Question

Please read the case below and answer in the following format: 1) Relevant Law 2) Conclusion - the outcome, and why.

The book for this course is Business Law with UCC application - 14th edition

The case is the following one:

C.E. Stumpf & Sons, Inc., was formed to conduct a masonry and general contracting business. The corporation was owned in equal shares by Stumpf and his two sons, who had previously oper ated the same business as partners. Hostility between the two sons grew so extreme that one, Do n ald, ended contact with his family and was allowed no say in the operation of the business. After Donald’s with- drawal from the business, he received no salary, dividends, or other revenue from the company. He brought suit seeking involuntary dissolution of the corporation. Should the court of appeals of Cali- fornia uphold the trial court’s dissolution order? Why or why not? Stumpf v. C.E. Stumpf & Sons, Inc., 120 Cal. Rptr . 671 (CA).

Answer 1

a) California Code, Corporations Code - CORP § 1800

Cal Corp Code § 1800(b)(5)

states that

(b)(5)"?In the case of any corporation with 35 or fewer shareholders (determined as provided in Section 605 ), liquidation is reasonably necessary for the protection of the rights or interests of the complaining shareholder or shareholders."

Since Stumpf and his sons had equal shares in the corporation ,it would mean that Donald Stumpf holds around 33% of the stock of the corporation. Thus,it confirms that he is a minority stakeholder in the organization when compared to his father and brother's stock which is around 67% ,both put together.

b)The court of appeals of California should uphold the trial courts dissolution order.Because there is evidence of hostility among the two brothers ,Donald can thus go for involuntary dissolution of the corporation.Also,there is evidence of abuse from the corporation by means of not paying the salary,dividends or other revenue of the company to Donald.Also ,Donald had no say in the operations of the business which is a clear lack of respect for the minority shareholders.Thus ,to protect and safeguard the interests of Donald ,the corporation should be dissolved thereby providing fair treatment to the minority stakeholders in the organization.

Finally ,there is no evidence of bad faith from Donald towards the corporation thereby leading to involuntary dissolution of the company which is fair and justified.