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The Statutory Right to Purchase Shareholder Stock in the Dissolution of a Close Corporation

The Statutory Right to Purchase Shareholder Stock in the Dissolution of a Close Corporation

In Bartenfelder v. Bartenfelder, 248 Md. App. 213 (2020), the Court of Special Appeals considered whether a complaint by a stockholder in a close corporation seeking the appointment of a receiver triggers the right of another stockholder to purchase the complainant’s stock in the company under § 4-603(a) of the Corporations and Associations Article (“CA”) of the Maryland Code.  The Court held that “in the absence of a petition for dissolution, the request for a receiver does not trigger the statutory purchase right.”  Id. at 219.  In other words, the purchase right in CA § 4-603(a) applies only in the context of a dissolution proceeding.

The Facts and Procedural History

The case arose out of a dispute between Kimberly Bartenfelder and Thomas Bartenfelder.  Mr. Bartenfelder and Ms. Bartenfelder were the sole stockholders of two Maryland close corporations, Bartenfelder Sanitation Service, Inc. and Bartenfelder Landscape Service, Inc. (together, the “Corporations”), and the sole members of a Maryland limited liability company, 3340 Forge Hill LLC (the “LLC”).  Id. at 219–20.

In February 2017, Ms. Bartenfelder filed a two-count complaint in the Circuit Court for Harford County against Mr. Bartenfelder and the three companies.  Id. at 220.  In Count I, she requested injunctive relief to stop Mr. Bartenfelder’s alleged wrongdoings with regard to the three companies, and the appointment of a receiver to have full power over the accounts and operations of the three companies and the authority to retain a forensic accountant.  Id.

Mr. Bartenfelder’s counsel, in a letter to Ms. Bartenfelder’s counsel, claimed that the complaint triggered Mr. Bartenfelder’s right under CA § 4-603(a) to purchase Ms. Bartenfelder’s shares in the Corporations, and that Mr. Bartenfelder elected to do so.  Id. at 221.  Thereafter, Mr. Bartenfelder filed an answer to Ms. Bartenfelder’s request for a receiver in Count I, asking the court to enforce his election to purchase Ms. Bartenfelder’s stock in the Corporations.  Id.

After more than a year of procedural wrangling and various motions, the circuit court addressed Mr. Bartenfelder’s invocation of CA § 4-603(a).  The court agreed with Mr. Bartenfelder that Ms. Bartenfelder’s complaint triggered his statutory right to purchase her stock in the Corporations.  Id. at 223.  Accordingly, the court ruled that an appraiser be appointed to determine the fair value of the business (the “First Order”).  Id. at 223–24.

Ms. Bartenfelder filed a notice of appeal (the “First Appeal”) on July 17, 2018.  Id. at 224–25.  While the First Appeal was pending, the appraisal process proceeded in the circuit court.  Id. at 225.  On November 6, 2019, the court granted a motion filed by Mr. Bartenfelder, and unopposed by Ms. Bartenfelder, to confirm the appraisers’ reports and to establish the purchase price and payment schedule, ordering Mr. Bartenfelder to pay Ms. Bartenfelder for her stock in the Corporations through two installment payments (the “Second Order”).  Id.

Ms. Bartenfelder timely noted an appeal from the Second Order (the “Second Appeal”).  Id.  Meanwhile, Mr. Bartenfelder deposited the purchase funds into the court registry and moved to declare the “November 6, 2019 judgment as satisfied in full.”  Id.  On February 24, 2020, the circuit court granted the motion, which Ms. Bartenfelder had not opposed.  Id.  Two months later, on May 20, 2020, the Court of Special Appeals consolidated the two appeals.  Id.

 The Consolidated Appeal

Substantive Issue Presented

The substantive issue before the Court of Special Appeals was “whether a complaint seeking the appointment of a receiver but not the dissolution of the company, triggers the statutory right of another stockholder, under [CA § 4-603(a)], to purchase the complainant’s stock in the subject company.”  Id. at 219.  Section 4-603(a) provides:

Any one or more stockholders who desire to continue the business of a close corporation may avoid the dissolution of the corporation or the appointment of a receiver by electing to purchase the stock owned by the petitioner at a price equal to its fair value.

See id. at 232.

