South-Western Legal Studies in Business

Articles of Incorporation Clearly Stated Interests of Shareholders
Description Utah high court held that the interests of shareholders in a nonprofit water company were clearly stated in the articles of incorporation. Their interests were limited to use of water, not ownership of company assets.
Topic Business Organization
Key Words Nonprofit; Shareholders; Directors; Assets; Articles of Incorporation
C A S E   S U M M A R Y
Facts The Herriman Pipeline and Development Company, a nonprofit company, provided water to residents of the City of Herriman (Utah). The city decided to buy the company so the city could provide water to its residents. Some company shareholders objected to the sale and sued the city and directors of the company. They claimed they suffered financial injuries due to the sale. The district court dismissed the suit; shareholders appealed.
Decision

Affirmed. The articles of incorporation did not confer any vested property rights upon the shareholders. The interests of the shareholders did not include ownership of the assets of the company. Their right was “to participate on an equal basis in use” of company assets. Their right conferred by share ownership was of equal participation in the use of company water, not control or ownership of the assets.

Citation Dansie v. City of Herriman, 134 P.3d 1139 (Sup. Ct., Utah, 2006)

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