By Fredrick P. Niemann, Esq. a New Jersey LLC Attorney
Limited Liability Companies have become increasingly popular in New Jersey throughout the last decade. This is often the preferred business form for the majority of business owners throughout not only New Jersey, but the entire country. Many of these companies have multiple owners that have a say in the direction, transactions, and other matters concerning the business. While many LLCs operate smoothly and have owners that always agree on company matters, there are undoubtedly numerous LLCs that have owners who simply cannot agree on business decisions. In these companies, the power structure is determined by who owns the most shares or the largest piece of the company. Obviously, the person with the largest ownership percentage is able to dictate all business-related decisions. This does not include, however, the right to make business decisions that benefit the majority owner at the expense of the minority owners.
Majority owners of all New Jersey LLCs are held responsible to what the legal profession refers to as the “Fiduciary Duty of Loyalty”. This duty is placed on all majority shareholders and majority owners of LLCs throughout New Jersey. It requires them to act in the best interests of the company with ALL business decisions. If a transaction will benefit the majority owner at the detriment of the minority owners, the majority owner is prohibited from completing that transaction. If a minority owner is a victim of a breach of the Fiduciary Duty of Loyalty, they may bring a claim in New Jersey Courts against the majority owner of the LLC. The Courts will look to see if the company action meets an objective fairness test. Any action that does not stand up to this test will be considered a breach of the fiduciary duty and subject the majority owner to damages. Courts may even issue an injunction in certain cases if the company action being disputed has yet to occur. The injunction will forbid the LLC from moving forward with the transaction or business decision.
Just because you are a minority owner of a LLC does not mean the majority shareholder/owner can take advantage of you. All company decisions must be objectively fair, meaning the majority owner cannot act in a manner that benefits themselves at the detriment of the minority owners/shareholders. If you have any questions regarding New Jersey LLCs or the Fiduciary Duty of Loyalty, please don’t hesitate to contact Fredrick P. Niemann, Esq., an experienced NJ LLC attorney today. He can be reached toll-free at 855-376-5291 or by email at fniemann@hnlawfirm.com/. Please call today.