- [changes jurisprudence for close corporations, very important, but a little complicated] two brothers, Isadore and Benjamin had wanted to set up their corporation to protect their wives if either of them died; both were directors, officers, and shareholders; a bit of a problem here is that only the Galler brothers were parties to the agreement, there was a third director who was not party. They were not acting in their director or officers roles, because they had not called a board meeting.
- permissible provisions in the agreement: creating and amending bylaws, naming specific people to be voted into the board, [probably ok] to pre-nominate wife as replacement for director; but, not ok, for shareholder agreement to [because they start to impinge on the authority of the directors]: decide payment of dividends, setting salaries of officers
- take each provision, look how it normally occurs in corporate law, and if it generally upsets the balance - the closer the agreement gets to invalidating the norms then the more likely it is that it will be void. But the court here decides that the agreement is enforceable!
- shareholders can make arrangements for the management of a close corporation, if: it was agreeable to all the shareholders, and there was no fraud or injury to creditors or the public [why? because no easy exit from closely-held corporation, and shareholders of a close corporation usually depend on it for their livelihood]
- but: must authorize in articles of corporation, and have statement in articles that "this is a close corporation"
- McQuade holds true for publicly traded companies