A Shareholder Agreement Trap for Shareholder Employees

In Corporate Law, Shareholder Agreements, Shareholder Strategies by Joseph Pull

Shareholder agreements are common among owners of closely held corporations or LLCs. These agreements are generally enforceable under Minnesota law.[1] Frequently, such agreements include provisions governing the transfer of ownership interests. The interaction of certain combinations of common provisions governing the transfer of ownership interests can create unfortunate incentives that minority shareholder employees should be aware of. Specifically, many shareholder agreements require that an individual must remain employed by the company to remain a shareholder. Such a provision may appear to be an innocuous safeguard against absentee ownership. But these provisions can create perverse incentives when coupled with another provision that requires a departing shareholder to sell his interest at a buyout price determined by a fixed formula – book value or perhaps even a fixed, nominal price.

Empty Assurances as Shareholder Oppression

In Minnesota Appellate Decisions, Shareholder Agreements, Shareholder disputes, Trusts by Joseph Pull

In December 2014, Kim Lund, one of four siblings who shared beneficial ownership of Minnesota’s Lund grocery empire, filed a lawsuit against her brother Tres Lund (the CEO of the business entities), the entities themselves, two directors, and a co-trustee of one of Kim’s trusts. In the action Kim sought to divest her Lund business entity interests, and the court decided it would order a buyout. After a trial in February 2017, the district judge entered an order valuing Kim’s business interests and resolving Kim’s request for the removal of certain trustees from her trusts. The district judge’s decision was appealed. On January 14, 2019, the Minnesota Court of Appeals decided the appeal.[1] The Lund appellate opinion touches numerous issues of interest in Minnesota minority shareholder and trust litigation. This post considers Lund’s contribution to the definition of oppression through denial of a shareholder’s reasonable expectations. *     *     *     *     *