Minority Oppression

March 13, 2025

Minority Shareholder Rights: What Protections Are Available Under State Law?

Key Takeaways:

Minority shareholders in closely held corporations may face a challenge to their investment due to their lack of control over company decisions.
Legal protections do exist to safeguard their interests, including rights to financial information, fair treatment, and avenues for relief in cases of oppression.
State laws vary, with New Jersey, New York, and Delaware each offering different levels of protection and remedies for minority shareholders.

In closely held corporations, minority shareholders—those holding less than 50% of the company’s shares—often find themselves at the mercy of the decisions of majority shareholders.

This imbalance can lead to situations where the minority’s interests are overlooked or actively undermined. To address these challenges, various legal protections have been established, though they differ significantly across jurisdictions.

Understanding Minority Shareholder Oppression

Minority shareholder oppression occurs when majority shareholders engage in actions that are harmful, unfair, or abusive toward minority shareholders. Such actions can include:

Withholding dividends
Denying access to essential financial information
Excluding minority shareholders from key decision-making processes
Implementing “squeeze-out” tactics to force minority shareholders to sell their shares at undervalued prices

The definition and remedies for shareholder oppression vary by state, making it crucial to understand the specific laws applicable in each jurisdiction.

Legal Protections for Minority Shareholders

Minority shareholders are entitled to certain fundamental rights to protect their interests:

Access to Financial Information

March 5, 2025

Shareholder Disputes in Closely Held New York Corporations: Common Causes and Legal Remedies

by Jay R. McDaniel, Esq.

Shareholder Disputes in closely held corporations are common and often arise from voting deadlocks, financial disagreements, and claims of minority shareholder oppression.
New York law provides several legal remedies, including dissolution proceedings, buyouts, and derivative lawsuits.
Preventative measures, such as well-drafted shareholder agreements, can mitigate future disputes.

March 3, 2025

When to Seek Judicial Dissolution of an LLC

by Jay R. McDaniel, Esq.

Key Takeaways: When to Seek Judicial Dissolution of an LLC

What is Judicial Dissolution? A court-ordered termination of an LLC when voluntary dissolution is not an option.
When Should You Seek It?
- Deadlock among members preventing essential business decisions.
- Conflicts that make business operations impossible.
- Fraud, oppression, or misconduct by controlling members.
- The LLC can no longer fulfill its intended purpose.
Legal Standards for Judicial Dissolution:
- Strict Approach (New York, Delaware): Only granted when the LLC is no longer “reasonably practicable.”
- Broader Approach (Uniform LLC Act States): Courts may dissolve an LLC for deadlock, oppression, or fraud.
How to Proceed? Consult a business litigation attorney to evaluate your legal options and protect your rights.

There are times when disputes among members of a limited liability company can reach the point where continuing the business becomes impossible. When the conflicts are intractable, a lawsuit for judicial dissolution is a way for the owners to find a remedy .

Limited Liability Company Dissolution Lawyer | LLC Dissolution Attorney

The remedies available to LLC members in a judicial dissolution action vary from state to state, and it is critical to owners to have a clear understanding of what is and is not possible Some states, such as New York and Delaware, are narrow in the remedies available, assuming that the members are best able to manage their affairs through contracts between them. This “strict approach” permits judicial dissolution only when it is “not reasonably practicable” to continue operations in compliance with the LLC’s operating agreement.

Other states, particularly those that have enacted the Uniform Limited Liability Company Act (ULLCA), offer a more flexible framework. In these states, members can pursue judicial dissolution on broader grounds, including minority oppression, illegality, and fraudulent behavior.

December 18, 2024

Navigating Shareholder Disputes in Closely Held Corporations

by Jay R. McDaniel, Esq.

Shareholder disputes in a closely held business threaten the business and personal financial interests of the owner.
New Jersey law provides the owners of a closely held corporation with rights and remedies that assure access to information and the financial benefits of ownership.
Closely held corporations can use effective planning and negotiated solutions to avoid litigation.

Shareholder disputes are often disruptive, emotional, and, if left unresolved, devastating to the closely held corporations that are the backbone of New Jersey’s economy. When these disagreements arise in a closely held business with only a handful of key stakeholders, they can escalate quickly, placing the company’s operations — and the personal futures of the owners — at risk.

Shareholder Disputes: It Isn’t Just Business, It’s Personal

Shareholder disputes aren’t just about financial disagreements. They often stem from deeply personal frustrations, competing visions, or the inherent complexity of running a business in which power and resources are shared by a few individuals.

New Jersey Shareholder Disputes Attorney | Minority Oppression Attorney New Jersey Corporation Whether the conflict involves voting deadlocks, allegations of unfair treatment, or disagreements over financial management, the stakes are high for all involved.

