How Do I Resolve Shareholder Disputes?
New Jersey Business Attorney Represents Partners and Majority or Minority Shareholders
Whether you are the owner of a business, a partner or a minority investor, shareholder disputes can dramatically impact your future and the future of the business. These kinds of disagreements can arise for any number of reasons as a business continues. Partners may disagree on the future of the company or investment plans. One shareholder or partner may misappropriate assets or make decisions without consulting the other. Otherwise, a minority shareholder may find his or her rights are denied by owners or majority shareholders. In some cases, the original shareholder agreement can be used to resolve these kinds of disputes. However, sometimes a lawsuit may be unavoidable.
The Monmouth County attorneys at Garland & Mason, L.L.C. have experience assisting shareholders and businesses resolve their disputes through mediation, arbitration and/or litigation. We also help businesses avoid shareholder disputes by crafting sound shareholder agreements during business formation and expansion. Our experience includes cases involving oppressed minority shareholders and partnership dissolution. If you are facing a shareholder dispute, then contact a New Jersey business litigation attorney from our law firm today for a free consultation.
What are Common Types of Shareholder Disputes?
A shareholder dispute can arise in any number of circumstances where one or more shareholders feel that the corporation is being harmed and/or their rights have been violated. Often, these matters involve the fiduciary duties of other shareholders and/or decisions involving the running of the business. Some of the most common types of shareholder disputes include:
- Ultra vires acts. Shareholders can prevent directors or officers of a corporation from acting outside the scope of permissible purposes of the business. Alternatively, the shareholders can remedy the consequences of the actions, if already performed.
- Breach of fiduciary duty. Directors and officers hold fiduciary duties to the business, including the duty of care and the duty of loyalty. This includes avoiding conflicts of interest or competing with the business. If a director or officer fails or neglects these duties, then he or she may be legally liable for any damages that result.
- Business management disagreements. All shareholders have a financial interest in the corporation. Therefore, shareholders may take issue with the way the business is run, since bad business decisions will make stock less valuable. Directors and officers have a fair amount of leeway in running a business due to the business judgment rule, but this discretion is not absolute.
- Minority shareholder oppression. Minority shareholders are entitled to certain financial information and records. Denial of these rights or fraudulent actions by majority shareholders can cause a legal dispute.
- Missed or uneven dividend payments. Depending on the type of corporation, all stockholders may be entitled to regular dividend payments based on their holdings. A dispute may arise if these payments are not made or if certain shareholders receive a greater percentage than others.
What is the New Jersey Oppressed Minority Shareholder Statute?
Minority shareholder oppression is a common cause of business disputes. However, New Jersey law specifically safeguards the interests of minority shareholders from abuses by more powerful entities within the business. The New Jersey Oppressed Minority Shareholder Statute and related cases provide protection for minority shareholders against actions by other shareholders, directors and officers that are:
- Fraudulent or illegal
- Mismanagement of the business
- An abuse of authority
- Oppressive or unfair for minority shareholders
This legislation also establishes certain rights for minority shareholders, which may not always be clear in the original shareholder agreement. These rights include:
- Inspection rights. A shareholder may request to see the company’s finances at an appropriate time and place. These rights may vary depending on the type and amount of shares owned, however.
- Right to dissolution. A minority shareholder may have the right to end his or her shareholder status at any time, often through a buyout. However, this applies only to corporations with 25 or fewer shareholders. Additionally, there must be evidence that an officer, majority shareholder or other entity acted fraudulently, mismanaged the company and/or was otherwise oppressive to minority shareholders.
If minority shareholder oppression occurs, then both parties may be able to resolve the dispute through mediation or arbitration. The corporation may offer to buy out the minority shareholder or propose another solution. However, if the shareholder agreement is vague or poorly crafted, then such a resolution may not be possible, and litigation may be necessary. If so, then the court will order a remedy based on the individual situation.
Need Assistance with a Shareholder Dispute? Call Our New Jersey Law Firm Today
Shareholder disputes can cause serious disruptions to a corporation and can be expensive to solve. However, a New Jersey business litigation attorney from our law firm can help you resolve these disputes, or prevent them from happening altogether. We have experience with arbitration, mediation and litigation concerning business disputes within closely held companies in and around Monmouth County.
Call (732) 358-2028 or contact us online to discuss your legal options in a free initial consultation.