Can fiduciary duties trump contractual rights of shareholders in closely held companies? Are shareholders of a subchapter-S corporation entitled to sell their shares to third parties, even when that sale would destroy the corporation’s subchapter-S status? These are the questions addressed in the recent Superior Court decision Merriam v. Demoulas Super Markets, Inc.,1 and lawyers who draft shareholder and employment agreements for closely held corporations should take note of the court’s guidance.

Merriam marks yet another chapter in the ongoing infighting among Demoulas shareholders. The dispute centered on the shareholders’ right to sell stock when that sale would cause the corporation to lose its favorable subchapter-S status. One Demoulas faction argued that fiduciary duties prohibited such a sale, even though nothing in the corporate charter prohibited it, citing to A.W. Chesterton Company v. Chesterton. The would-be selling shareholders disagreed, arguing that their contractual right to sell company stock was not restricted by their fiduciary duties, citing to Chokel v. Genzyme Corporation.