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Law of Commerce

Law of Commerce

Discuss shareholder agreements closely held corporations and the circumstances under which a

courts will lifts the corporate veil

Closely held corporations present unique legal issues since the limited ownership groups
brings complex personal relations and increase volatility among the group (Cheeseman, 2012). In
this regard, the owners of the company tend to be more involved in the operations of the

company as opposed to companies with large ownership. Most of the legal issues that arise in
closely held corporations result from the inequality of the ownership between the few available
shareholders. The shareholder with the lesser interest is obviously the minority shareholder when
the two shareholders have unequal interest, however, everyone who owns less than 50% of the
company can be a minority shareholder even if he owns the greater stake in the company. This is
possible where shareholder A owns 40% of the stock, B owns 30% of the stock, and stock C
owns 30% of the stock. When the shareholder B and C are jointly decided on one course of
action, the shareholder A is automatically considered the minority shareholder despite owning
the largest portion of the stock. In this regard, the law of closely held corporations allows the
minority shareholders to form small groups that can be used by control the oppressive behavior
of the majority shareholders. Therefore, the law affords the minority shareholders special
protections with regards to possible oppressive conducts of the majority shareholder in the case
of closely held corporations (Cheeseman, 2012). In most cases, the shareholders take significant
roles within the business such that they assume the role of directors, employees, and other
relevant officers depending on the nature of the organization. In closely held corporations, the
courts may lift the corporate veil when the members agrees to dissolve their business operations
or when they corporation decides to operate in illegal business.

Cheeseman, H.R. (2012). Business Law 8 th Edition. Prentice Hall

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