Tag: Shareholder Oppression

The Minority Oppression statute sets forth four remedies which a Court “may” order to remedy oppressive conduct. The Minority Oppression Statute provides that a Court may appoint a custodian, appoint a provisional director, order the sale of the corporation’s stock (per the statute) or enter a judgment dissolving the corporation.

The New Jersey Revised Uniform Limited Liability Company Act gives Courts discretion to remedy oppressive conduct. If a court determines that a member or controlling member has, is or will act illegally, fraudulently, harmfully or oppressively towards a member, a Court may: (1) appoint a custodian or provisional manager; (2) order the sale of a member’s LLC interest to the LLC or the members (N.J.S.A. 42:2C-48(b)); (3) dissolve the company; and (4) award legal fees and other expenses if a party acted vexatiously or otherwise not in good faith (N.J.S.A. 42:2C-48(c)).

Currently, the New Jersey Limited Liability Company Act allows LLCs to “carry on any lawful business, purpose or activity.” N.J.S.A. 42:2B-8. Sadly, the current law does not allow an LLC to be used for “non-profit” use such as a charity or placing a family vacation home into an LLC.

New Jersey first promulgated Limited Liability Company (“LLC”) laws in 1993. The New Jersey Company Act, N.J.S.A. 42:2B-1, et. seq., provided that LLCs were of a limited duration. In other words, they automatically ended after a defined period of time that was set forth by the operating agreement or by the statute (if there was no operating agreement).

As I have repeatedly stated in previous blog posts, the Limited Liability Company’s (“LLC”) Operating Agreement is the first place to look for the “deal” amongst the members. LLCs are generally governed by contract. The contract that controls under most circumstances is the Operating Agreement.

The New Jersey Revised Uniform Limited Liability Company Act specifies that members and managers are subject to the contractual obligation of “good faith and fair dealing” when discharging their duties and exercising their rights.

In previous blog articles, I wrote that it was unclear whether or not the minority oppression statute, N.J.S.A 14A:12-7(c), applied to oppressed members of a limited liability company (“LLC”). Some argued it did not apply because the legislature did not incorporate similar protections afforded to the oppressed in the current governing limited liability statute.

Generally, an “Operating Agreement” is an agreement amongst the members of a limited liability company (“LLC”). It sets forth the Member’s rights and duties. New Jersey’s Revised Uniform Limited Liability Act recognizes the members’ rights to freely contract amongst themselves with one exception: the operating agreement cannot contain terms and conditions that are “manifestly unreasonable.”

All New Jersey Limited Liability Companies formed after March 18, 2013, will be immediately governed by New Jersey’s Revised Uniform Liability Company Act. Members of New Jersey Limited Liability Companies formed before March 18, 2013, may elect to be governed by the Revised Uniform Limited Liability Company Act.