Question

Sharon Brown built her business selling Registered Savings Plans as a sole proprietorship, and reached the point that for further expansion she would require additional capital. She transformed her sole proprietorship into a corporation, and sold shares to a number of friends who had admired her progress in business, a few of whom took positions as salespeople and managers in the expanded company. The business continued to grow in spite of numerous arguments over management and five years after incorporation, Sharon felt she was best off as a sole proprietor. She sold her 50% ownership in the company to the other shareholders and started out once again alone. To prevent a future lawsuit, Sharon left behind her client lists for the use of the remaining shareholders in continuing their business. However, once it became public knowledge that Sharon was on her own, many former clients switched their business to her, preferring her approach to service. On her own, Sharon approached other former clients and suggested to them that if they too preferred her business style, that they were welcome as her clients as well. On discovering this practice, the shareholders of Sharon's former corporation took action against her.

Q1. Discuss the nature of this cause of action, the rights and duties of the parties, and the appropriate rationale that would be used by a court in rendering a decision.

Q2. Render a reasoned decision of your own.

Answer 1

In this case it is appropriate to take into account two significant shareholder rights.

1. Shareholders' rights not to compete with the company by other shareholders.

2. Privacy rights in relation to information about companies such as business secrets, customer list, order book, and so on.

Sharon stops being a shareholder in the company after selling its shares. Therefore, she has no duty to compete with the firm. However, since she left the customer lists to use the remaining shareholders, she can not use this information in order to advance her business interests. She has no duty to use the customer list or to contact customers of her former company with her own proprietary company through the confidentiality clause. An action against Sharon is therefore taken to breach confidentiality.

****Please please please LIKE THIS ANSWER, so that I can get a small benefit, Please****