Why Not Good Faith? The Foibles of Fairness in the Law of Close Corporations
27 Pages Posted: 27 Feb 2010 Last revised: 7 Mar 2010
Date Written: 1990
This essay describes the contours of the shareholder-to-shareholder duty of fairness within closely held corporations and explores some of the problems caused by the law’s imprecision in defining the duty of fairness. Because this duty is best understood as a rejection of old norms, part one of this essay describes the traditional doctrines of intra-corporate responsibility. Part two describes the special characteristics of a close corporation and outlines how those characteristics pushed close corporation law to new concepts of fairness and shareholder duties. Part three attempts to delineate those duties of fairness and also to highlight some of the dangers that arise when the law places fairness above predictability. Part four examines cases where close corporation law and employment law overlap, and uses those cases to show that parties can put some limits on the ambiguity of “fairness.” Part five uses the lesson from part four and makes concrete suggestions to practitioners.
Keywords: Corporate Law, Corporate Policy, Business Judgment Rule, Good Faith, Shareholder Oppression, Reasonable Expectations, Fiduciary Duty, Inter se, Close Corporation, Closely Held Corporation, Corporation
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