Reasonable Expectations

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

This seminal case by the New Jersey Supreme Court identifies minority oppression as the frustration of a shareholder’s reasonable expectations.
A court may order the compelled purchase of a shareholder’s interest as a remedy for shareholder oppression when it is the only practical alternative to judicial dissolution.
The minority shareholder seeking to force the purchase of shares must show a connection between the oppressive conduct of the majority and the minority’s interest as a shareholder.

Brenner v. Berkowitz, 134 NJ 488 (1993)

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

Facts: Partners Resnick and Berkowitz formed successful company. Members of both families were employed in the business. When Resnick died, his shares were distributed to family members, including his daughter, the plaintiff Brenner. Relations between the two family members soured and Brenner’s son was fired. Brenner alleged illegal and oppressive conduct.

Trial court found that Brenner’s expectation was solely as director and investor, not in management of business affairs. Trial court found that some conduct of majority was illegal, but that it was not directed to plaintiff. The oppression was insufficient to trigger the statute. Continue reading

Articles Tagged with Reasonable Expectations

Reasonable Expectations Define Oppression of Minority LLC Member

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.

Shareholder Oppression is Frustration of Minority Shareholder’s Reasonable Expectations

This seminal case by the New Jersey Supreme Court identifies minority oppression as the frustration of a shareholder’s reasonable expectations.

A court may order the compelled purchase of a shareholder’s interest as a remedy for shareholder oppression when it is the only practical alternative to judicial dissolution.

The minority shareholder seeking to force the purchase of shares must show a connection between the oppressive conduct of the majority and the minority’s interest as a shareholder.

Brenner v. Berkowitz, 134 NJ 488 (1993)