Understanding the common causes of these disputes—and the legal remedies available—can make the difference between a resolution that preserves the business and a breakdown that leads to its dissolution.

The Common Causes of Shareholder Disputes

Every closely held corporation is unique, but the disputes they face tend to follow familiar patterns. Recognizing these common issues is the first step in addressing them effectively. Continue reading

March 4, 2024

Court Relies on Implied Contract Theory To Hold Partner to Agreement

by Jay R. McDaniel, Esq.

It’s a decision involving a law firm partnership that, if widely followed, will likely have a sweeping effect on the interpretation of the statutory requirement for unanimity in adopting critical agreements that govern partnerships and liited liability companies. Lerner-David

Attorney Andrew Zidel, an attorney who left prominent intellectual property boutique firm Lerner David in Westfield, failed in his attempt to use a minority veto to block the adoption of a law firm partnership agreement that treated retiring partners differently than withdrawing partners.

The trial court finessed the unanimity requirement found in the partnership statute, and was affirmed in an unreported decision of the appellate division.

Court Discounts Literal Language of Partnership Statute; Implies Consent to Adopt Partnership Agreement

The reason for Zidel’s failure to rely on the language of the statute was that the law firm had, for many years, operated without a formal partnership agreement. Therefore, the trial court found that the written formal agreement would be considered an amendment to the existing partnership agreement, and, under the partnership’s prior practices, it did not require a unanimous agreement.

October 31, 2023

Defending the Oppressed Minority Lawsuit

by Jay R. McDaniel, Esq.

Majority Owners of closely held businesses may face claims that they engaged in minority oppression of shareholders, limited liability company members or partners.
Defending the minority oppression claim requires examination of written agreements and consideration of the reasonable expectations of the owners when the business was formed.

Claims of minority oppression are asserted in any number of disputes between the majority owners of a business and one or more of the minority interest holders. The oppressed minority lawsuit is disruptive, expensive and can threaten the investments and value of the majority owners.

August 15, 2023

When Are Limited Liability Companies Required to Distribute Profits?

by Jay R. McDaniel, Esq.

There is no statutory right to receive a distribution of profits from a limited liability company before it dissolves and winds up its affairs. Distributions before then are discretionary.
Profit distributions are in the discretion of the majority members or commonly in the discretion of the managers of the limited liability company.
A minority member who is not receiving distributions may have a claim under the operating agreement or as an oppressed minority member if the majority refuses to make profit distributions.

Profit distributions are a frequent source of dispute among the members of a limited liability company. The fundamental question of who decides when distributions are made, how much is made, and how to deal with the tax issues related to distributions, profits and losses can all be the source of conflict.

More Questions? Learn More. You can call me at 973-602-3915 or use our Contact form to reach me by email.

The short answer to the question of when a limited liability company must distribute profits is that ‘it depends.’ And many minority owners of LLC interests are frustrated to learn that they have less control over the process than they anticipated. New Jersey minority oppressed LLC member attorney

Limited Liability Companies Often Do Not Have Operating Agreements

Entrepreneurs choose limited liability companies as the form of a new business far more often than corporations or partnerships. They are cheap and easy to form and do not require the type of documentation and formalities that you generally see associated with other entities, corporations in particular. Continue reading

May 23, 2023

The Equitable Value of an Oppressed Minority Shareholder’s Interest

by Jay R. McDaniel, Esq.

A New Jersey Court conducing the valuation of a business may use any technique or method generally acceptable in the financial community.
The application of a minority discount is a question of law, but likely will be based on the factual determinations of the court about the culpability of the litigants.
Business divorces cases are commonly heard in the Chancery Division, a court of equity in which principles of fairness and justice may be applied in addition to any statutory cause of action.
New Jersey’s statutory cause of action for oppression of a minority shareholder does not prevent the court from providing equitable remedies available outside the statute as a matter of common law.

New Jersey Business Valuation ATORNEY In Sipko v. Kroger, the New Jersey Supreme Court declined to apply a minority discount in valuing the interest of a minority shareholder.

There was no real surprise there. New Jersey courts are reluctant to apply a minority discount in the valuation of closely held businesses, which reduces the value of the minority interest. Those discounts, which can signicantly lower the value of an interest — often by a third, or more — tend to reward wrongdoers. Continue reading

May 16, 2023

Reasonable Expectations Define Oppression of Minority LLC Member

by Jay R. McDaniel, Esq.

