Soft paternalism for close corporations: Helping shareholders help themselves

Wisconsin Law Review

Volumn 2008, Issue 5, 2008, Pages 899-938

  Sneirson, Judd F ^a  

^a UNIVERSITY OF OREGON   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 58749084856     PISSN: 0043650X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (388)

1. See JOHN MICKLETHWAIT & ADRIAN WOOLDRIDGE, THE COMPANY: A SHORT HISTORY OF A REVOLUTIONARY IDEA xv (2003) ("The most important organization in the world is the company: the basis of the prosperity of the West and the best hope for the future of the rest of the world.");
2. William T. Allen, Modern Corporate Governance and the Erosion of the Business Judgment Rule in Delaware Corporate Law 1 (Comparative Research in Law & Political Econ. Research Paper, No. 06/2008) ("The modern business corporation is the instrumentality within which the greatest part of our economic activity occurs, in which jobs and wealth are created and through which, to a great extent, our national competitiveness is maintained."), available at http://ssrn.com/abstractid= 1105591.
3. See, e.g., 1 F. HODGE O'NEAL & ROBERT B. THOMPSON, CLOSE CORPORATIONS AND LLCs § 1:14, at 1-88 to -92 (rev. 3d ed. 2004);
4. Robert B. Thompson, The Shareholder's Cause of Action for Oppression, 48 BUS. LAW. 699, 699-703 (1993).
5. See, e.g., In re Kemp & Beatley, Inc., 473 N.E.2d 1173 (N.Y. 1984);
6. Wilkes v. Springside Nursing Home, Inc., 353 N.E.2d 657, 663 (Mass. 1976);
7. Donahue v. Rodd Electrotype Co., 328 N.E.2d 505, 515 (Mass. 1975).
8. See Robert C. Illig, Minority Investor Protections as Default Norms: Using Price to Illuminate the Deal in Close Corporations, 56 AM. U. L. REV. 275, 279 (2006).
9. See infra Part I.C.
10. See, e.g., DEL. CODE ANN. tit. 8, § 351 (2006) (authorizing certain arrangements for close corporations, including management by stockholders rather than a board of directors);
11. N. Y. Bus. CORP. LAW. § 620(c) (McKinney 2003) (authorizing certain certificate provisions for close corporations);
12. MODEL Bus. CORP. ACT § 7.32 (2002) (authorizing shareholder agreements in close corporations);
13. id. § 14.30(2)(ii) (authorizing remedies for oppressed minority shareholders).
14. Jim Holt, The New, Soft Paternalism, N.Y. TIMES, Dec. 3, 2006, at 15;
15. see also RICHARD H. THALER & CASS R. SUNSTEIN, NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS (2008) [hereinafter THALER & SUNSTEIN, NUDGE];
16. Soft Paternalism: The State is Looking After You, ECONOMIST, Apr. 8, 2006, at 15, 15 ("A new breed of paternalists is seeking to promote virtue and wisdom by default. ");
17. Posting of Cass Sunstein to University of Chicago Law School Faculty Blog, http://uchicagolaw.typepad.com/faculty/2007/01/libertarian-pat.html (Jan. 20, 2007, 10:40 CST) ("The basic idea is that private and public institutions might nudge people in directions that will make their lives go better, without eliminating freedom of choice. The paternalism consists in the nudge; the libertarianism consists in the insistence on freedom, and on imposing little or no cost on those who seek to go their own way.").
18. For academic treatments of the concept, see Colin Camerer et al., Regulation for Conservatives: Behavioral Economics and the Case for "Asymmetrical Paternalism," 151 U. PA. L. REV. 1211, 1212 (2003) ("A regulation is asymmetrically paternalistic if it creates large benefits for those who make errors, while imposing little or no harm on those who are fully rational.");
19. Cass R. Sunstein & Richard H. Thaler, Libertarian Paternalism is Not an Oxymoron, 70 U. CHI. L. REV. 1159, 1162 (2003) ("[W]e argue for self-conscious efforts, by private and public institutions, to steer people's choices in directions that will improve the choosers' own welfare.");
20. Richard H. Thaler & Cass R. Sunstein, Libertarian Paternalism, 93 AM. ECON. REV. 175 (2003) [hereinafter Thaler & Sunstein, Libertarian Paternalism].
21. LAWRENCE LESSIG, CODE AND OTHER LAWS OF CYBERSPACE 87 (1999) (identifying four kinds of regulators in cyberspace and elsewhere: "the law, social norms, the market, and architecture"). In the architecture category, Lessig includes physical and technological constraints such as speed bumps (put in place to slow down drivers) and passwords (put in place to restrict individual access).
22. See id. at 89, 92.
23. STEPHEN M. BAINBRIDGE, CORPORATION LAW AND ECONOMICS 2 (2002);
24. ROBERT CHARLES CLARK, CORPORATE LAW 2 (1986).
25. See Galler v. Galler, 203 N.E.2d 577, 583 (Ill. 1964) ("[A] close corporation is one in which the stock is held in a few hands, or in a few families . . . ."). Close corporations also tend to incorporate locally, whereas public corporations - no matter where headquartered - overwhelmingly choose to incorporate in Delaware.
26. See BAINBRIDGE, supra note 9, at 16 (noting Delaware's prominence);
27. MELVIN ARON EISENBERG, CORPORATIONS AND OTHER BUSINESS ORGANIZATIONS 107 (9th ed. 2005) (explaining the tax reasons encouraging close corporations to incorporate locally);
28. Elizabeth Bennett, Chief Justice Steele Keynote Speaker at Business Law Event, DEL. LAW WKLY., Aug. 22, 2007, at 5 ("As of April 2007, 61.3% of all Fortune 500 companies were incorporated in Delaware . . . .").
29. Reasonable corporate salaries are deductible as business expenses, whereas shareholder dividends are not. See I.R.C § 162(a)(1) (West 2008) (salaries are deductible); Elliotts, Inc. v. C.I.R., 716 F.2d 1241, 1243 (9th Cir. 1983) (dividends are not deductible);
30. see also In re Kemp & Beatley, Inc., 473 N.E.2d 1173, 1178 (1985) ("[E]arnings of a close corporation, as is well known, are distributed in major part in salaries, bonuses and retirement benefits."
31. (quoting F. HODGE O'NEAL, CLOSE CORPORATIONS, § 1.07, at 21-22 (2d ed.))).
32. See BAINBRIDGE, supra note 9, at 798 ("[A] critical difference between the public and close corporation [is] the absence of a market out . . . . Shareholders of a close corporation . . . have no access to a secondary trading market for their shares and, as a result, may find it very difficult to locate a buyer for their shares.").
33. See infra Part I.D.
34. See J.A.C. Hetherington & Michael P. Dooley, Illiquidity and Exploitation: A Proposed Statutory Solution to the Remaining Close Corporation Problem, 63 VA. L. REV. 1, 6 (1977) ("[T]he problem of exploitation is uniquely related to liquidity . . . ."). If, under normal circumstances, it is difficult to find a buyer for one's close-corporation stock, imagine the difficulty finding a buyer where the majority is already acting oppressively.
35. See Donahue v. Rodd Electrotype Co., 328 N.E.2d 505, 515 (Mass. 1975) ("No outsider would knowingly assume the position of the disadvantaged minority. The outsider would have the same difficulties.").
