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Massachusetts Business Entity Law Clarified

Corporate, Litigation Research

In March 6, 2017 the Massachusetts (MA) Supreme Judicial court held that a MA director’s duty is owed solely to the corporation. However, the duties may be owed among shareholders in small corporations and when “a controlling shareholder who also is a director proposes and implements a self-interested transaction that is to the detriment of minority shareholders.”

The decision, which is a result of IBEW Local No. 129 v. Tucci, is significant because it declines to adopt Delaware’s director duty and shareholder challenge precepts. While Tucci did not address duties to shareholders, another MA case involved an allegation that the corporation PHC was dominated by a controlling shareholder who had breached a duty to other shareholders.

Tucci will make merger litigation more difficult to pursue in MA, and companies incorporated there may want to consider following Delaware corporations in adopting exclusive-forum bylaws. Meaning that any derivative litigation filed against the company in state court must be filed in MA. This could help companies avoid unnecessary litigation that otherwise would block, delay or raise the price of a merger.

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