The stated purpose of the corporation, owned by two shareholders in a 55%-45% split, was to lease residential and commercial space. The corporation owned one building and the majority holder wanted to sell it as part of a §1031 Exchange. The expected return was expected to be 300% over a three year period. The minority shareholder refused, and claimed that a super-majority vote was required to allow the sale.
The court noted that under the Business Corporation Law a super-majority was not required if the corporation was making the sale in the ordinary course of its business as "actually conducted by the corporation in furtherance of the objectives of its existence." Because both parties agreed that the corporation's business was to lease property, the court had to determine how the proposed sale fit into the corporation's ordinary business.
The court held that the corporation was proposing a sale, not an exchange. The minority shareholder argued that the sale of the sole asset was not in the regular business of the corporation. The court disagreed. Because the purpose of the sale was not to liquidate the corporation but to reinvest the sale proceeds in a different property, and to then engage in the corporation's ordinary business with that new property, no super-majority consent was required.
Shareholder dispute's often arise over a large corporate transaction. While the corporate statutes are the baseline authority, where there is no shareholders' agreement among the shareholders, that agreement is really where this type of issue should be addressed. Shareholders can avoid substantial cost and aggravation by a executing a comprehensive shareholders' agreement.
Theatre District Realty Corp. v. Appleby (New York County)