36. 353 N.E. 657 (Mass. 1976).
37. Id. at 659.
38. Id.
39. Id. at 660 & n.8 ("Wilkes took charge of the repair, upkeep and maintenance of the physical plant and grounds; Riche assumed supervision over the kitchen facilities and dietary and food aspects of the home; Pipkin was to make himself available if and when medical problems arose; and Quinn dealt with the personnel and administrative aspects of the nursing home, serving informally as managing director.").
40. Id.
41. Id.
42. Id.
43. Id.
44. Id. at 660-61.
45. Id. at 661. The corporate bylaws provided that the board had the power to fix salaries.
46. See id. at n.10.
47. Id. at 661.
48. Id.
49. The three could have left Wilkes in that position, but, adding insult to injury, they offered to buy out his quarter stake in the corporation for a paltry sum. See id. at 664 n. 14.
50. See Zahn v. Transamerica Corp., 162 F.2d 36, 44 (3d Cir. 1947) ("When voting as a stockholder he [may have] the legal right to vote with a view of his own benefits and [to represent] himself only . . . .");
51. Ringling Bros.-Bamum & Bailey Combined Shows v. Ringling, 53 A.2d 441, 447 (Del. 1947) ("Generally speaking, a shareholder may exercise wide liberality of judgment in the matter of voting, and it is not objectionable that his motives may be for personal profit. . . .").
52. See, e.g., Ringling, 53 A.2d at 447 ("A group of shareholders may, without impropriety, vote their respective shares so as to obtain advantages of concerted action.");
53. McQuade v. Stoneham, 189 N.E. 234, 236 (N.Y. 1934) ("Stockholders may, of course, combine to elect directors. That rule is well settled.").
54. See Judd F. Sneirson, Doing Well by Doing Good: Leveraging Due Care for Better, More Socially Responsible Corporate Decisionmaking, 3 CORP. GOV. L. REV. 438, 457-65 (2007) (discussing the business-judgment rule).
55. Wilkes may have stood a better chance in a contract claim, arguing a breach of the admittedly informal understanding the four reached at the outset of the nursing-home venture.
56. 328 N.E.2d 505 (Mass. 1975).
57. Id. at 515.
58. Id. at 512.
59. See id. at 511 (referencing the "integration of ownership and management").
60. In the partnership context, the applicable law forbids such transfers. See UNIF. P'SHIP ACT § 401(i) (1997), 9 U.L.A 133, 156 ("A person may become a partner only with the consent of all of the partners.");
61. id. § 502 ("The only transferable interest of a partner in the partnership is the partner's share of the profits and losses of the partnership and the partner's right to receive distributions."). In close corporations the market (or lack thereof) for corporate shares has a similar effect.
62. See supra note 12 and accompanying text.
63. Donahue, 328 N.E.2d at 512.
64. Id. at 515.
65. Id. ("[W]e hold that stockholders in the close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another. . . . They may not act out of avarice, expediency or self-interest in derogation of their duty of loyalty to the other stockholders and to the corporation.");
66. see also id. at 516 ("[C]opartners . . . owe to one another . . . the duty of the finest loyalty. . . . Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior . . . ."
67. (quoting the classic language from Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928))). That said, Donahue and subsequent cases do not suggest that close-corporation shareholders would breach this partner-like fiduciary duty by holding a passive investment in a competing business.
68. Id. at 520. The terms freeze out and squeeze out are interchangeable and describe the situation where holders of a majority of a company's shares cut off the financial return on a minority shareholder's investment (i.e., her salary and any dividends) so as to compel a stock sale to the majority at an inadequate price.
69. See generally Donahue, 328 N.E.2d at 513-15;
70. Wilkes v. Springside Nursing Home, Inc., 353 N.E.2d 657, 662 (1976).
71. 353 N.E.2d at 663.
72. Id.
73. Id.
74. Id. Note the similarity to employment-discrimination law, where an employee can rebut an employer's stated reason for its adverse actions by demonstrating that the employer's stated reason is merely a pretext.
75. See McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-05 (1973) (establishing a similar burden-shifting framework for disparate-treatment cases).
76. See REINIER KRAAKMAN, TEACHER'S MANUAL FOR COMMENTARIES AND CASES ON THE LAW OF BUSINESS ORGANIZATION 110 (2d ed. 2007) (coining the term qualified utmost good faith and loyalty).
77. See 2 F. HODGE O'NEAL & ROBERT B. THOMPSON, O'NEAL & THOMPSON'S OPPRESSION OF MINORITY SHAREHOLDERS AND LLC MEMBERS § 7:4 nn. 10-11 (rev. 2d ed. 2005) (noting that other states that have applied the Massachusetts standard include Illinois, Mississippi, Minnesota, Ohio, Pennsylvania, and Rhode Island).
78. See Douglas K. Moll, Shareholder Oppression in Close Corporations: The Unanswered Question of Perspective, 53 VAND. L. REV. 749, 762-64 (2000).
79. 473 N.E.2d 1173 (N.Y. 1984).
80. 307 S.E.2d 551 (N.C 1983).
81. Other jurisdictions that have applied the reasonable-expectations standard include Alaska, Arkansas, Colorado, Iowa, Maine, Maryland, Massachusetts, Montana, New Jersey, New Mexico, North Dakota, Pennsylvania, Rhode Island, Texas, Washington, West Virginia, and Wisconsin. See 2 O'NEAL & THOMPSON, supra note 46, § 7:15 nn.3-19.
82. 473 N.E.2d at 1178 (quoting 1 F. HODGE O'NEAL, CLOSE CORPORATIONS § 1:07, at 14 (2d ed. 1958)).
83. 307 S.E.2d at 558.
84. 473 N.E.2d at 1179;
85. see also Meiselman, 307 S.E.2d at 563 ("[W]e hold that a complaining shareholder's 'rights or interests' in a close corporation include the 'reasonable expectations' the complaining shareholder has in the corporation.").
86. Kemp & Beatley, 473 N.E.2d at 1180-81;
87. Meiselman, 307 S.E.2d at 567.
88. See Meiselman, 307 S.E.2d at 563;
89. see also A. W. Chesterton Co. v. Chesterton, 128 F.3d 1 (1st Cir. 1997) (involving evolving expectations);
90. Foster v. Foster Farms, 436 S.E.2d 843 (N.C. Ct. App. 1993) (same).
91. Meiselman, 307 S.E.2d at 563;
92. see also Kemp & Beatley, 473 N.E.2d at 1179 ("A court considering a petition alleging oppressive conduct must investigate what the majority shareholders knew, or should have known, to be the petitioner's expectations in entering the particular enterprise."). A shareholder agreement setting forth the parties' expectations, in addition to providing the basis for a breach of contract claim, would be useful in this regard.
93. Kemp & Beatley, 473 N.E.2d at 1179. In that a minority shareholder's reasonable expectations often include employment, this oppression remedy sometimes includes damages for lost wages.
94. See 2 O'NEAL & THOMPSON, supra note 46, § 3:6 & n.55.
95. Harry J. Haynsworth, The Effectiveness of Involuntary Dissolution Suits as a Remedy for Close Corporation Dissension, 35 CLEV. ST. L. REV. 25, 36 (1987).
