New Jersey is home to numerous “closely-held” corporations. A closely held corporation is one that consists of a small number of shareholders or owners. Many times, these corporations consist of family members or good friends who have gone into business together. While most entrepreneurs think that nothing will go wrong with their company, disagreements do arise and shareholders find themselves banging heads with each other on certain business decisions. If the disagreement is about a significant issue, the outcome is ultimately left up to either the majority shareholder or shareholders since they own the most shares in the company.
However, majority shareholders cannot always make decisions that just benefit themself at the expense of the minority shareholders. New Jersey business and corporation laws protect minority shareholders by requiring that all majority shareholders act with what is called a “Fiduciary Duty of Loyalty”. This term means there is a legal duty (enforceable by the courts) that requires all majority shareholders to act in the best interests and welfare of the corporation first and at all times. Obviously, minority shareholders are part of the corporation, and thus, the majority shareholders owe this duty to them.
When a minority shareholder challenges the actions of the majority shareholder, and if litigation results, the courts will look to see if the business decisions of the majority meet a test of objective fairness. If the court considers the transaction or decision not to be objectively fair, they may find a breach of Fiduciary Duty of Loyalty. Under this circumstance, the minority shareholders may be allowed to collect economic damages and other relief both legal and/or equitable based on the majority shareholder’s breach. If it isn’t too late, a court may even sometimes reverse or suspend the decision(s) of the majority shareholder which violates the fiduciary duty.
Just because you own a minority of the shares in a closely-held corporation does not mean that you have no rights. NJ courts are vigilant to protect minority shareholders.
Please contact Fredrick P. Niemann, Esq., a New Jersey Corporate and Shareholder Attorney today, toll-free at (855) 376-5291 or email him at firstname.lastname@example.org if you have any concerns related to minority shareholder rights or NJ corporations. Mr. Niemann will discuss your matter in a private and confidential setting. Please call us today.
By Fredrick P. Niemann, Esq., a NJ Corporate Attorney