Brief Fact Summary. Zion (P) sought the enforcement ofÂ a shareholder’s agreement that prohibits the corporation from contracting a business transaction without his approval.
Synopsis of Rule of Law. Shareholder agreements that require minority shareholder approval of corporate enterprises are enforceable.
In this regard, the generally accepted choice-of-law rule with respect to such internal affairs as the relationship between shareholders and directors is to apply the law of the place of incorporation.View Full Point of Law
Issue. Are Shareholder agreements between the original parties that require minority shareholder approval of corporate enterprises enforceable?
Held. (Meyer, J.) Yes.Â Shareholder agreements between the original parties that require minority shareholder approval of corporate enterprises are enforceable. It is not against public policy or statute to impose reasonable restrictions on the director’s activities. Also, since all the stockholders agreed to it, it is enforceable. Reversed.
Dissent. (Gabrielli, J.) Shareholder agreements like these are illegal for transferring control of corporate activities from board director to minority shareholder.
Discussion. This case’s type of agreement is usually found in closely held corporations. Although the corporation in this case was not a closely held one, the court found this irrelevant. The court reasoned that because the articles of incorporation were intended to give enough power to take all steps necessary to enforce the terms of the agreement, the corporation could easily gain closely held status in order to grant the shareholder agreement validity.