96. For an example of a case regarding majority-shareholder duties, see Zahn v. Transamerica Corp., 162 F.2d 36, 42 (3d Cir. 1947) ("'A director is a fiduciary . . . . So is a dominant or controlling stockholder or group of stockholders . . . . Their powers are powers in trust . . . . Their dealings with the corporation are subjected to rigorous scrutiny and where any of their contracts or engagements with the corporation is challenged the burden is on the director or stockholder not only to prove the good faith of the transaction but also to show its inherent fairness from the viewpoint of the corporation and those interested therein.'"
97. (quoting Pepper v. Litton, 308 U.S. 295, 306 (1939))).
98. Haynsworth, supra note 58, at 36-37
99. (citing Scottish Coop. Soc'y Ltd. v. Meyer, [1959] A.C. 324, 342, 363-64 (H.L.));
100. see also Thompson, supra note 2, at 711-12
101. (quoting Fix v. Fix Material Co., 538 S.W.2d 351, 358 (Mo. Ct. App. 1976)).
102. Colorado, Mississippi, Missouri, Oregon, and Wisconsin courts have applied this variant. See 2 O'NEAL & THOMPSON, supra note 46, § 7:13 n.13;
103. see also supranote 59.
104. McCallum v. Rosen's Diversified, Inc., 153 F.3d 701, 704 (8th Cir. 1998) (remanding so that the district court could determine a more favorable price at which to require the controlling shareholders to buy out the plaintiff's stockholdings).
105. For additional facts on how the three variants would vary, see Moll, supra note 47, at 751, 766-69
106. (analyzing In re Topper, 433 N.Y.S.2d 359 (Sup. Ct. 1980).
107. Balvik v. Sylvester, 411 N.W.2d 383 (N.D. 1987).
108. Priebe v. O'Malley, 623 N.E.2d 573 (Ohio Ct. App. 1993).
109. and Zidell v. Zidell, 560 P.2d 1086 (Or. 1977)).
110. BAINBRIDGE, supra note 9, at 16 (noting that the Revised Model Business Corporation Act "has been adopted in whole by 24 states and in part by many others").
111. MODEL BUS. CORP. ACT § 14.30(2)(ii) (2002);
112. see also CAL. CORP. CODE § 1800 (West 2008) (similar to the Revised Model Business Corporation Act);
113. MICH. COMP. LAWS § 450.1489 (2008) (same);
114. MINN. STAT. § 302A.751 (2007) (same).
115. See EISENBERG, supra note 10, at 453-54.
116. Many jurisdictions do not apply a marketability discount in such instances. See, e.g., Friedman v. Beway Realty Corp., 661 N.E.2d 972, 977 (N.Y. 1995) ("Imposing a discount for the minority status of the dissenting shares here, as argued by the corporations, would in our view conflict with . . . the remedial goal of the statute to protect minority shareholders from being forced to sell at unfair values imposed by those dominating the corporation . . . ."(internal quotations omitted));
117. see also Douglas K. Moll, Shareholder Oppression and "Fair Value": Of Discounts, Dates, and Dastardly Deeds in the Close Corporation, 54 DUKE L.J. 293, 308-09 (2004).
118. See, e.g., Wilkes v. Springside Nursing Home, Inc., 353 N.E.2d 657 (Mass. 1976);
119. Donahue v. Rodd Electrotype Co., 328 N.E.2d 505 (Mass. 1975);
120. see also 2 O'NEAL & THOMPSON, supra note 46, § 7:10 n.3 (citing District of Columbia, New York, and Texas cases dissolving corporations on nonstatutory grounds). Although Massachusetts courts have exercised their equitable authority to grant less drastic remedies, they have not, as of yet, required majority shareholders to buy out an oppressed minority shareholder.
121. See Brodie v. Jordan, 857 N.E.2d 1076, 1081-83 (Mass. 2006).
122. Nixon v. Blackwell, 626 A.2d 1366, 1380 (Del. 1993) ("It would do violence to normal corporate practice and our corporation law to fashion [a] . . . ruling which would result in a court-imposed stockholder buy-out for which the parties had not contracted.").
123. Kansas, following Nixon, also lacks an oppression remedy. Hunt v. Data Mgmt. Res., Inc., 985 P.2d 730, 732-33 (Kan. Ct. App. 1999).
124. Nixon, 626 A.2d at 1379-80 ("A stockholder who bargains for stock in a closely-held corporation and who pays for those shares . . . can make a business judgment whether to buy into such a minority position, and if so on what terms. One could bargain for . . . definitive stockholder agreements, and such agreements may provide for elaborate earnings tests, buy-out provisions, voting trusts, or other voting agreements.").
125. Frank H. Easterbrook & Daniel R. Fischel, Chose Corporations and Agency Costs, 38 STAN. L. REV. 271, 298-99 (1986).
126. See Moll, supra note 47, at 822-23.
127. See id. at 824-25.
128. See id. at 825-26.
129. See Illig, supra note 4, at 279 n.7 ("[A]n investor contemplating a minority participation is faced with a great deal of uncertainty as to whether, and to what extent, she can rely on the legal system to protect her investment.").
130. See, e.g., N.Y. BUS. CORP. LAW § 1104-a (McKinney 2003) (requiring that plaintiffs hold at least 20 percent of the corporation's stock).
131. For example, if either of the plaintiffs in Kemp & Beatley had sued on his own, he would have been unable to invoke New York's oppression statute. Compare In re Kemp & Beatley, Inc., 473 N.E.2d 1173 (N.Y. 1984), with N.Y. Bus. CORP. LAW § 1104-a.
132. But see Lewis v. Jones, 483 N.Y.S.2d 868 (N.Y. App. Div. 1985) (permitting a plaintiff short of the statutory threshold to seek dissolution under the common law).
133. See Howard M. Friedman, The Silent LLC Revolution - The Social Cost of Academic Neglect, 38 CREIGHTON L. REV. 35, 36 (2004) ("In [2003], more LLCs than corporations were formed in 29 states. In 11 other states where corporations predominated, over 45% of new business filings were for LLCs.").
134. See Douglas K. Moll, Minority Oppression & the Limited Liability Company: Learning (or Not) from Close Corporation History, 40 WAKE FOREST L. REV. 883, 943 (2005) (noting that "the LLC structure is less susceptible to classic 'management-ousting' oppressive actions," but also noting that some oppression problems remain).
135. See THE COMPANY CORPORATION, INCORPORATING YOUR BUSINESS FOR DUMMIES (2001) [hereinafter INCORPORATING FOR DUMMIES] (discussing the merits of incorporation and limited liability company formation);
136. ANTHONY MANCUSO, NOLO PRESS, INCORPORATE YOUR BUSINESS 13-25 (4th ed. 2007) (same);
137. MICHAEL SPADACCINI, ENTREPRENEUR MAGAZINE'S ULTIMATE GUIDE TO INCORPORATING IN ANY STATE 9-11 (2004) (same);
138. Incorporate.com, Benefits of Incorporating, http://incorporate.com/ benefits-of-incorporating.html (last visited Oct. 9, 2008) (steering investors toward the corporate form, stating, among other things, "Consumers, vendors, and partners may prefer to do business with an incorporated entity");
139. Legalzoom.com, Incorporation Education Center, http://legalzoom.com/ incorporation-guide/corporation-llc-comparison.html (last visited Oct. 9, 2008) (advising that corporations garner greater acceptance among banks and vendors);
140. Mycorporation.intuit.com, Choosing the Right Business Entity, http://mycorporation.intuit.com/help-me-choose/index.jhtml (last visited Oct. 9, 2008) (also steering investors toward the corporate form).
