Smith owns 10% of the common shares of Omega, Inc., a closel…
Smith owns 10% of the common shares of Omega, Inc., a closely held corporation. Baker and Jones each own 45% of Omega’s common shares. Baker and Jones also serve on Omega’s board of directors and are paid corporate officers.Omega has not paid a dividend on its common shares for several years. Smith, who is not an officer of the corporation and has never received a salary from the corporation is very unhappy that no dividends are being paid.When Smith complained to Baker and Jones about nonpayment of dividends, they said that while Omega could legally pay dividends, it has not done so in order to retain the corporation’s earnings for expansion of the business. They also pointed to data showing that Omega’s business has expanded considerably in the past several years, financed entirely through undistributed earnings, and told Smith that he should “go away and let us run the show.” Smith complained that “only you are enjoying the fruits of Omega’s success.” In response to an inquiry from Smith, Baker and Jones refused to reveal the amounts of their salaries, even though those salaries are within industry range.Baker and Jones each offered to purchase all of Smith’s shares for $35 per share. Smith suspects that the shares are worth more than $35 per share. Smith has asked to inspect Omega’s corporate books and records to determine the value of his shares, but Jones and Baker have refused to give Smith access to any corporate records.Smith has asked your law firm the following questions:Does Smith have a right to inspect Omega’s corporate books and records to determine whether $35 per share is a fair price for his shares? Explain.If Smith brings a suit to compel the payment of a dividend, must Smith first make a demand on the corporation? Explain.If Smith brings a suit to compel the payment of a dividend, is that suit likely to be successful? Explain.