Is Karl v$.$ Herald on Point?

In the following examples, use the statutory and case law presented below, $96-$

$25-16$ and Karl v$.$ Herald. The client seeks redress for the other party$$s refusal to

issue dividends. In each example, determine if Karl v$.$ Herald is on point.

Business Corporations Act $96-25-16$

A court may order the liquidation of a corporation when a majority shareholder

has engaged in oppressive conduct. $($The statute, however, does not define

what constitutes oppressive conduct.$)$

Karl v$.$ Herald

In this case, a husband and wife owned a small corporation in which the

husband owned $75$ percent of the stock and the wife owned $25$ percent. When

they divorced, he fired her from her salaried position of bookkeeper, took away

her company car, and refused to issue stock dividends. The company was very

profitable, had a large cash surplus, and was clearly in a financial position to

issue dividends. After the divorce, the husband gave himself a hefty salary

increase.

The court held that he had engaged in oppressive conduct in freezing his wife

out of the corporation. It defined oppressive conduct as $$any unfair or

fraudulent act by a majority shareholder that inures to the benefit of the

majority and to the detriment of the minority.$$

PARA $110$ Professor Kiel

Example $1$

Client and his sister, Janice, are shareholders in a corporation. Janice is the

majority shareholder, the sole member of the board of directors, and the

manager of the corporation. For the past five years, she has paid herself a

lucrative salary, twice that paid to managers of similar corporations. The

corporation has a $$400,000$ cash surplus that Janice claims is necessary for

emergencies. No emergency has occurred in the past five years that would

require expenditure of more than $$50,000.$

Similarities Differences Gaps

Your narrative analysis of example $1$: $\{$INSERT HERE$\}$

Example $2$

Client and Claire own a fabric store. The business is a corporation, and Claire

holds $80$ percent of the stock and makes all the business decisions. Client, an

employee of the business, owns $20$ percent of the stock. The business has a large

cash surplus, but Claire has never issued dividends. Claire$$s salary is three times

Client$$s$.$ When Client asks that dividends be issued, Claire responds, $$Your

dividend from this corporation is your job.$$

Similarities Differences Gaps

Your narrative analysis of example $2$: $\{$INSERT HERE$\}$

Example $3$

Client and Don are partners in a business. Don owns $70$ percent of the partnership

and Client owns $30$ percent. Client does not work for the business. Don runs the

business and pays himself a large salary that always seems to equal the profits.

Client thinks this is fishy and that Don should have a set salary and the profit

above Don$$s salary should be shared $70/30.$ There is no partnership case law in

the jurisdiction addressing this question.

Similarities Differences Gaps

Your narrative analysis of example $3$: $\{$INSERT HERE$\}$

Be sure to name and explain the similarities, differences, and gaps