Many New Jersey Corporations are considered “Closely-Held” Corporations. These types of corporations consist of a small number of owners or shareholders, sometimes family members, who work together to run the business. Usually, these corporations run smoothly, but unfortunately, conflicts sometimes arise and situations develop where shareholders disagree on certain issues. As most are aware, the majority shareholder has the right to make the final decision related to the business.
What many are not aware of is that the majority shareholder may not make decisions that benefit themselves to the detriment or exclusion of the minority shareholders. This is due to what lawyers call the “Fiduciary Duty of Loyalty” that the majority shareholder owes to minority shareholders. This duty is placed on all majority shareholders and requires them to act in the best interests of the corporation. This of course encompasses all of the shareholders, including the minority shareholders. All transactions entered into by the majority shareholder on behalf of the corporation must meet a test of objective fairness. If a minority shareholder challenges a corporate decision, the court will look to the objective fairness of the decision to decide whether the majority shareholder was indeed living up to their fiduciary duty of loyalty. If the majority shareholder breaches this duty to minority shareholders, courts may award minority shareholders damages or, if it’s not too late, tell the majority shareholder they cannot act a certain way in a specific transaction.
Simply because you are a minority shareholder does not mean that the majority shareholder is entitled to take advantage of you in your closely-held corporation. Majority shareholders owe a fiduciary duty of loyalty to the minority shareholders within the corporation and New Jersey Courts will make sure this duty is followed. Please contact Fredrick P. Niemann, Esq. an experienced NJ Shareholder Attorney if you have any questions regarding shareholder rights or the fiduciary duty of loyalty. Mr. Niemann can be reached at 732-863-9900 or by email at fniemann@hnlawfirm.com/. He would be happy to meet with you to answer any questions you may have.
By Fredrick P. Niemann, a New Jersey Shareholder Attorney