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Szwed v. Sullivan

A-2859-98T3 (N.J. Super. App. Div. 2000) (Unpublished)

CORPORATIONS; SHAREHOLDERS—It was inconsistent for a court to find that a departing shareholder was entitled to an interest in the corporation’s tangible assets but not in its intangible assets or accounts receivable.

Two cardiologists were shareholders in a professional corporation. One was a 49 percent shareholder who subsequently withdrew from the corporation . The withdrawing shareholder also had an employment agreement with the corporation. That agreement provided for a specific compensation formula with a relatively precise means for calculating the compensation of the two parties. The remaining shareholder’s wife functioned as the corporate bookkeeper. Despite the clear and unequivocal methodology for determining the remuneration of the two shareholders, she miscalculated the shareholders’ compensation. However, the lower court accepted her calculations without explanation despite what the Appellate Division felt “were obviously flawed [calculations] since they not only employed an erroneous methodology but defied logic.” Consequently, the Appellate Division remanded the matter for additional testimony and recalculation. The lower court also held that the withdrawing shareholder was not entitled to any part of the corporation’s accounts receivable. The parties lacked a specific writing as to the division or payment of the corporation’s assets when a party withdrew, and based on that void, the lower court awarded only a proportionate value of the corporation’s personal property. In the lower court judge’s words, “49% of the accounts receivable, ... is totally without merit and I’ll refer to the comments which I made in determinations made during the trial with regard to that.” The Appellate Division found nothing in the trial transcript containing any findings of fact. Further, it held that “[i]t was inconsistent for the court to have concluded that plaintiff was entitled to 49% of the corporation’s tangible assets but nothing with respect to such intangible assets. He was clearly entitled to some share of the accounts receivable.” That issue was also ordered to be explored on remand.

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