141. See Galler v. Galler, 203 N.E.2d 577, 584 (Ill. 1964) ("[O]ften the only sound basis for protection [against subsequent oppression] is afforded by a lengthy, detailed shareholder agreement securing the rights and obligations of all concerned. ").
142. See, e.g., Ringling Bros.-Bamum & Bailey Combined Shows v. Ringling, 53 A.2d 441, 447 (Del. 1947);
143. Galler, 203 N.E.2d at 586;
144. Clark v. Dodge, 199 N.E. 641 (N.Y. 1936);
145. McQuade v. Stoneham, 189 N.E. 234, 236 (N.Y. 1934) ("Stockholders may, of course, combine to elect directors. That rule is well settled.");
146. see also MODEL BUS. CORP. ACT § 7.32(b) (2002) (permitting shareholder agreements but limiting their duration to ten years).
147. See McQuade, 189 N.E. at 236 ("Directors may not by agreements entered into as stockholders abrogate their independent judgment.");
148. see also DEL. CODE ANN. tit. 8, § 141(a) (2006) ("The business and affairs of every corporation . . . shall be managed by or under the direction of a board of directors . . . ."). Interestingly, Delaware corporate law takes a different view of precommitment strategies in the takeover context.
149. See Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914, 937-39 (Del. 2003) (requiring, in a rare split decision, that merger-agreement lock-up provisions be tempered by effective fiduciary outs).
150. See McQuade, 189 N.E. at 236.
151. See Clark, 199 N.E. at 642-43;
152. but see MODEL BUS. CORP. ACT § 7.32(b) (requiring that shareholder agreements be unanimous). Courts also enforce the terms of shareholder agreements against subsequent purchasers of contracting parties' stock.
153. O'NEAL & THOMPSON, supra note 2, § 4.35 (noting that some jurisdictions require subsequent purchasers be given notice of board restrictions);
154. see also MODEL BUS. CORP. ACT § 7.32(c) (requiring that the existence of a shareholder agreement be noted on the company's stock certificates).
155. 199 N.E. 641 (N.Y. 1936).
156. Id. at 643 (enforcing a shareholder agreement wherein the company's 75 percent shareholder promised to vote the company's 25 percent shareholder to the board, and further promised that once on the board he would vote as a director to employ the 25 percent shareholder "so long as he proved faithful, efficient, and competent," pay certain dividends, and limit other officers' salaries to reasonable amounts commensurate with services rendered). An alternate reading of the Clark holding is that less than all of a close corporation's shareholders may agree to act in certain ways once directors, provided that what they agree to is reasonable and does not amount to a breach of their fiduciary duties as directors.
157. Id. at 642 ("If the enforcement of a particular [shareholder] contract damages nobody . . . one sees no reason for holding it illegal . . . .").
158. See Galler v. Galler, 203 N.E.2d 577, 584 (Ill. 1964) ("[N]o apparent public injury, the absence of a complaining minority interest, and no apparent prejudice to creditors.").
159. For a more complete list of possible shareholder-agreement provisions, see 2 O'NEAL & THOMPSON, supra note 46, § 9:5.
160. For an example of a litigated buy-sell agreement, see Jordan v. Duff & Phelps, Inc., 815 F.2d 429 (7th Cir. 1987).
161. See BAINBRIDGE, supra note 9, at 812-16 ("The critical 'deal points' are three-fold: What events trigger a buyout? Does the buyout create a put . . . a call . . . or both? How are the shares to be valued?").
162. See RESTATEMENT (THIRD) OF EMPLOYMENT LAW § 3.03 cmt. g (Discussion Draft Apr. 27, 2006) (discussing the interpretation of cause in employment contracts).
163. See Moll, supra note 77, at 911-16 (offering reasons why close-corporation shareholders fail to properly plan).
164. In view of the potential conflict of interest, the Model Rules of Professional Responsibility suggest engaging more than one attorney. See MODEL RULES OF PROF'L CONDUCT R. 1.7 (2008);
165. see also 2 O'NEAL & THOMPSON, supra note 46, § 9:2 ("Ideally, each prospective investor . . . should be represented by a separate attorney."). Wanting to avoid this additional expense, shareholders often waive this conflict and hire a single attorney.
166. See id. § 9:2 ("[T]he added expense or the failure of participants to see a need for separate representation may lead them to entrust the organization of the business and the drafting of important documents affecting their interests to a single attorney. ").
167. Moll, supra note 77, at 912. Moreover, some attorneys who do not specialize in business planning may not appreciate the need for such protections or be able to professionally draft them.
168. See O'NEAL, supra note 51, at 884 ("[A minority shareholder's] lawyer, if he has one, may not have the knowledge, experience and skill necessary to draft effective protective arrangements.").
169. See, e.g., Corp.delaware.gov, Delaware Department of State: Division of Corporations, http://corp.delaware.gov (last visited Oct. 13, 2008);
170. Filinginoregon.com, Oregon Secretary of State Corporation Division, http://www.filinginoregon.com (last visited Oct. 13, 2008);
171. SBA.gov, U.S. Small Business Administration - Small Business Planner, http://www.sba.gov/smallbusinessplanner/in dex.html (last visited Oct. 13, 2008).
172. See, e.g., Incorporate.com, Incorporating & LLC Formation, http://incorporate.com (last visited Oct. 13, 2008);
173. Legalzoom.com, Online Legal Document Services, http://legalzoom.com (last visited Oct. 13, 2008);
174. Mycorporation.intuit.com, Incorporate Online, http://mycorporation.com (last visited Oct. 13, 2008).
175. See MANCUSO, supra note 78.
176. See DEBORAH L. RHODE, ACCESS TO JUSTICE 81-91 (2004) (discussing online services and the unauthorized practice of law);
177. Catherine J. Lanctot, Scriveners in Cyberspace: Online Document Preparation and the Unauthorized Practice of Law, 30 HOFSTRA L. REV. 811, 820 (2002) (same);
178. Letter from the Federal Trade Comm'n & U.S. Dep't of Justice, to the Am. Bar Ass'n Task Force on the Model Definition of the Practice of Law, Dec. 20, 2002, at 11-12 [hereinafter FTC Letter] (same), available at www.ftc.gov/opa/2002/12/lettertoaba.shtm.
179. MANCUSO, supra note 78, at 40 (discouraging do-it-yourself incorporators from forming shareholder agreements);
180. see also DANIEL SITARZ, S-CORPORATION SMALL BUSINESS START-UP KIT (2004) (neglecting to mention shareholder or buy-sell agreements);
181. SPADACCINI, supra note 78, at 28, 37 (mentioning shareholder agreements twice without any explanation).
182. But see ROBERT A. COOKE, INCORPORATE YOUR BUSINESS 79, 89-92 (2005) (encouraging shareholder and buy-sell agreements);
183. INCORPORATING FOR DUMMIES, supra note 78, at 119-29 (same);
184. W. KELSEA ECKERT ET AL., FORM YOUR OWN CORPORATION 29-32, 249-51 (5th ed. 2006) (identifying the problem of minority-shareholder oppression, encouraging proper planning, and offering a decent template of a shareholder agreement). To be fair, the Nolo Press book strongly encourages buy-sell agreements for most small corporations.
