Shareholder Agreements Protect Minority Shareholders From Oppressive Conduct – Guaranteed Directorships to a Minority Member

HNWShareholder Rights Litigation

  • Minority shareholders usually do not have the voting power to guaranty a spot on the board of directors. A shareholder who is not a director has limited rights to information about the operations of the corporation and no voice in decision-making or ability to protect himself/herself from oppressive conduct.
  • One way to address oppressive conduct is to provide in a shareholder agreement that some or all of the shareholders must also be directors, or to give certain shareholders or groups of shareholders the right to appoint or elect a director of their choice. A guaranteed spot on the board of directors protects a minority’s interest as a voice in the corporation.
  • In a typical squeeze-out scenario, a minority shareholder who is on the board is usually removed.

Unfortunately, most closely-held corporations rarely operate through formal board meetings, so the right to be a director in a small corporation may be more symbolic than real. Moreover, a minority position on a board of directors is hardly more useful than a minority position as a shareholder. The minority member of the board will be ignored and always outvoted, but at least they will be informed of ongoing company activities and decisions. A position as a director does not equate to the right of continued employment or salary. Therefore, even with a seat on the board of directors, minorities may still be squeezed out or frozen out.

To discuss your NJ shareholder matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at  Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Shareholder Attorney

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