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Corporations Dealing With A Tyrannical Minority Shareholder

While minority shareholders have considerable rights under New Jersey law, including the right to be free from oppression, this does not mean that majority shareholders may be bullied by minority shareholders who consistently oversteps their bounds.

Business owners may recognize the minority shareholder who (1) knows little about the business, yet insists he knows more than those who actually do the work and have the expertise; (2) attempts to dictate the way the business is run; or (3) demands to see every scrap of paper generated by the business operation.

Of course, minority shareholders should not be kept completely in the dark, and should not be treated unfairly.  However, minority shareholders’ rights clearly have limits, which will largely be dictated by the circumstances of each case.

For example, someone who has historically worked in the business and had unlimited access to financial information is likely to have a greater expectation of being informed than one who has always been a passive investor.  This does not mean that the involved shareholder may dictate the direction of the business (or that the passive investor has no rights to see any financial documents).

Of course, majority shareholders must be wary of co-owners who are attempting to “bait” them into an oppression claim by, for example, asking for documents they really do not need or want to see, hoping to elicit a rejection. Since there is a fine line between what rights you must afford a minority shareholder and a perceived mistreatment of that shareholder, it is best for a corporation to seek legal guidance in determining how to handle a tyrannical minority shareholder.  Mishandling this issue at the outset can – and often does – lead to costly litigation.