185. See MANCUSO, supra, at 196-97 (referring readers to ANTHONY MANCUSO & BETHANY K. LAURENCE, NOLO PRESS, BUSINESS BUYOUT AGREEMENTS (2007));
186. see also STEPHEN M. MAPLE, THE COMPLETE IDIOT'S GUIDE TO LAW FOR SMALL BUSINESS OWNERS 31-32 (2000) (mentioning buy-sell agreements but not other shareholder agreements). However, the author also states that a buy-sell agreement might not be necessary in businesses owned by spouses unlikely to divorce or by close-knit families.
187. MANCUSO, supra, at 197. This of course brings to mind a number of close-corporation cases in which the shareholders freezing each other out are family.
188. See, e.g., Sugarman v. Sugarman, 797 F.2d 3 (1st Cir. 1986);
189. Ringling Bros. -Barnum & Bailey Combined Shows v. Ringling, 53 A.2d 441 (Del. 1947);
190. Galler v. Galler, 203 N.E.2d 577 (111. 1964);
191. Meiselman v. Meiselman, 307 S.E.2d 1983 (N.C. 1983). Incoporate.com, Legalzoom.com, Mycorporation.com, the U.S. Small Business Administration Web site, and the secretary-of-state Web sites that I checked do not even mention shareholder or buy-sell agreements, although the SBA at one point warns that, "Corporations should always be assisted by a qualified attorney."
192. SBA.gov, Choose a Structure, http://sba.gov/smallbusinessplanner/start/ chooseastructure/start-basic-structure.html (last visited Oct. 13, 2008).
193. See, e.g., MELVIN ARON EISENBERG, CORPORATIONS AND OTHER BUSINESS ASSOCIATIONS: STATUTES, RULES, MATERIALS, AND FORMS 1560-69 (2008 ed.) (reprinting form bylaws that offer no protection against minority-shareholder oppression);
194. MANCUSO, supra note 78, app. C (same). A buy-sell agreement would not protect a minority shareholder against forced expulsion from the firm but it would guarantee her a fair price for her shares.
195. Illig, supra note 4, at 279 n.7.
196. LESSIG, supra note 8, at 87.
197. Id. at 235.
198. Id.;
199. see also Richard H. MacAdams, The Origin, Development, and Regulation of Norms, 96 MICH. L. REV. 338, 340 (1997) (defining norms as "informal social regularities that individuals feel obligated to follow because of an internalized sense of duty, because of a fear of external non-legal sanctions, or both");
200. Cass R. Sunstein, Social Norms and Social Roles, 96 COLUM. L. REV. 903, 914 (1996) (defining norms as "social attitudes of approval and disapproval, specifying what ought to be done and what ought not to be done").
201. LESSIG, supra note 8, at 236.
202. In this example, the market regulates in conjunction with the law. See id. ("Indeed, market transactions do not exist except within a context of law and norms.").
203. Lessig defines architecture as "the way the world is, or the ways specific aspects of it are. Architects call it the built environment; those who don't give out names just recognize it as the world around them. " Id.
204. Id. at 236-37.
205. See id. at 89.
206. See supra Part LB.
207. Cf. E-mail from Christopher Hall, Partner, Perkins Coie LLP, to Judd F. Sneirson, Assistant Professor, University of Oregon School of Law (June 24, 2008, 18:29 PST) (on file with author) ("Majority shareholders are typically very mindful of not unfairly treating minority shareholders.").
208. See David A. Skeel, Jr., Shaming in Corporate Law, 149 U. PA. L. REV. 1811 (2001).
209. See supra Part I.A.
210. To quote psychologist Abraham Maslow: "[I]f the only tool you have is a hammer, [you tend] to treat everything as if it were a nail." See ABRAHAM H. MASLOW, THE PSYCHOLOGY OF SCIENCE 15-16 (1966).
211. For this reason, Lessig might object to my categorization of this Article's proposal as architectural.
212. See supra Part I.C.
213. See Holt, supra note 7, at 15.
214. See Thaler & Sunstein, Libertarian Paternalism, supra note 1, at 175;
215. see also The New Paternalism: The Avuncular State, ECONOMIST, Apr. 8, 2006, at 67 ("Because of ignorance or intemperance, lack of willpower or brainpower, people choose badly."). The fields of cognitive psychology and behavioral economics explain some of these departures.
216. See THALER & SUNSTEIN, NUDGE, supra note 7, at 19-37 (describing "systemic biases" in the way we think);
217. Camerer et al., supra note 7, at 1215-18 (noting these "two parallel, complementary intellectual lines of research");
218. Sunstein & Thaler, supra note 7, at 1167-70. In contrast, mainstream economists firmly believe in rationality.
219. See Camerer et al., supra note 7, at 1214 ("The standard approach in economics assumes 'full rationality.'");
220. Soft Paternalism: The State is Looking After You, supra note 7, at 15 (noting economists' "strong faith in rationality").
221. See supra text accompanying notes 76-77.
222. See supra Part I.D.
223. Some prefer the gender-neutral term parentalism. See, e.g., Cathy J. Jones, Sexist Language: An Overview for Teachers and Librarians, 82 LAW LIBR. J. 673, 679 n. 18 (1990).
224. See Thaler & Sunstein, Libertarian Paternalism, supra note 7, at 175.
225. See id. (noting the paternalistic goal of "influencing the choices of affected parties in ways that will make those parties better off).
226. See THALER & SUNSTEIN, NUDGE, supra note 7, at 4-6;
227. Sunstein & Thaler, supra note 7, at 1201 (describing libertarian paternalism as "an approach that preserves freedom of choice but that encourages both private and public institutions to steer people in directions that will promote their own welfare").
228. Sunstein & Thaler, supra note 7, at 1161-62 (noting that soft paternalism often involves "design features");
229. see also THALER & SUNSTEIN, NUDGE, supra note 7, at 11 (using the term choice architects to describe those in a position to exercise soft paternalism).
230. See Thaler & Sunstein, Libertarian Paternalism, supra note 7, at 177 ("[We believe] most employees would prefer to join the 401(k) plan if they took the time to think about it and did not lose the enrollment form . . . . ");
231. see also Camerer et al., supra note 7, at 1227 (noting macroeconomic societal benefits from 401(k) plans).
232. THALER & SUNSTEIN, NUDGE, supra note 7, at 107 (referring to matches as "virtually free money").
233. Thaler & Sunstein, Libertarian Paternalism, supra note 7, at 176-77 (noting the "status quo bias"). Apparently dopiness also plays a role.
234. See THALER & SUNSTEIN, NUDGE, supra note 7, at 103 (quoting former White House Press Secretary Tony Snow as saying he was "too dopey to get in on a 401(k)").
235. See Thaler & Sunstein, Libertarian Paternalism, supra note 7, at 176-77.
236. Sunstein & Thaler, supra note 7, at 1160 (noting the default-rule change has produced "dramatic increases in enrollment");
237. Thaler & Sunstein, Libertarian Paternalism, supra note 7, at 177;
238. see also John Cassidy, Economics: Which Way for Obama?, N.Y. REV. OF BOOKS, June 12, 2008
239. (reviewing THALER & SUNSTEIN, NUDGE, supra note 7).
