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[Vol. 30:53

important contribution to the firm, the other partners have a strong incentive to treat her well.93


The Approach of Corporate Law

In a closely held corporation, in contrast, the default rules provide that a majority shareholder rules and that a corporation, like a dia- mond, is forever. Minority shareholders cannot sell their shares and walk away because, by definition, there is no market for the shares. They are thus locked in (unless, of course, they are frozen out) and may be subjected to various forms of oppression.94

The minority shareholder’s only leverage is a lawsuit (or the credible threat of one). If oppression takes the form of a cognizable breach of duty,95 then the victim may sue for damages.96 The op- pressed shareholder may also petition for dissolution of the corpora- tion in a state whose statute permits dissolution on that ground.97

In Florida, however, the exculpatory provisions of the FBCA mean that a suit for damages is doomed to failure unless the majority shareholder has been stealing from the corporation. Further, the only

value of her interest in the partnership. Both the liquidation and the buyout rights are subject to contrary agreement, and withdrawal in contravention of the agreement may give rise to damages. However, a court may not enforce an agreement which sacrifices the part- ner’s entire economic interest without any reference to actual damages; the common law disfavors forfeiture, see, e.g., RESTATEMENT (SECOND) OF CONTRACTS §§ 227(1), 229 (1979) and RUPA’s Official Comments.

Further, the right to walk cannot be eliminated by agreement; there is no such thing as an indissoluble partnership. A partner may face disincentives to leave, but she cannot be trapped in the partnership even if she volunteers for the trapping. One noted contractarian critic of RUPA added this departure from freedom of contract to his list of RUPA defects, Larry E. Ribstein, The Revised Uniform Partnership Act: Not Ready for Prime Time, 49 BUS. LAW. 45 (1993), but it received far less fire from the contractarians than did manda- tory fiduciary duties.

In this connection, it should be noted that one apparent reason for RUPA’s non-waivable power to withdraw was the personal liability of partners. HILLMAN ET AL., supra note 25, at 271. If a partnership adopts limited liability provisions, thus becoming an LLP, this rea- son disappears. Nevertheless, the withdrawal provisions were not changed when the LLP provisions were added to the statute.

93. See HILLMAN ET AL., supra note 25, § 602. Thus, exit rights are a governance mechanism.

94. There are enough ways to oppress minority shareholders to fill a treatise. F. HODGE O’NEAL & ROBERT B. THOMPSON, O’NEALS CLOSE CORPORATIONS (3d ed. 1996).

95. Some forms of oppression come in the guise of business judgments, and courts not attuned to the special problems of the close corporation may reflexively use the business judgment rule to protect the majority.

96. If the friction between or among the parties is sufficiently severe, lawsuits may have to be filed seriatum.

97. The action for “oppression” is recognized in a majority of states. Some of those states do not require that the complaining shareholder prove fraud or a breach of fiduciary duty; it suffices if the majority has acted in a way that frustrates the plaintiff’s “reasonable expectations” by, for example, excluding the plaintiff from management. Douglas K. Moll, Shareholder Oppression in Close Corporations: The Unanswered Question of Perspective, 53 VAND. L. REV. 749 (2000); Robert B. Thompson, The Shareholder’s Cause of Action for Op- pression, 48 BUS. LAW. 699 (1993).

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