Author: sunger

A common theme through out previous blog posts is the basic concept that majority shareholders, officers and directors are fiduciaries. As a result of that position they owe to the corporation itself along to the other shareholders duties of care, loyalty and good faith. One area which often results in minority oppression and breach of fiduciary duty claims is when an officer, director or majority shareholder personally takes advantage of a business opportunity to the detriment of the corporation and its shareholders.

Often majority shareholders will enter into various kinds of unfavorable contracts between the closely held company and themself or a business owned by them in order to siphon off corporate earning or assets. Generally, directors and majority shareholders are fiduciaries and owe to the minority shareholders along to the corporation itself certain duties of care, loyalty and good faith. Majority shareholders must place the interests of the corporation and its shareholders above their own. Moreover, the majority shareholder or directors must act to further the best interest of the corporation and may not utilize their powers to further a personal interest.

Many times a majority shareholder seeking to squeeze-out a minority shareholder will deliberately withhold information relating to the closely held corporation. Withholding information is usually coupled with another form of oppression. The reason for the same is by leaving the minority shareholder in the dark about the status of the corporations and the actions of its officers and directors the minority shareholder will be unaware of the other forms of oppression

Another form of minority oppression involves the majority shareholders awarding excessive compensation to themselves and/or members of their family. This often occurs to the detriment to the minority shareholder and the corporation itself. Examples of excessive compensation have been found in the form of bonuses, salaries, pensions, profit sharing plans, and overly generous expense accounts and perks.

The termination of a minority shareholder’s employment; the reduction of their salary; and/or the termination of their spouses’ and/or children’s employment frequently have devastating consequences. It is common that the terminated minority shareholder’s only source of income was the closely-held business in which they hold an ownership interest. Without their salary, the minority’s interest is, at least temporarily, worthless.

The majority’s decision to withhold the distribution of dividends is simply to apply and exhort great financial pressure on the minority. The majority’s use of this simple squeeze-out technique is often used to try and buy the minority’s interest in the corporation for a below-market price. It is most effective and potentially devastating in cases where the minority is highly dependent upon receiving their income from dividends.

The purpose of this blog entry is to provide a brief list of the squeeze-out techniques often used by majority shareholders in their effort to oppress minority shareholders. The list which follows is merely illustrates of some of the techniques I often encounter with regard to my representation of oppressed minority shareholders. Of course, this list is not exclusive.

A minority shareholder can suffer catastrophic damages in a squeeze-out or oppressive situation. In such a dilemma, the minority shareholder may be deprived of any effective voice in the making of business decisions. Moreover, they could be locked out of the company’s premises, lose their job and be denied access to important information. Without the aid of competent counsel the oppressed minority shareholder could find that their investment in the enterprise is at least temporarily worthless.

The Honorable Gerald C. Escala of the Superior Court of New Jersey, Chancery Division, Bergan County issued an interesting decision which provides additional guidance on the legal issue of minority oppression along with the calculation of “fair value” of the minority owners stock. In Venturini v. Steve’s Steak House, 2006 WL 445059, two nephews who collectively owned fifty percent of Steve’s Steak House filed a complaint against their aunt, Marie Damiani (“aunt” or “Marie”) alleging that they were oppressed minority shareholders.