240. For the 401(k) studies Sunstein and Thaler discuss, see James J. Choi et al., Defined Contribution Pensions: Plan Rules, Participant Choices, and the Path of Least Resistance, in 16 TAX POLICY AND THE ECONOMY 67, 70 (James M. Poterba ed., 2002);
241. Brigitte C. Madrian & Dennis F. Shea, The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior, 116 Q. J. ECON. 1149, 1149-50 (2001).
242. According to a recent study, private employers are increasingly doing so. See Nudge, http://nudges.wordpress.com/2008/09/26/trends-in-automatic- 401k-enrollm ent(Sept. 26, 2008, 04:10).
243. See Cassidy, supra note 128, at 32 (noting that President Obama also proposes a related tax credit). Such a requirement would regulate through both law (the employer mandate) and architecture (the design change).
244. Note the article titles supra note 7: "Libertarian Paternalism," " Libertarian Paternalism is not an Oxymoron, " and " Regulation for Conservatives. "
245. Camerer et al., supra note 7, at 1212 (terming such paternalistic regulations "asymmetric paternalism");
246. see also The New Paternalism, supra note 116, at 68.
247. Soft Paternalism: The State is Looking After You, supra note 7, at 15 (asking, "If people want. . . paternalism, why can't the market. . . provide it?").
248. Id. at 15;
249. see also THALER & SUNSTEIN, NUDGE, supra note 7, at 239-41 (including a section captioned "evil nudgers and bad nudges"). Critics also advance a slippery-slope argument, claiming that once the government starts with soft paternalism, hard paternalism is sure to follow.
250. See, e.g., Soft Paternalism: The State is Looking After You, supra note 7, at 15;
251. see generally Edward L. Glaeser, Paternalism and Psychology, 73 U. CHI. L. REV. 133 (2006).
252. For Thaler and Sunstein's reply to all these criticisms see THALER & SUNSTEIN, NUDGE, supra note 7, at 236-51.
253. See THALER & SUNSTEIN, NUDGE, supra note 7, at 237 ("In many cases, some kind of nudge is inevitable .... Choice architects, whether public or private, must do something.");
254. Sunstein & Thaler, supra note 7, at 1174-75
255. (quoting Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 HARV. L. REV. 1089, 1090-91 (1972) to make the same point about state-set default rules);
256. Thaler & Sunstein, Libertarian Paternalism, supra note 7, at 176-77 ("The employer must choose some set of rules .... No law of human nature says that, in the absence of an affirmative election by employees, zero percent of earnings will go into a retirement plan. ").
257. See Sunstein & Thaler, supra note 7, at 1159-60 (noting that some private employers have adopted an automatic enrollment default).
258. See THALER & SUNSTEIN, NUDGE, supra note 7, at 239-40.
259. See supra Parts I. C-D.
260. See, e.g., infra Appendix (reprinting the Oregon and Washington State incorporation forms, both of which are available online from their respective secretaryof-state Web sites);
261. see also DEL. CODE ANN. tit. 8, § 102(a) (2006) (specifying the information that certificates of incorporation must include);
262. MODEL BUS. CORP. ACT § 2.02(a) (2002) (same).
263. Some jurisdictions refer to articles of incorporation as charters or certificates of incorporation. See, e.g., EISENBERG, supra note 10, at 107-08.
264. See, e.g., DEL. CODE ANN. tit. 8, § 102(b)(7) (permitting directorexculpation provisions);
265. MODEL BUS. CORP. ACT § 2.02(b)(4) (same).
266. See, e.g., DEL. CODE ANN. tit. 8, § 102(b)(1);
267. MODEL BUS. CORP. ACT § 2.02(b)(2)(iii).
268. See, e.g., DEL. CODE ANN. tit. 8, § 102(b)(1) (permitting in the certificate of incorporation any provision required or permitted to be in the corporate bylaws);
269. MODEL BUS. CORP. ACT § 2.02(b)(3) (same);
270. see also DEL. CODE ANN. tit. 8, § 109(b) ("The bylaws may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees.");
271. MODEL BUS. CORP. ACT § 2.06(b) ("The bylaws of a corporation may contain any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with law or the articles of incorporation."). Both the Oregon and the Washington state forms, on their faces, invite additional provisions.
272. See infra Appendix.
273. To the extent such a provision is not currently permitted to be included in a certificate of incorporation, a legislature could of course amend its corporate code topermit it. Cf. H.B. 2826, 74th Leg. Assem., Reg. Sess. (Or. 2007) (codified at OR. REV. STAT. § 60.047(2)(e) (2007)) (amending the Oregon corporate code to permit certificate-of-incorporation provisions "authorizing or directing the corporation to conduct the business of the corporation in a manner that is environmentally and socially responsible").
274. See, e.g., Corp.delaware.gov, Delaware Division of Corporations, http://corp.delaware.gov (last visited Oct. 9, 2008);
275. Filinginoregon.com, Oregon Secretary of State Corporation Division, http://www.filinginoregon.com (last visited Oct. 9, 2008);
276. Secstatewa.gov, Washington Secretary of State: Corporations, http://www.secstate.wa.gov/corps (last visited Oct. 9, 2008). As noted, close corporations tend to incorporate in their home states, and thus, Delaware does not predominate as it does with large corporations.
277. See supra note 10.
278. See, e.g., MANCUSO, supra note 78, at 217-433 (detailing state-by-state requirements and noting that a few states require incorporators to use the official form).
279. The Corporation Service Company is one such service provider. See Incspot.com, Corporation Service Company, http://www.incspot.com (last visited Oct. 9, 2008).
280. See infra text accompanying note 203. The do-it-yourself resources cited supra notes 78 and 97 and discussed in the next subsection for the most part direct readers to their secretary-of-state Web sites to download and use the official state forms.
281. See, e.g., COOKE, supra note 97, at 88;
282. ECKERT ET AL., supra note 97, at 29 (including the official forms on a CD-ROM, as well);
283. INCORPORATING FOR DUMMIES, supra note 78, at 70;
284. MANCUSO, supra note 78, at 217;
285. MAPLE, supra note 97, at 30;
286. SPADACCINI, supra note 78, at 30. Some online incorporation services also use the official state forms.
287. See infra text accompanying note 170.
288. Secretaries of state already nudge business registrants to some extent. In Oregon, for example, the official nonprofit Articles of Incorporation form includes instructions to ensure applicants obtain 501(c)(3) status, see CORP. DRV., OR. SEC'Y OF STATE, ARTICLES OF INCORPORATION-NONPROFIT (2008), available at http:// filinginoregon.com/forms/pdf/business/112.pdf, and the secretary of state's Web site contains guides and advice for new businesses.
289. See, e.g., CORP. DIV., OR. SEC'Y OF STATE, OREGON BUSINESS GUIDE: HOW TO START A BUSINESS IN OREGON (2007), available at http://filinginoregon.com/forms/pdf/business/1100.pdf. Similarly, some state courts provide litigants model forms and suggestions.
290. See, e.g., Courts.state.ny.us, New York Court Help, http://www.courts.state.ny.us/courthelp/ forms.html (last visited Nov. 16, 2008).
291. See supra Parts LB. 1-4 (describing these approaches to defining oppression and how they differ). Presumably, a secretary of state would select the standard adopted in her jurisdiction.
