William & Mary Business Law Review
Abstract
Imagine that you are assisting the surviving shareholders and officers of a corporation in settling affairs with the estate of a deceased shareholder. In a corporate governance dispute that ensues, the estate representative uses a seemingly innocuous probate provision allowing him to “continue any business” of the deceased to petition the probate court for direct control of the corporation. You find that there is little statutory or jurisprudential guidance on coordinating that probate provision with longstanding corporate governance requirements that directors, not shareholders, directly manage corporate affairs. This Article explores the unintended consequences of allowing a misplaced but literal reading of probate codes to provide the above-referenced estate representative power to “continue any business” of the decedent but failing to clarify the meaning of that provision in coordination with the fundamentals of American corporate law. Core corporate governance principles require that shareholders elect directors who then manage corporate affairs, not the shareholders themselves. Allowing the estate representative to “continue any business” of the deceased, even a corporation, undermines core corporate governance principles and risks, inter alia, corporate veil-piercing exposure. This flawed default probate provision poses specific risks to small, unsophisticated businesses that lack the resources to engage in costly litigious efforts to clarify the relationship between the corporate and probate codes. These small businesses are also most susceptible to the referenced liability exposure associated with corporate veil piercing for failure to follow corporate governance requirements. This problem can be remedied statutorily by clarifying the probate provision’s subordination to the respective state’s corporate law. The Article highlights approaches employed by Delaware, New York, California, and other leading business jurisdictions whose probate provisions wholly or partially provide better clarity regarding the coordination of probate and corporate law, remedying the described problem.