QUESTION

what happens when a minority shareholder dies?

Asked on Jul 11th, 2013 on Corporate Law - California
More details to this question:
My brother who had a 45% share of the S corp that we run together has passed away. As i understand, by CA law his wife and child should be entitled to his shares of the corp. We do not have a shareholder's agreement, but our corp ByLaws states when a shareholder dies, his/her shares should be sold back to the corp based on a preset amount. Will this article hold up in probate court ? Or will his wife get to name her price for the corp to buy back the shares? Thanks
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1 ANSWER

Real Estate Attorney serving Oakland, CA at Sack Rosendin LLP
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A court is supposed to enforce such a Bylaw provison, as long as it is fair and reasonable and was determined and put in the Bylaws in a manner which was fair and reasonable. If your brother opposed this Bylaw provision, it might not be enforced. His opposition, if proven, would be strong evidence that the provision was not fair and reasonable. The surviving spouse does not get to extort any price she can get away with. The court will determine a fair price. That can get expensive, with expert witnesses on both sides fighting it out. She and her child are still familiy. You might consider keeping them in the company. Otherwise, at least offer them a fair and reasonable price. If they don't ask for too much more, giving in might be cheaper than going to court. I have litigated such cases and settled them. If you would like me to assist you, please email me at ds@sackrosendin.com or call me in Oakland, CA at 510-286-2200.  
Answered on Jul 12th, 2013 at 9:06 PM

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