I’ve written a lot about closely held companies and the rights of minority shareholders. Closely held corporations are generally businesses that have a small number of shareholders who own the business. Minority shareholders are those who own less than 50% of the shares and therefore are unable to control and direct business decisions to operations, something the majority shareholder can do. However, despite not being able to enforce how they want the corporation to be run, minority shareholders do have rights, mainly the right not to be “oppressed” by the majority shareholders. That’s why there are so many oppressed minority shareholder cases filed in NJ every year.
How Does a Minority Shareholder Become an Oppressed Minority Shareholder?
An oppressed minority shareholder is one who disagrees with the majority shareholders of the corporation or is being taken advantage of by the majority, yet upon request to be bought out by the majority is denied. This for all intents and purposes leaves the minority shareholder stuck owning shares in a corporation that they do not have a voice in and do not wish to be a part of.
New Jersey has a specific statute pertaining to minority shareholders who believe they are being oppressed. The statute states that majority shareholders may not act in a manner that is detrimental to the interests of the minority shareholders. Oppression has been defined as an act directed at a minority shareholder that frustrates the reasonable expectations of their relationship in the management, operation, and general affairs of the corporation.
Oppressed minority shareholders must show two things in order to obtain relief under New Jersey law. First, they must show misconduct on the part of the majority shareholders that amounts to oppression. The court will consider this on a case-by-case basis since every claim is unique. Second, the minority shareholder must show that oppression results in harm being suffered by them due to having their interests or reasonable expectations in the corporation limited/prohibited. Minority shareholders’ interests in the corporation not only include monetary interests but non-monetary interests as well, such as having a voice in the operation of the business and direction of the corporation.
If you are a minority shareholder in a closely-held New Jersey corporation and think your interests are being oppressed, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. 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 Rights Attorney