“A Creature of Statute”

At the outset of its analysis, the Court looked at the basics of close corporations, explaining that “[a] close corporation is a creature of statute that allows a small business to operate like a partnership, although in corporate form.”  Id. at 233.  “A close corporation is formed when an election is made pursuant to CA § 4-201,” unlike a “closely held corporation,” which “has ‘no single, generally accepted definition.’”  Id. at 233 n.12 (citation omitted).  As observed by the Court, one distinguishing feature of a close corporation is “the restraint placed on the ability of stockholders to transfer their stock”; “[b]y default, and unlike other types of Maryland corporations, stock in a close corporation is not transferrable without the consent of the other stockholders.”  Id. at 234.

To prevent a stockholder from being trapped in an investment in the absence of consent to transfer stock, “CA § 4-602 gives the trapped stockholder the right to seek dissolution of the corporation if consent is denied or for certain other enumerated reasons[.]”  Id. at 234–35.  Because the dissolution rights, standing alone, “would tip the balance of power in favor of the stockholder who wants to exit the company and against the stockholder who wants to continue with the business,” “CA § 4-603 gives a stockholder the ability to prevent the dissolution, or the appointment of a receive, by electing to purchase the stock of the dissolution-seeking stockholder.”  Id. at 235.  Accordingly, as emphasized by the Court, the “purchase right applies only in the context of a dissolution proceeding.”  Id.

Statutory Construction

In construing CA § 4-603(a), the Court examined the text of “both CA § 4-603 and the immediately preceding section, CA § 4-602,” and made four general observations:

  1. “[T]he captions or ‘catchlines’ given to the sections and subsections inform us that the subject matter of the provisions is the dissolution of a close corporation.”

The Court noted that CA § 4-602 is captioned “Involuntary Dissolution” and § 4-603 is captioned “Avoidance of dissolution by purchase of petitioner’s stock.”  Id. at 238.  Although the captions are ordinarily the work product of the publisher and carry no substantive weight, the Court found that “the captions to the sections [at issue] were part of the bills the General Assembly considered when it enacted the statute” and could, therefore, guide the Court’s search for the legislature’s intent.  Id. at 238–39.

  1. “[T]he opening words of CA § 4-603(a) expressly confirm what its caption indicates—the purchase right exists to spare the company from extinction.”

As stated by the Court, “[t]he phrase ‘stockholders who desire to continue the business of a close corporation’ implies an impending termination of the business.”  Id. at 239.

  1. “[T]hroughout CA § 4-603, some variation of the base word ‘petition’ is used, the meaning of which is discernible only in the context of CA § 4-602.”

The Court reasoned that “[t]he use of a variation of ‘petition’ throughout CA § 4-603 makes sense only when construed in conjunction with CA § 4-602”: “the ‘petitioner’ as used throughout CA § 4-603—including its caption—is the stockholder seeking the dissolution in CA § 4-602(a), and the ‘petition for dissolution’ in CA § 4-603(b) is the ‘petition for dissolution’ referenced in CA § 4-602(b)(1)(ii).”  Id. at 239–40.

  1. “[I]t would be impossible to consummate the purchase and sale transaction in the manner contemplated under the plan language of CA § 4-603 in any context other than a dissolution proceeding.”

According to the Court, because CA § 4-603(a) states that the price of the stock equals its “fair value,” and CA § 4-603(b) provides that the fair value must be determined “as of the close of business on the day on which the petition for dissolution is filed,” a petition for dissolution is necessary for compliance with the transaction provisions.  Id. at 240.

Statutory Context

Mr. Bartenfelder argued that “by limiting the applicability of a purchase right to a dissolution proceeding, [the Court] would be rendering the phrase ‘or the appointment of a receiver’ meaningless[.]”  Id.  To address this contention, the Court looked at CA § 4-603 in the context of Maryland General Corporation Law, or Titles 1 through 3 of the Corporations and Associations Article.  The Court noted that “Title 3 includes the involuntary dissolution provisions for Maryland corporations in general,” including close corporations.  Id. at 240–41.  “CA § 3-413 defines the grounds for an involuntary dissolution, and CA § 3-414 establishes the process for an involuntary dissolution proceeding.”  Id.