292. See supra notes 46, 50, 60 (noting the jurisdictions that apply each of the three oppression standards).
293. The language is meant to capture the Wilkes standard as set forth supra Part I.B.I. Like Wilkes, the Revised Uniform Partnership Act permits partners a certain degree of selfish behavior.
294. See UNIF. P'SHIP ACT § 404(e) (1997) ("A partner does not violate a duty or obligation under this [Act] or under the partnership agreement solely because the partner's conduct furthers the partner's own interest."). Thus, the reference to partners' duties is apt.
295. See THALER & SUNSTEIN, NUDGE, supra note 7, at 34-35 (discussing the status quo bias).
296. See id. at 35 ("In many contexts defaults have some extra nudging power because consumers may feel, rightly or wrongly, that default options come with an implicit endorsement from the default setter, be it the employer, government, or TV scheduler.").
297. See id. at 53-71 (discussing the nudging power of norms).
298. See supra note 148.
299. To the extent unsophisticated incorporators may not read or appreciate the significance of the opt-out provision proposed here, and thus unwittingly select (or not deselect) it, this nudge perhaps borders on being a shove. The relative naïveté of many close-corporation investors arguably warrants such firmness. Indeed, in the absence of such a nudge, these shareholders would unwittingly risk subjecting themselves to oppressive tactics, particularly in those jurisdictions where an oppression remedy is unavailable or for other reasons that remain elusive. See supra Part LC
300. See supra notes 67, 74-75 and accompanying text (discussing Delaware's position on minority-shareholder oppression and the sometimes insufficient remedies other states provide).
301. See supra note 67 and accompanying text.
302. A second possible nudge to include on an official incorporation form is a generic buy-sell provision from which parties may opt out. Such a provision might not prevent oppressive tactics, but would provide a fair means by which an oppressed minority could exit the firm. Such a provision might pose problems, however, including depriving the firm of needed capital. See, e.g., Edward B. Rock & Michael L. Wachter, Waiting for the Omelet to Set: Match-Specific Assets and Minority Oppression in Close Corporations, 24 J. CORP. L. 913, 915 (1999) (citing locked-in capital as a benefit of the close corporation).
303. MANCUSO, supra note 78.
304. INCORPORATING FOR DUMMIES, supra note 78.
305. MAPLE, supra note 97.
306. See supra note 97.
307. Shareholder agreements should be encouraged even where-especially where-the original investors are friends or family. See supra note 97 (noting the frequency of freeze-out cases involving family).
308. Some do-it-yourself resources already do this. See, e.g., COOKE, supra note 97, at 79, 89-92 (encouraging shareholder and buy-sell agreements);
309. ECKERT ET AL., supra note 97, at 29-32, 249-51 (identifying the problem of minority-shareholder oppression, encouraging proper planning, and offering a decent template of a shareholder agreement);
310. INCORPORATING FOR DUMMIES, supra note 78, at 119-29 (encouraging shareholder and buy-sell agreements). Most, however, do not.
311. See, e.g., MANCUSO, supra note 78, at 40, 196-97 (strongly encouraging buy-sell agreements but discouraging other shareholder agreements);
312. MAPLE, supra note 97, at 31-32 (mentioning buy-sell agreements only);
313. SITARZ, supra note 97 (mentioning neither);
314. SPADACCINI, supra note 78, at 28, 37 (mentioning shareholder agreements twice without any explanation).
315. As noted, only ECKERT ET AL. , supra note 97, currently does all this.
316. See supra note 148 (noting the CD-ROMs included with many do-ityourself resources);
317. infra Appendix (reprinting the official Oregon and Washington forms, which both permit the inclusion of additional provisions).
318. There are considerably more than three.
319. See Incorporate.com, Choosing Incorporation & LLC Packages and Options, http://incorporate.com/choosing-incorporation-packages.html (last visited Oct. 7, 2008) (listing offerings);
320. Legalzoom.com, Incorporation Packages, http:// www.legalzoom.com/legal- incorporation/incorporation-packages.html (last visited Oct. 7, 2008) (same);
321. Mycorporation.intuit.com, Incorporating, http://mycorporation.in tuit.com/business-formations/incorporate.jhtml (last visited Oct. 7, 2008) (same). Other services offered include serving as the new corporation's registered agent, obtaining a federal employer identification number, and preparing an S-corporation election form.
322. See, e.g., Incorporate.com, Get a Quote, http://incorporate.com/ incorporate-now.html (last visited Nov. 8, 2008). Some packages also include business software, veil-piercing guarantees, leatherette binders, and rush shipping.
323. See id.
324. See Telephone Interview with Calvin, Customer Service Representative, Legalzoom.com (June 4, 2008);
325. Telephone Interview with Lauren, Customer Service Representative, Mycorporation.com (June 4, 2008);
326. Telephone Interview with Rocky, Customer Service Representative, Incorporate.com (June 4, 2008).
327. See, e.g., Mycorporation.com, Incorporating, http://mycorporation. in tuit.com/business-formations/incorporate.jsp (last visited Nov. 8, 2008) (informing the user that, "The default value provided herein indicates the combination of authorized shares and par value that is acceptable in your state while still qualifying for the minimum filing fees" (text displayed if the user follows the "order now" hyperlink, selects any state, follows the "order now" hyperlink again, and on the third order-form screen follows the "?" hyperlink adjacent to the authorized-shares field)).
328. The Legalzoom.com main page does, however, provide a link to "additional legal forms," through which one may navigate to state-specific form books including one containing preincorporation agreements such as buy-sell and shareholder agreements. See, e.g., USlegalforms.com, Incorporation Agreement Forms and Packages, http://www.uslegalforms.com/ corporatecenter/pre-incorporationagreement s.htm (last visited Oct. 7, 2008).
329. See interviews cited supra note 170;
330. see also Lanctot, supra note 96, at 849-54 (concluding that Legalzoom.com and computer programs like Quicken Family Lawyer present close cases on whether they engage in the unauthorized practice of law);
331. infra Part III.C
332. If customers do not opt out, the online services could also then note the existence of a shareholder agreement on the company's customized stock certificates. See supra note 83 (noting this requirement in the Model Business Incorporation Act).
333. For example, online incorporators can ask customers whether they wish to guarantee each shareholder a seat on the board or employment with the company. To the extent existing print and electronic resources already offer this, see, e.g., ECKERT ET AL., supra note 97, at 249-51 (including a model shareholder agreement);
334. MANCUSO & LAURENCE, supra note 97 (focusing on do-it-yourself buy-sell agreements and providing a model);
335. USlegalforms.com, Pre-Incorporation Agreement Forms and Packages, http: //www .uslegalforms. com/corporatecenter/pre-incorporation-agreemen ts.htm (last visited Oct. 7, 2008) (advertising a shareholder-agreement form book and linking to a model shareholder agreement), this sort of service would likely fall short of the standard for engaging in the unauthorized practice of law.
336. See Lanctot, supra note 96, at 849-51 (analyzing online legal-service providers and whether they practice law);
337. FTC Letter, supra note 96, at 11 ("The consumer essentially fills in electronic 'blanks;' however, the application sometimes offers advice based on information provided by the consumer. ");
338. see also infra Part III.C.
