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Home > Journals > Michigan Law Review > MLR > Volume 39 > Issue 7 (1941)

 

Abstract

The close corporation is generally formed by a small group who take an active part in the business and whose participation is essential to the successful operation of the venture. Thus, a partnership may decide that the corporate form will more effectively protect the interests of its members, or a small number of people interested in the same enterprise may incorporate in order to limit their individual liability in the common endeavor. Whatever the reason for the use of the corporate entity, the active participation of each stockholder is probably of vital importance to the financial welfare of all. To such a group the death of a stockholder is a catastrophe of the greatest magnitude. Not only do the surviving stockholders lose the effort and skill of the deceased in carrying out his share of the duties connected with the venture, but the corporation's very existence is threatened by the possibility that the stock will fall into the hands of someone with little interest in, if not actual hostility to, the corporation and its management. How can the business be managed successfully when the members of the deceased's family or his legatees, who know nothing of the problems of the business, must be accepted as principal stockholders and paid dividends although they contribute nothing to the success of the enterprise? It is the purpose of this comment to suggest an answer to the problem presented by pointing out several possible methods by which the shares of a deceased stockholder can be retained by those surviving. The allied problem of preventing the stockholder from alienating his stock to a stranger during his life will be considered only incidentally.

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