Shareholder Disputes

Shareholder disputes can have serious consequences. There are many types of shareholder disputes, ranging from disputes that arise from shareholder theft to disputes about the distribution of labor and profits. If you are involved in a shareholder dispute, it is important to seek legal counsel. At the Grimes Law Firm, our New Jersey shareholder litigation lawyer may be able to advise and represent you.

Shareholder disputes can come up in connection with breach of contract, breach of fiduciary duty, failure to pay dividends, self-dealing, fraud, oppressive conduct by majority shareholders against minority shareholders, failure to disclose financial information, and termination of a shareholder’s employment. Most shareholder disputes tend to arise out of the claim that a shareholder’s rights have been violated.

In many cases, a corporation’s shareholder agreement will govern the shareholder dispute. Shareholder agreements allow owners to decide the terms of their ownership and how they stand in relation to one another. When an agreement exists, it should specify what those rights are and the shareholders’ responsibilities to one another. For instance, a properly drafted shareholder agreement will specify the compensation, responsibilities, and authority of directors and officers. It will also specify the percentage of the corporation owned by each shareholder and owner salaries when they work for the corporation. Strong shareholder agreements will also include the terms under which shareholders will share the profits and losses of the business. Often, shareholder agreements specify the procedures by which disputes will be resolved. A shareholder litigation attorney in New Jersey thus will need to review the terms of the agreement early in a dispute.

If no shareholder agreement is in place, a shareholder’s rights are covered by Title 14A of the New Jersey Business Corporation Act. For instance, under New Jersey law, any shareholder may obtain a copy of the corporation’s balance sheet for the prior fiscal year upon written request. They also have a qualified right to inspect corporate books and records. This is a right that a shareholder may wish to use if they are trying to investigate abuses before bringing a shareholder derivative action.

Shareholder disputes can be handled in the Law Division or the Chancery Division of the New Jersey Superior Court. The Law Division typically awards monetary judgments. When equitable relief is sought, such as corporate dissolution or a forced buyout, shareholder disputes should be litigated in the Chancery Division.

Shareholders owe a fiduciary duty to their fellow shareholders in a corporation. A fiduciary duty is a high duty of care that requires shareholders to interact with good faith, trust, confidence, and loyalty. For instance, a majority shareholder needs to give proper information about business decisions to minority shareholders and must not intentionally give inaccurate information. A shareholder who is a victim of a breach of fiduciary duty by another shareholder can sue with the assistance of a New Jersey shareholder litigation attorney.

Majority shareholders in a corporation sometimes prevent minority shareholders from engaging in decision-making processes or otherwise exercising their rights. N.J.S.A. 14A:12-7(1)(c) details the circumstances under which a minority shareholder can bring a shareholder oppression lawsuit. Circumstances that can give rise to a minority shareholder oppression lawsuit include when a director or others in control of the corporation behave fraudulently or illegally, mismanage the corporation, abuse their authority, or act oppressively or unfairly toward one or more minority shareholders in their capacities as shareholders, officers, employees, or directors.

Oppression can include frustrating a shareholder’s reasonable expectations, even when there was no fraud. The court will need to look at what a shareholder’s expectations were and whether these expectations were reasonable. If the court finds minority oppression, the court may order that the minority shareholders are entitled to have their stock purchased for its fair value.

Often, shareholder litigation is complex. It may require business valuation, forensic accounting, substantial discovery, and depositions. It is vital to hire a shareholder litigation lawyer in New Jersey who understands these complex situations. At the Grimes Law Firm, we represent clients throughout Somerset County and elsewhere in New Jersey and the tri-state area. Call us at (908) 371-1066 or contact us via our online form.