).
227 See Miller, supra note 13, at 383, 385–86.
228 See id.
229 See id. at 385–86; Scogin, Jr., supra note 89, at 129.
230 See Murdock, supra note 15, at 425; O’Neal, supra note 219, at 121.
231 See O’Neal, supra note 219, at 125.
232 See id.
233 See supra notes 217–21 and accompanying text (discussion of control).
234 See O’Neal, supra note 219, at 121.
235 See Chernichaw, supra note 14, at 508–09.
236 See O’Neal, supra note 219, at 121.
237 See id. at 121.
238 See id.
239 See infra notes 240–43 and accompanying text.
240 See Medicine, supra note 25; Legislative Changes, supra note 77.
241 See Medicine, supra note 25. According to Mr. Tomás Jezek, Chairman of the Czech Stock Exchange Chamber, the Czech Republic was planning to establish its Securities and Exchange Commission based on United States, French, and Polish models. See id. The European Union has taken an active interest in the Czech Securities and Exchange Commission—citing reinforcement of the Commission as a short-term accession goal. See Accession Partnership, supra note 78.
242 See Medicine, supra note 25. Those in the Czech Republic strongly believe that the Securities and Exchange Commission will be tougher on enforcement than the Ministry of Finance. See id.
243 See id.
244 See infra notes 245–52 and accompanying text.
245 See Miller, supra note 13, at 397, 410.
246 See id.
247 See id. at 398; Scogin, Jr., supra note 89, at 135.
248 See Miller, supra note 13, at 398.
249 See Entscheidungen des Reichsgerichts in Zivilsachen (Supreme Court) decision of August 13, 1942, RGZ 169, 330, 330–32 [hereinafter August 13, 1942 Decision], cited in Scogin, Jr., supra note 89, at 144 & n.66.
250 See August 13, 1942 Decision, cited in Scogin, Jr., supra note 89, at 144 & n.66.
251 See id.
252 See Miller, supra note 13, at 399; Scogin, Jr., supra note 89, at 152–53.
253 See infra notes 254–61 and accompanying text.
254 See supra notes 103, 144 and accompanying text.
255 See id.
256 See supra notes 103, 139–40 and accompanying text.
257 See supra notes 117, 173–74 and accompanying text.
258 See id.
259 See supra notes 174–78 and accompanying text.
260 See Scogin, Jr., supra note 89, at 158.
261 See id. at 159.
262 See supra notes 4–6 and accompanying text.
263 See supra notes 77–86, 101–05, 141–42, 171–72, 179 and accompanying text.
264 See, e.g., Medicine, supra note 25. Foreign investors have avoided the Czech markets because of the lack of minority shareholder protections. See id.
265 See supra notes 71, 77–86 and accompanying text.
266 See supra note 80 and accompanying text.
267 See supra note 85 and accompanying text.
268 See supra note 86 and accompanying text.
269 See supra note 71 and accompanying text.
270 See supra note 257 and accompanying text.
271 See supra notes 257–59 and accompanying text.
272 See supra notes 102, 104 and accompanying text.
273 See supra note 142 and accompanying text.
274 See supra note 119 and accompanying text.
275 See Miller, supra note 13, at 399.
276 See id. at 399.
277 See supra notes 179–80 and accompanying text.
278 See supra notes 107, 124–25 and accompanying text. Some breaches of fiduciary duties in the United States may be similar to what would constitute wichtige Grund for withdrawal or expulsion in Germany. Compare id. with supra notes 181, 184, 188–90 and accompanying text.
279 See supra notes 103, 204–05 and accompanying text.
280 See supra notes 240–43, 283–94 and accompanying text.
281 See supra notes 77, 241 and accompanying text.
282 See supra notes 240–43 and accompanying text.
283 See supra notes 99–132 and accompanying text.
284 See supra notes 248–51 and accompanying text.
285 See supra notes 245–46 and accompanying text.
286 See supra notes 245–52 and accompanying text.
287 See Blackburn, supra note 3, at 49.
288 See supra notes 149–55, 160–66, 179, 198 and accompanying text.
289 See supra notes 149–53 and accompanying text.
290 See supra note 161 and accompanying text.
291 See supra note 188 and accompanying text.
292 See supra notes 141–42, 171–72, 179 and accompanying text.
293 See supra notes 146, 150–54, 160–61, 163–65, 181, 190, 194 and accompanying text.
294 See supra notes 102, 107, 125 and accompanying text.
295 See infra notes 296–302 and accompanying text.
296 See supra notes 79–86, 257–58 and accompanying text.
297 See supra notes 79–80, 85–86 and accompanying text.
298 See supra notes 257–58 and accompanying text.
299 See Black & Kraakman, supra note 5, at 1913.
300 See supra notes 58–64 and accompanying text.
301 See Black & Kraakman, supra note 5, at 1913.
302 See supra notes 4–6 and accompanying text.
303 See supra notes 99–111, 119–25 and accompanying text.
304 See supra note 119 and accompanying text.
305 See supra notes 107, 125 and accompanying text.
306 See Blackburn, supra note 3, at 49.
307 See supra note 121 and accompanying text.
308 See supra notes 141, 171–72, 179 and accompanying text.
309 See id.
310 See infra notes 325–38 and accompanying text.
311 See, e.g., Blackburn, supra note 3, at 9 (discussing how unification of corporate laws may facilitate cross-border transactions).
312 See Medicine, supra note 25.
313 See infra notes 314–24 and accompanying text.
314 See Pivnicka & Kreisl, supra note 17, at 6.
315 See id.
316 See Medicine, supra note 25.
317 See, e.g., id.
318 See Vassil Breskovski, Directors’ Duty of Care in Eastern Europe, 29 Int’l Law. 77, 78 (1995). The recent amendments to the Commercial Code are based on European Union guidelines and German law. See Tietjen, supra note 78, at 2.
319 See Medicine, supra note 25.
320 See Speeckaert, supra note 4, at 38.
321 See The New Bohemians, supra note 29.
322 See Breskovski, supra note 318, at 78–79.
323 See generally, Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and the Czech Republic, of the other part, 1994 O.J. (L 360/2), as amended by 1996 O.J. (L 343/1) and explained in 1997 O.J. (C 141/5), available in Encyclopedia of European Union Law, vol. 3, § 43.2660, et seq.
324 See Breskovski, supra note 318, at 79.
325 See supra notes 79–86 and accompanying text.
326 See id.
327 See supra notes 107–11, 168 and accompanying text.
328 See, e.g., supra notes 107–10, 124, 127, 147–67, 187–211 and accompanying text (discussing the development of judicial standards in Germany and the United States).
329 See, e.g., supra notes 112–15, 128–32 and accompanying text (discussing the procedure for obtaining withdrawal or expulsion in Germany).
330 See supra note 242 and accompanying text.
331 See supra notes 242–43 and accompanying text.
332 See Black & Kraakman, supra note 5, at 1913; supra note 38 and accompanying text.
333 See supra notes 144, 254–56 and accompanying text.
334 See supra notes 260–61 and accompanying text.
335 See supra notes 332–34 and accompanying text.
336 See supra notes 37–40, 77–86 (discussing the Commercial Code of the Czech Republic and recent amendments affording some minority shareholder protections).
337 See supra note 77 and accompanying text.
338 See supra notes 38–39 and accompanying text.