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Selling your share in a closely held business? What to know, Part II.

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Selling your share in a closely held business? What to know, Part II.

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PART II – LITIGATION UNDER NEW JERSEY’S SHAREHOLDER STATUTE

In a public company, as discussed in Part I, a shareholder can quickly find a buyer for his or her shares at a price already set by the stock market. However, in small companies, there is no such marketplace. One result is that a partner in small companies may find him or herself in an acrimonious, or otherwise adverse, relationship with their business partners and desire to leave the company. In a public company these partners, or shareholders, can simply sell their interest at fair market value and walk away. Small business partners, however, do not have the luxury of simply selling and walking. Namely, they must reach an internal agreement with their partner(s), which requires each party to balance concerns such as, how to successfully separate, keep the business intact, and value company shares.

Where a business contract does not offer a solution to a disagreement, or other issue, litigation through New Jersey’s Shareholder Statute may be the only option available to an aggrieved shareholder. The State of New Jersey recognizes the unique obstacles faced by closely held businesses and, in part, enacted N.J.S.A. 14A:12-7 (“Shareholder Statute”) in response. The Shareholder Statute provides at least four avenues of recourse for an aggrieved shareholder in a closely held business. Specifically, the Shareholder Statute provides:

(1) The Superior Court, in an action brought under this section, [1] may appoint a custodian, [2] appoint a provisional director, [3] order a sale of the corporation’s stock as provided below, [4] or enter a judgment dissolving the corporation, upon proof that

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(c) In the case of a corporation having 25 or less shareholders, the directors or those in control have acted fraudulently or illegally, mismanaged the corporation, or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more minority shareholders in their capacities as shareholders, directors, officers, or employees.

N.J.S.A. 14A:12-7.

Each of the above are statutorily provided avenues to help an aggrieved shareholder in a closely held corporation. However, each provided avenue is not perfect and must be specifically tailored to each corporation and shareholder’s unique situation.

When faced with a partnership dispute likely to lead to litigation, it is important to consult with an attorney specifically trained in shareholder litigation. These attorneys can offer counsel on where to file the shareholder action, the type of legal filing, under what statute and subsection to seek relief, and the type of relief a shareholder should seek. New Jersey state law and its associated legal precedents offer strong protections to aggrieved shareholders. Rubenstein, Meyerson, Fox, Mancinelli, Conte & Bern, P.A. offers a team of lawyers specifically trained to counsel individuals and corporations in shareholder matters.

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