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Megee v. Gehrum

A-1033-97T3 (N.J. Super. App. Div. 1998) (Unpublished)

CORPORATIONS; SHAREHOLDERS; LIABILITY—Absent an agreement to the contrary, a selling shareholder is not liable for the corporation’s post-sale expenses.

Two equal shareholders of a corporation settled a dispute when one of the shareholders agreed to sell his stock to the other. The stock purchase settlement agreement contained the following provision: “After the Closing Date [buying shareholder] shall assume and discharge all of the duties, obligations and liabilities of Corporation. [Buying Shareholder] hereby waives, releases and forever discharges [selling shareholder] from such duties and such obligations and liabilities.” After the agreement was executed and the shares were transferred, the corporation and the buying shareholder were sued. The selling shareholder was not a party to that litigation. After the suit was settled, the buying shareholder demanded that the selling shareholder pay half of the attorney’s fees incurred in defense of the suit. The Appellate Division ruled that the selling shareholder was not obligated to pay the attorney’s fees because, as a corporate stockholder, the selling shareholder was not personally liable for a corporate debt. The buying shareholder thought that its seller was liable for the obligation because the corporate liability arose prior to the closing date. Unfortunately for the buying shareholder, a corporation is a separate entity from its shareholders and ordinarily the shareholders are not liable for corporate debts or expenses. Thus, absent an agreement to the contrary, a selling shareholder is not obligated to contribute to post-sale expenses even if they arose from pre-sale actions.


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