## Facts

- Eastern Lumber Company was a closely held family corporation owned by three shareholder groups: the Blount family (about 41%), the Taft family (about 41%), and McGowan (about 18%).
- The Blount shareholders sought limits on hiring relatives due to concerns about nepotism; their proposed unanimous-approval hiring policy was defeated by the Taft–McGowan voting bloc.
- On August 20, 1971, all shareholders unanimously adopted bylaws containing Section 7.
- Section 7 authorized the board to create a three-member executive committee with one member from each family group, vested with exclusive authority to select employees; hiring required unanimous committee consent.
- The bylaws also contained a general amendment provision allowing amendment, repeal, or rewriting by majority vote of shareholders.
- In 1974, shareholders (over the Blount group’s objection) approved new bylaws by a 6–3 vote that removed the Section 7 unanimity constraint and restored majority control over employment decisions.
- The Blount shareholders sued to enforce Section 7 as a binding shareholders’ agreement and to invalidate the 1974 bylaw changes insofar as they altered Section 7.

## Issues

1. Whether Section 7, though placed in the bylaws and adopted unanimously, constituted a shareholders’ agreement under N.C. Gen. Stat. § 55-73(b).
2. If Section 7 was a shareholders’ agreement, whether it could be amended or repealed by majority vote under the bylaws’ general amendment clause, or only by unanimous shareholder consent (subject to the statutory ten-year limit).

## Decision

- The North Carolina Supreme Court held that Section 7 was a shareholders’ agreement within the meaning of N.C. Gen. Stat. § 55-73(b).
- The Court held that, as a shareholders’ agreement, Section 7 was binding for up to ten years from August 20, 1971, and could be amended or repealed only by unanimous shareholder consent (absent expiration of the statutory term).
- The Court reversed the Court of Appeals, which had rejected the trial court’s conclusions regarding Section 7’s status and amendability.

## Legal Principles

- In a close corporation, an agreement among shareholders allocating corporate control and departing from default majority rule may qualify as a statutory shareholders’ agreement under N.C. Gen. Stat. § 55-73(b), even if embodied in the bylaws.
- Whether a provision is a shareholders’ agreement turns on substance and function (allocation of control among shareholder groups), not on label or document form.
- A valid shareholders’ agreement under § 55-73(b) is enforceable for no more than ten years and is not subject to defeat by a general bylaw amendment clause permitting majority amendment; modification or repeal during the term requires unanimous shareholder consent unless the agreement provides otherwise.
- Appellate courts defer to supported trial-court findings of fact but independently review the legal characterization and legal effect of those facts.

## Conclusion

The court enforced a unanimously adopted close-corporation governance arrangement allocating hiring power through a three-family executive committee requiring unanimity, treating it as a statutory shareholders’ agreement that could not be undone by a later majority-approved bylaw amendment within the ten-year statutory period.


Blount v. Taft, 295 N.C. 472, 246 S.E.2d 763 (N.C. 1978)