Louisiana Business Corporation Act Provides New Remedy for Oppressed Minority Shareholders

During the 2014 legislative session, the Louisiana State Legislature adopted Act No. 328, which provides for a comprehensive restatement of the Louisiana Business Corporation Law (La. R.S. 12:1 et seq.). Act No. 328, which will be effective as of January 1, 2015, is based on the Model Business Corporation Act, which is the source of the corporation law in approximately thirty (30) other states. Act No. 328 even provides for the renaming of the applicable Louisiana statutes as the Louisiana Business Corporation Act to avoid any confusion with its predecessor, the Louisiana Business Corporation Law.

The Louisiana Business Corporation Act provides for numerous important changes to corporate law in Louisiana. By way of example and without limitation, the Louisiana Business Corporation Act, unlike its predecessor, provides a remedy for a minority shareholder of a closely-held corporation who is being “oppressed” by the corporation. See La. R.S. 12:1-1435. As more particularly described in La. R.S. 12:1-1435B, the Louisiana Business Corporation Act provides that a shareholder is being oppressed if the corporation’s distribution, compensation, governance and other practices, considered as a whole over an appropriate period of time, are plainly incompatible with a genuine effort on the part of the corporation to deal fairly and in good faith with the shareholder. In such event, such shareholder may withdraw from the corporation and require the corporation to buy all of such shareholder’s shares at their fair value, subject to and in accordance with the terms and procedures set forth in La. R.S. 12:1-1435-1438. This withdrawal right in the face of oppression differs from the involuntary dissolution remedy set forth in the Model Business Corporation Act.

Importantly, this right of withdrawal under the Louisiana Business Corporation Act may be waived by the shareholders of a corporation upon their unanimous written consent. Further, La. R.S. 12:1-1435 establishes a presumption that corporate conduct is not oppressive if it is consistent with the good faith performance of an agreement among all shareholders. Accordingly, there are ample corporate planning opportunities for those closely-held corporations who wish to insulate themselves from this potential exposure. At the same time, shareholders of closely-held corporations would be wise to inform themselves of their rights and protections under the Louisiana Business Corporation Act and how best to preserve them.

Of course, there are numerous other important changes to corporate law in Louisiana embodied in the Model Business Corporation Act which should be considered by corporations and shareholders alike. For additional information about the Louisiana Business Corporation Act and what implications it may have on you, please contact us.

                Author: Jacob M. Kantrow                 Practice Area: Corporate Law                 Date: August 8, 2014

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