Minority shareholders in a closely-held corporation may (should) try to protect themselves against the actions of the majority by including protective provisions in their shareholder agreement, and in the beginning.
- guarantying that some or all of the shareholders will be directors and/or officers of the corporation;
- providing employment with specified salaries and benefits;
- detailing how shareholders will vote on specific matters;
- requiring that dividends must be paid according to a formula;
- granting to one or more of the shareholders a veto right on board decisions or board decisions dealing with limited but very specific matters; and
- setting out how disputes should be resolved (e.g., arbitration, provisional directors in case of deadlock, or winding up under certain conditions or votes).
While these protective provisions in the shareholder agreement are very useful to prevent certain oppressive behaviors, not all acts of oppression will be suppressed. Also, the above described protective provisions can only be enforced if they are discussed in a written shareholder agreement. They also all depend upon the very unlikely situation in which a minority shareholder has both the foresight and bargaining power to obtain these concessions in a shareholder agreement.
To discuss your NJ shareholder matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Shareholder Attorney