Connecting the Title 3 provisions to CA 4-603(a) gave meaning to the phrase “or the appointment of a receiver”:

. . . CA § 4-602 sets forth the grounds and process for dissolving a close corporation.  Among other enumerated grounds, CA § 4-602(a) incorporates the grounds set forth in CA § 3-413, and CA § 4-602(c) incorporates the process established in CA § 3-414. . . .

CA § 3-414 authorizes a court to appoint two types of receivers in an involuntary dissolution proceeding.  First, in recognition of the potential for corporate misconduct as the litigation proceeds, the court may appoint a temporary receiver “to take charge of the assets and operate the business of the corporation, if necessary or proper to preserve them, pending a final determination as to dissolution.”  CA § 3-414(b)(1).  Second, if the court is ultimately persuaded that the corporation should be dissolved, it must “enter a final order dissolving the corporation, and direct that it be liquidated under court supervision by one or more receivers appointed by it.”  CA § 3-414(c).

Id. at 240–41 (internal footnotes omitted).  On that basis, the Court concluded that “the phrase ‘or the appointment of a receiver’ in CA § 4-603(a) refers to the two types of receivers—temporary and liquidating—expressly contemplated under CA § 3-414.”  Id. at 242.

The Court further concluded that the phrase is “not rendered superfluous if the purchase right is limited to a dissolution proceeding.”  Id. at 243.  To illustrate, the Court provided the following example:

A non-petitioning stockholder who wants to continue the business but does not want to increase his ownership interest in the company, may choose not to exercise the purchase right, perhaps on the belief that the petition for dissolution will ultimately fail.  But, that same stockholder may later have a change of heart if, during the litigation, a temporary receiver is requested under CA § 3-414(b)(1).  At that point, the non-petitioning stockholder may exercise the purchase right to prevent the intrusion and meddling of a court appointed receiver.

Id. at 242–43.

Did the Complaint Invoke the Dissolution Provisions?

Mr. Bartenfelder also contended that “CA § 4-603 applies to Ms. Bartenfelder’s complaint because she requested the appointment of a receiver with statutory powers—that is, the powers authorized by CA 3-414.”  Id. at 248.  He relied on Edenbaum v. Schwarcz-Osztreicherne, 165 Md. App. 233 (2005), and Bontempo v. Lare, 444 Md. 344 (2015).

The Bartenfelder court explained that “both cases hold that if a dissolution is requested under CA § 3-413, the court may nevertheless fashion equitable relief short of a dissolution to remedy the shareholder oppression.”  Id. at 250 n.21.  Further, “because the court, under Edenbaum and Bontempo, has the authority to grant equitable relief short of dissolution when the dissolution statute is invoked, a party can request such relief without invoking the dissolution statute.”  Id.

Consequently, the Court of Special Appeals rejected Mr. Bartenfelder’s argument, noting that his reliance on Edenbaum and Bontempo was misplaced.  Id. at 249.  As stated by the Court, “Ms. Bartenfelder was entitled to seek an equitable remedy short of dissolution without triggering the rights of a non-petitioning stockholder in a dissolution proceeding,” and that she did just that by filing a complaint “seeking the appointment of a receiver vested with equitable powers short of a dissolution.”  Id. at 249–50.  The Court emphasized that “[t]he relevant, indeed, dispositive point is that Ms. Bartenfelder’s complaint did not request a receiver vested with the one thing that separates equitable from statutory receivers: the power to dissolve the corporations.”  Id. at 252.


Tying together its reasoning, the Court held that “because Ms. Bartenfelder’s complaint did not request a dissolution under CA § 4-602, the purchase right under CA § 4-603(a) was not triggered, and therefore Ms. Bartenfelder was not compelled to sell her stock to Mr. Bartenfelder.”  Id.  The Court observed that the result not only aligned with “the plain language[,] structure and context of the statute, its legislative history, and the distinction between statutory and equitable receivers[,]” but also had the “added benefit of common sense”: “a stockholder who seeks equitable relief to stop alleged oppression should not have to do so at the risk of being forced to sell her stock to the alleged oppressor.”  Id.

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Silverman Thompson regularly counsels clients with and litigates complex business matters, including matters in which corporate dissolution and receivership are involved.  To learn more about Bartenfelder, please contact Emma Mulford at  To learn more about our counseling and litigation services, please contact Bill Sinclair at  Both Emma and Bill can also be reached at (410) 385-2225.

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