339. See supra Part I.D (noting the importance of proper planning).
340. See THALER & SUNSTEIN, supra note 7, at 36-37 (discussing the effect of framing on individual behavior). Online incorporators already use framing for other additional services.
341. See, e.g., Mycorporation.com, supra note 171 (soliciting incorporators to use Mycorporation as the firm's registered agent and noting that "your personal information will remain private" when you use Mycorporation.com, but you will receive junk-mail solicitations if you do not (text displays if the user follows the "order now" hyperlink, selects any state, follows the "order now" hyperlink, then follows the "?" hyperlink adjacent to the words "let mycorporation act as the registered agent")).
342. See supra notes 80, 83-86 and accompanying text.
343. Massachusetts, Pennsylvania, and Wisconsin seem not to have settled on an oppression standard. See supra notes 46, 50, 60.
344. See Illig, supra note 4, at 322.
345. To be sure, this would leave the resolution of the parties' oppression dispute to the courts and their application of sometimes-opaque case law. See supra Part I.C While this result may be less preferable than addressing matters ex ante through shareholder and buy-sell agreements, it at least reduces the uncertainty currently in place over whether and how the law will protect a minority shareholder's investment.
346. This is reminiscent of the Delaware approach to minority-shareholder oppression, see supra notes 67-68 and accompanying text (discussing and quoting Nixon v. Blackwell, 626 A.2d 1366, 1379-80 (Del. 1983)), only perhaps more justified.
347. See Illig, supra note 4, at 279-80. This assumes that the oppression protections a jurisdiction affords are the sort of legal rules that can be bargained around. While the ability to reduce or eliminate the fiduciary duties of loyalty and care is currently the subject of lively debate.
348. see, e.g., Arthur B. Laby, 7Se Fiduciary Obligation as the Adoption of Ends, 56 BUFF. L. REV. 99, 100-03 (2008) (arguing that certain core fiduciary obligations are nonwaivable and citing scholarship on both sides of the issue), commentators have not yet extended the dialog to investor-to-investor duties in closely held corporations. To the extent these duties do not lie at the core of corporate fiduciary relationships, and indeed are not available in all jurisdictions, parties can more likely opt out of them. The majority's reasonable-expectations approach to minority-shareholder oppression supports this conclusion, as well; given the right set of facts, a minority shareholder can reasonably expect no protection against a majority's oppressive tactics.
349. See supra Part I.B.2.
350. Such actions should signal a warning to minority shareholders and ideally cause the parties to consider and discuss the issue of oppression protections before any difficulties arise.
351. Such a move might also trigger dissenters' appraisal rights. See, e.g., DEL. CODE ANN. tit. 8, § 262(c) (2006);
352. MODEL BUS. CORP. ACT § 13.02(a)(5) (2002).
353. See Hall, supra note 109.
354. See THALER & SUNSTEIN, NUDGE, supra note 7, at 36-37, 53-71 (discussing the nudging power of norms and framing).
355. See id. at 34-35 (noting the status quo bias).
356. See supra note 150 (presuming that secretaries of state would generally follow their jurisdictions' oppression standards);
357. see also supra text accompanying note 180 (noting the private-ordering possibilities).
358. See supra Part I.B.I (discussing qualified utmost good faith and fair dealing, and noting the influence of Judge Cardozo's famous decision in Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928)).
359. This common assumption fuels the reasonable-expectations standard for assessing minority-shareholder oppression. See supra Part I.B.2.
360. Again, the language is meant to capture the Wilkes standard. See supra Part I.B.2. The precise wording offered here is just a suggestion; better choice architects can no doubt improve upon my wording and design.
361. The PDF-version of the incorporation form on the Oregon secretary of state's Web site allows users to check and uncheck boxes, enter information in fields, and print out the completed document. See CORP. DIV., OR. SEC'Y OF STATE, ARTICLES OF INCORPORATION-BUSINESS/PROFESSIONAL, available at http:// www.filinginorego n. com/forms/pdf/business/111. pdf.
362. To further guide incorporators, the yes response can also be prechecked. Thus:Shall shareholders owe one another the same heightened degree of good faith and loyalty that partners by law owe one another? Yes No
363. This approach may also generate calls from lay incorporators to secretaryof-state offices seeking an explanation of the provision and advice on how to respond to it. See infra note 202.
364. Thaler & Sunstein, Libertarian Paternalism, supra note 7, at 178 (discussing a soft-paternalistic "approach that would force people to make their choices explicit").
365. See THALER & SUNSTEIN, NUDGE, supra note 7, at 36-37 (discussing the importance of framing).
366. See supra Part I.B.2.
367. See supra Part I.B.3.
368. Interview with Peter Threlkel, Director, Oregon Secretary of State Corporation Division, in Salem, Or. (July 10, 2008).
369. Id. Mr. Threlkel also preferred that any changes be made legislatively.
370. Id.
371. Id. Mr. Threlkel was wary of unintended consequences of changing the official form, and anticipated that any changes would generate calls to his staff seeking an explanation of the provision and advice on whether to opt out of it.
372. See id.
373. E-mail from Jeff Cronn, Partner, Tonkon Torp LLP, to Judd F. Sneirson, Assistant Professor, University of Oregon School of Law (June 23, 2008, 11:14 PST) (on file with author);
374. E-mail from Tom Tongue, Shareholder, Schwabe, Williamson & Wyatt, to Judd F. Sneirson, Assistant Professor, University of Oregon School of Law (June 23, 2008, 08:23 PST) (on file with author).
375. See supra note 97 and accompanying text.
376. See supra notes 165, 171.
377. Telephone Interview with Anthony Mancuso, Esq., Author, Nolo Press (July 7, 2008).
378. See sources cited supra note 170.
379. See, e.g., OR. REV. STAT. §§ 183.310-.725 (2007) (imposing procedural requirements on administrative agency orders and rules and defining the terms order and rule so as to exclude the proposal recommended here);
380. WASH. REV. CODE §§ 34.05.001-.903, 34.05.010 (2008) (similarly defining agency action).
381. Lanctot, supra note 96, at 811-13 (analyzing the Model Code of Professional Responsibility, the Model Rules of Professional Conduct, and the Restatement of the Law Governing Lawyers).
382. Id. at 811-12;
383. see also RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 4 cmt. c (2000) (noting a trend toward permitting such advice).
384. See supra note 175 (discussing available sample shareholder agreements).
385. See FTC Letter, supra note 96, at 11-12. While most jurisdictions subscribe to this principle, a few do not.
386. See, e.g., Palmer v. Unauthorized Practice of Law Comm., 438 S.W.2d 374 (Tex. App. 1969) (enjoining the sale of will forms as the unauthorized practice of law);
387. Unauthorized Practice of Law Comm. v. Parsons Tech., Inc., No 3:97-CV-2859-H, 1999 U.S. Dist. Lexis 813 (N.D. Tex. Jan. 22, 1999) (finding Quicken Family Lawyer software in violation of Texas's unauthorizedpractice-of- law statute, and concluding the software's disclaimer ineffective), vacated, 179 F.3d 956 (5th Cir. 1999);
388. H.B. 1507, 76th Leg., Reg. Sess. (Tex. 1999) (amending the Texas unauthorized-practice-of-law statute to permit programs like Quicken Family Lawyer if accompanied by disclaimers "clearly and conspicuously stat[ing] that the products are not a substitute for the advice of an attorney").