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Our board has litigation going on with a shareholder that could go on for years, we're told. Some shareholders have asked me about whether they can sell their units while this is going on--the Corp has accrued massive legal fees due to this awful situation and if we lose, there will be large assessments levied on shareholders to pay the legal bills. We believe we will prevail, but how does litigation impact those shareholders who want to sell? Thanks
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First of all, I hope you have the proper insurance coverage in place and that the insurance company is aware of the litigation. Whatever the dispute, as long as the board is acting in good faith and within Business Law the insurance should protect the corporation and the directors against large assessments. If you do not have adequate coverage, get it.
That being said, there should be no legal reason to prevent anyone from selling during the litigation; however if this has been going on for some time, your legal fees would show up in the financial statements which a prospective purchaser would review prior to contract. Even if there is no legal obligation to reveal, in my opinion there is an ethical obligation.
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