Question

Rights of Shareholders. FCR Realty, LLC, and Clifford B. Green & Sons, Inc., were co-owned by three brothers—Frederick, Clifford Jr., and Richard Green. Each brother was a shareholder of the corporation. Frederick was a controlling shareholder, as well as president. Each brother owned a one-third interest in the LLC. Clifford believed that Frederick had misused LLC and corporate funds to pay non- existent debts and liabilities and had diverted LLC assets to the corporation. He also contended that Frederick had dis- bursed about $1.8 million in corporate funds to Frederick’s own separate business. Clifford hired an attorney and filed an action on behalf of the two companies against Frederick for breach of fiduciary duty. Frederick argued that Clifford lacked the knowledge necessary to adequately represent the companies’ interest because he did not understand financial statements. Can Clifford maintain the action against Frederick? If so, and if the suit is successful, who recovers the dam- ages? Explain.

Answer 1

1. Clifford can maintain the action against Fredrick as the suit has been filed by him on behalf of the two companies and only if Clifford has proper evidences to prove his case before the court through witness accounts corroborated with the properly audited financial statements of both FCR Realty LLC and Clifford B. Green & Sons Inc. In this case both oral as well as documentary evidences shall be of utmost importance to decide the fate of the case.
2. If the suit is successful then the damages get recoved to FCR Realty LLC and Clifford B. Green & Sons Inc as both the damage has been caused to these two companies and both the companies are separate legal entities.