Limited Liability Company laws in New Jersey and many states provide a cause of action for the oppression of minority members of company against those in control of the business.
Oppression of a minority LLC member is measured by the reasonable expectations of the minority member in those states that have adopted the Uniform Limited Liability Company Act
Courts assess reasonable expectations by looking at the operating agreement, the behavior of the members and purpose of the members in joining the business.

Majority rule in any limited liability company is not without its risks, in particular the potential for the majority owners to oppress the minority members, together with the difficulty the minority member is likely to have in recouping the investment in the business.

Minority members of a limited liability company may always voluntarily dissociate, or resign, as a member, at which point they give up the right to participate in management. As a “dissociated member,” the minority member who has resigned is entitled to his or her share of profits, but not to participate in decisions or get full information about the operations of the business. Continue reading

February 15, 2023

Minority Shareholder Oppression Under New Jersey Law

by Jay R. McDaniel, Esq.

Minority shareholders of a closely held corporation may be subjected to oppressive conduct by the controlling majority that deprives them of the benefits of their investment.
Oppressed minority shareholder actions vindicate the rights of the minority owner to participate in the management and share in the economic benefits of the company.
A court may order the majority to buy the minority member’s interest at fair value, to sell the corporation as a going concern, for damages or take other actions to fashion an appropriate remedy.

anger-2728273_1920-1024x683 Under New Jersey business law, minority oppression refers to conduct in which the majority shareholders or directors of a corporation engage in behavior that prejudices the rights or interests of the minority shareholders unfairly.

We see shared holder oppression in a variety of action: Continue reading

Minority shareholders in closely held corporations may face a challenge to their investment due to their lack of control over company decisions.

Legal protections do exist to safeguard their interests, including rights to financial information, fair treatment, and avenues for relief in cases of oppression.

State laws vary, with New Jersey, New York, and Delaware each offering different levels of protection and remedies for minority shareholders.

Understanding Minority Shareholder Oppression

Legal Protections for Minority Shareholders

Access to Financial Information

Shareholder Disputes in closely held corporations are common and often arise from voting deadlocks, financial disagreements, and claims of minority shareholder oppression.

New York law provides several legal remedies, including dissolution proceedings, buyouts, and derivative lawsuits.

Preventative measures, such as well-drafted shareholder agreements, can mitigate future disputes.

Key Takeaways: When to Seek Judicial Dissolution of an LLC

Shareholder disputes in a closely held business threaten the business and personal financial interests of the owner.

New Jersey law provides the owners of a closely held corporation with rights and remedies that assure access to information and the financial benefits of ownership.

Closely held corporations can use effective planning and negotiated solutions to avoid litigation.

Shareholder Disputes: It Isn’t Just Business, It’s Personal

The Common Causes of Shareholder Disputes

Court Discounts Literal Language of Partnership Statute; Implies Consent to Adopt Partnership Agreement

Majority Owners of closely held businesses may face claims that they engaged in minority oppression of shareholders, limited liability company members or partners.

Defending the minority oppression claim requires examination of written agreements and consideration of the reasonable expectations of the owners when the business was formed.

There is no statutory right to receive a distribution of profits from a limited liability company before it dissolves and winds up its affairs. Distributions before then are discretionary.

Profit distributions are in the discretion of the majority members or commonly in the discretion of the managers of the limited liability company.

A minority member who is not receiving distributions may have a claim under the operating agreement or as an oppressed minority member if the majority refuses to make profit distributions.

Limited Liability Companies Often Do Not Have Operating Agreements

A New Jersey Court conducing the valuation of a business may use any technique or method generally acceptable in the financial community.

The application of a minority discount is a question of law, but likely will be based on the factual determinations of the court about the culpability of the litigants.

Business divorces cases are commonly heard in the Chancery Division, a court of equity in which principles of fairness and justice may be applied in addition to any statutory cause of action.

New Jersey’s statutory cause of action for oppression of a minority shareholder does not prevent the court from providing equitable remedies available outside the statute as a matter of common law.

Limited Liability Company laws in New Jersey and many states provide a cause of action for the oppression of minority members of company against those in control of the business.

Oppression of a minority LLC member is measured by the reasonable expectations of the minority member in those states that have adopted the Uniform Limited Liability Company Act

Courts assess reasonable expectations by looking at the operating agreement, the behavior of the members and purpose of the members in joining the business.

Minority shareholders of a closely held corporation may be subjected to oppressive conduct by the controlling majority that deprives them of the benefits of their investment.

Oppressed minority shareholder actions vindicate the rights of the minority owner to participate in the management and share in the economic benefits of the company.

A court may order the majority to buy the minority member’s interest at fair value, to sell the corporation as a going concern, for damages or take other actions to fashion an appropriate remedy.