Shareholder Disputes

Shareholder disputes are common even when there is a carefully drafted shareholder agreement in place. However, these disputes can become expensive and disruptive. They can affect a corporation’s reputation. These disputes may become more common when a company expands, and disagreements begin to arise about changes in how to manage funds or ownership. Certain conflicts may be unavoidable. However, others may arise because of miscommunications, and some may be settled by referring to the provisions of a shareholder agreement. Bergen County shareholder litigation lawyer Howard Leopold can help you resolve a shareholder dispute.

A corporation’s shareholder agreement enumerates a shareholder’s rights. If there is no shareholder agreement, a shareholder’s rights are covered by Title 14A. A shareholder agreement allows shareholders to have greater control over their rights and obligations.

Many kinds of shareholder disputes may develop during the life of a business. Disputes can arise in connection with issues such as violations of the covenant of good faith and fair dealing, wrongful sales of shares when shareholders have a right of first refusal, wrongful failures to buy out an existing shareholder, wrongful acquisitions of shares, and failures to pay dividends.

A dispute also can arise out of a shareholder’s breach of a fiduciary duty. Minority shareholders are owed fiduciary duties by majority shareholders. This is a very stringent duty of utmost loyalty and good faith in all company transactions. A majority shareholder in a close corporation owes a fiduciary duty to minority shareholders and needs to perform with the utmost loyalty and good faith in their transactions for the company. When a shareholder has a dominant position as a majority shareholder and uses it to violate a minority shareholder’s rights, the minority shareholder should retain a shareholder litigation attorney in Bergen County to pursue a remedy.

Shareholder oppression may occur when a majority shareholder's actions defeat the reasonable expectations of minority shareholders. The frustrated expectations could involve stock value or continued employment. Other oppressive shareholder actions might involve mismanagement of the corporation, using corporate funds to pay personal expenses, or failing to pay dividends to minority shareholders when the company can do so.

N.J.S.A. 14A:12-7(c) allows a shareholder in a corporation with a maximum of 25 shareholders to bring a lawsuit to dissolve the business when a director or another person has abused their authority, committed fraud or other illegal acts, mishandled the company, or otherwise behaved oppressively toward at least one shareholder in their shareholder capacity. A court will determine whether you are a minority shareholder who is permitted to bring a shareholder oppression lawsuit by looking at which party has control over the affairs of the corporation, rather than who owns the greatest number of shares. A minority shareholder who wishes to sue should discuss their options with a Bergen County shareholder litigation attorney. As a preliminary step, you can exercise your right to access corporate records to decide whether there has been waste or mismanagement.

The defenses available depend on the facts at issue. For example, if fraudulent corporate acts are at issue, it may be possible to argue that the minority shareholder agreed to them. Likewise, the remedy will be dictated by the particular facts. If the court determines that there was shareholder oppression, it might order the sale of corporate stock, or it might dissolve the corporation. There are situations in which the remedy might be that a majority shareholder must buy out a minority shareholder.

Often, shareholder conflicts and the litigation arising out of them become expensive. At Leopold Law, LLC, we handle shareholder disputes in New Jersey with the utmost care and attention. With more than 30 years’ experience handling a range of legal matters, our firm understands the kinds of disputes that arise between shareholders and the strategies that may work to resolve them. Call us at 201-345-5907 or complete our online form to set up a consultation with a shareholder litigation lawyer in the Bergen County area. Mr. Leopold represents clients throughout Northern New Jersey, including in Bergen, Passaic, Hudson, and Essex Counties. He is available for daytime, evening, and even weekend appointments for client convenience.