LLC Minority Shareholders Have Rights against Oppression

By Fredrick P. Niemann, Esq., a New Jersey LLC Attorney

LLCs often involve a small number of shareholders who comprise ownership of the business. Business direction and decisions are typically dictated by those who are majority members, those owning more than 50% of the certificates (commonly misidentified as “share”), since they own the biggest piece of the company. This leaves those owning less than 50% of the certificates, known as minority members, as part-owners of businesses which they sometimes have little to contribute. This can present an unfortunate situation for those minority members, an LLC who are unhappy with company decisions being made, but who are unable to sell their interests in the company. Luckily, New Jersey law offers protection to minority members of an LLC, mainly the right against “oppression”.

Oppression is defined as an act directed at a minority member that personally frustrates their reasonable expectations of the role they play in the management, operation, and other general affairs of the company. Simply put, an oppressed minority member is one who does not get along with majority members, but is stuck owning shares in the company based on the majority’s refusal to buy them out. New Jersey statutes prohibit this type of behavior by the majority members. The law states that company’s and majority members may not act in a way that is detrimental to the interests of minority members.

Proving you are an oppressed minority member and entitled to relief from New Jersey Courts involves a two-step process. First, you must show misconduct committed by the company or majority members that is considered oppression. Courts will evaluate the misconduct in each case on an individual basis. Second, you must show that as a minority member, your interests or reasonable expectations in the company were harmed by the misconduct. Without proving a connection between the oppressive acts and the harm you suffered, you will unable to win an oppression case against your company and/or its majority members. It is also important to keep in mind that the harm you suffer can be a monetary interest, but does not have to be. Non-monetary interests such as being consistently silenced in all business decisions can be considered harm in certain situations. Remember, every situation is unique and the New Jersey Courts will consider each on a case-by-case basis.

If you are a minority member in a New Jersey LLC and believe your interests are being oppressed, call Fredrick P. Niemann, Esq., an experienced NJ LLC Attorney today. He welcomes the opportunity to speak with you about your situation and answer any questions you may have. Mr. Niemann can be reached toll-free at 855-376-5291 or by email at fniemann@hnlawfirm.com/. He hopes to hear from you shortly.

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