When Can a Corporation Force a Buy-out of a Dissenting Shareholder?

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When Can a Corporation Force a Buy-out of a Dissenting Shareholder?

In intra-company disputes, a shareholder can file a lawsuit seeking an involuntary judicial dissolution of the corporation. Under A.R.S. § 10-1430(B), a dissenting shareholder can bring an action for judicial dissolution if he or she believes that corporate assets or being wasted, misapplied, or diverted in a manner that does not benefit the corporation, or if the directors are deadlocked over a management issue and irreparable injury is being suffered as a result.

Although shareholders can exercise these rights under Arizona law, they should also be aware that doing so can also trigger a forced buy-out of their shares. Under A.R.S. § 10-1434, a closely held (non-public) can forcibly purchase the shares of the dissenting shareholder. The majority shareholders have the absolute power to purchase these shares for fair value simply by giving notice within 90 days of the filing of the lawsuit that it is choosing to do so. The dissenting shareholder cannot stop this buy-out from happening, and the judge has the sole discretion to both place a fair value on the shares belonging to the dissenting shareholder and dictate the terms of the buy-out. Therefore, even if a dissenting shareholder disagrees with the value placed on the shares or the mechanism of the buy-out, he or she has little recourse absent an appeal, which is often time-consuming, expensive, and unlikely to succeed when a judge has virtually unfettered discretion over a decision.

Whether you are involved in a shareholder dispute or another type of business or contract dispute, we are here to help. We will determine the facts and circumstances surrounding your situation, evaluate your case, and determine the best strategy for resolution. Contact Williams Mestaz, L.L.P., at (602) 256-9400.

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