Articles Tagged with oppressed minority shareholder

  • Business Divorce’ refers to disputes in which the owners of a closely held business, whether a corporation, limited liability company, partnership or limited partnership, must separate their business interests.

  • In many cases, such as oppressed minority shareholder cases or oppressed LLC member cases, there are allegations that those in control of the company have engaged in wrongful behavior.  In other cases, the deadlock of the owners on an important issue is the source of the dispute.

  • Courts that hear business divorce cases have the ability to intervene and impose short-term relief, such as an injunction or appointment of a custodian, and a permanent remedy, include the sale of the business, the compelled purchase of an owner’s interest or even the dissolution and liquidation of the enterprise.


achievement-agreement-body-language-1179804-1024x600No one gets married expecting to get divorced.  And no one forms a business expecting that it will fall apart.  Just as people get divorced, many businesses come to the point at which a business divorce is the best alternative because the partners cannot, or will not, continue to work together.  When that happens, the parties need to restructure, and often separate, their business interests.

Business Divorce Defined

We use the term business divorce to describe a series of different types of lawsuits that involve the owners of a closely held business. The defining character of the business divorce is that co-owners of a business must separate their business interests.  There are typically two alternatives. In this article, we focus on the closely held corporation.  Some of the principles are similar with other types of businesses, which we address in other articles, but the application of the principles are often quite different.

The law varies from state to state and much of this discussion is general.  To the extent that we discuss specific state laws that apply to business divorce, we focus on New York, New Jersey and Delaware law. Continue reading

Cases-of-Note-Corporations

Digital Camera International, Ltd. v. Antebi, et al., 11-cv-1823 (E.D.N,.Y. July 13, 2017)

Statutes: N.J.S.A. 14A:12-7(1)(c)

Facts:Shareholders of a New Jersey corporation participated in a variety of activities that would be classified as oppressive behavior, including the payment of persona expenses with corporate funds, operating a competing business, insider contracts at inflated prices and corporate payments of personal tax liabilities

Businesswoman lifting heavy elephant

Holding a family business together gets more difficult as time passes, as this recent opinion
24824-staff_meetingfrom the Appellate Division demonstrates.  A rift between the family members still working for, and in control of H. Schultz & Sons, resulted in the minority members who stopped receiving dividends while the company was trying to remake itself from a retailer to a distributor.

No Shareholder Oppression in Exercise of Majority’s Business Judgment

The failure to pay dividends and a refusal to use the assets of the business to buy out the non-employee shareholders, however, in itself is the type of conduct that rises to shareholder oppression.

The group of minority shareholders who claimed that the corporation’s refusal to purchase their interests was shareholder oppression failed to establish a viable claim under New Jersey’s Oppressed Shareholders Act, says the Appellate Division

Affirming the trial court’s opinion in Goret v. H. Schultz & Sons, Inc., Docket No. A-4281-10T1 (App. Div. Sept. 10, 2013), the Appellate Division affirmed the holding that the refusal to repurchase minority interests no longer receiving dividends was an appropriate exercise of the business judgment rule.

 

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american-chopper

I don’t like reality TV, but I will admit that I thought the fights between the Paul Teutul Sr. and his son, Paul Jr., were the most interesting part of the show. Now that they are involved in litigation over the ownership of the company, I suppose I can take a professional interest.

The complex dynamics between the majority shareholder, Paul Sr., and the minority shareholder, Paul Jr., have all the elements of the disputes that have fractured many a family business – conflict over the direction of the business, claims of misconduct and, of course, charged emotions. You will also find something else in this case that is not all that rare – documents that do not clearly explain how the parties are to deal with sensitive issues.

https://youtu.be/ZgRl_b3GfyI

business-analytics

When one or more of the owners of a business think it is time to get divorced, the decision in invariably accompanied by hard feelings.  As most clients ultimately learn, the courts are incapable of resolving emotional issues.  But they deal pretty well with money – which is why it makes sense to find out how much is at stake in the fight that is likely to ensue.  Save the emotions for therapy; money is what the case is about.

The Pitfalls of Misinformation

My experience is that most clients are pretty thoroughly misinformed about the “fair value” of their business as well as their individual interests.  Not infrequently, clients will presume that the high price-to-earnings ratio that one may find in the market of publicly traded stocks will apply equally to their closely held business.  Not so.  Others will fail to recognize the effect that the unusually high salaries paid to the owners will likely have in inflating the value of the business.

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