THE FIDUCIARY DUTY OF LOYALTY PROTECTS MINORITY SHAREHOLDERS IN NJ CORPORATIONS

By Fredrick P. Niemann, Esq., a NJ Corporate Attorney

 
New Jersey is home to numerous “Closely-Held” corporations, or corporations consisting of a small number of shareholders or owners. Many times, these corporations encompass family members or close friends who have gone into business together. While everyone would like to think that nothing could ever go wrong with their closely-held corporation, trouble does arise and shareholders do find themselves disagreeing with others on certain business decisions. The final call in these decisions ultimately is left up to the majority shareholder, since they own the most shares in the business.

It does not follow however, that majority shareholders may make decisions for their own benefit and at the expense of the minority shareholders. New Jersey law protects minority shareholders by requiring all majority shareholders to act with what is called the “Fiduciary Duty of Loyalty”. This is a legal duty, enforceable by the Courts, that requires all majority shareholders to act in the best interests of the corporation at all times. Obviously, minority shareholders are part of the corporation, meaning the majority shareholders owe this duty to them.

When a minority shareholder challenges the actions of the majority shareholder in Court, the NJ Courts will look to see if the business decision meets a test of objective fairness. If the Court considers the transaction or decision not to be objectively fair, they will find a breach of the Fiduciary Duty of Loyalty. Under this circumstance, the minority shareholders will be allowed to collect damages based on the majority shareholders breach. If it isn’t too late, Courts may even sometimes tell the majority shareholder that they are forbidden from completing the business decision or transaction that is in violation of the duty.

Just because you own a minority of the shares in a closely-held corporation does not mean that you have no rights. The majority shareholder is not allowed to violate the fiduciary duty of loyalty at your expense. NJ Courts wills always uphold this duty and afford minority shareholders protection in this manner. Please contact Fredrick P. Niemann, Esq., a qualified New Jersey Corporate Attorney today, toll-free at 855-376-5291 or email him at fniemann@hnlawfirm.com/ if you have any concerns related to Minority Shareholder rights or NJ Corporations. Mr. Niemann would be more than willing to discuss this matter with you. Please call today.

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