No matter how many times I write about disputes between business partners, and how many times clients tell me their horror stories, I remain amazed by the ease with which some major business divorces could have been avoided. Most of the time, when a shareholder dispute could have been averted, it is because one of the parties just needed to listen to the other. As with many things, this is especially true with family-owned businesses.
Clients use the terms “frozen out” or “squeezed out” repeatedly, since that is what they read in articles about shareholder oppression. Many times this is exactly what is happening. But just as frequently, what they really mean is “my brother is running the front office, and he just does whatever he wants without getting any input from me, and I’m not putting up with it anymore.” So, business divorce litigation ensues, and the parties spend a quarter million dollars collectively fighting each other. But what if the one who ran the front office had simply listened to his brother’s thoughts and suggestions? They might not have been implemented, but maybe not every thought the minority shareholder had was horrible, and perhaps some could have been at least partially put in place? More often than not, couldn’t something be done to ensure the minority shareholder that his thoughts were worth listening to?
When advising the majority shareholder who does not want to hear “useless suggestions,” I remind them that refusing to do so comes at a price. You can ignore any shareholder that you want, but you will inevitably wind up with a disgruntled shareholder on your hands. Since New Jersey has a very powerful statute protecting minority shareholders from wrongdoing, and wrongdoing is often not terribly difficult to find, creating a dissatisfied minority shareholder (or LLC member) is not a wise move if it can be avoided. The cost of ignoring minority shareholders can escalate exponentially once shareholder dispute litigation is filed.
To a certain extent, this blog may sound more like a Dear Abby advice column than a blog on legal issues. But if the psychological underpinnings of a shareholder dispute can be understood, perhaps the escalation can be avoided. Be sure any attorney you retain in a business divorce understands much more than the law, which any attorney can read. Be sure he or she understands people, what motivates them, and how to effectively avoid and resolve significant disputes between warring factions.
If you have any questions about this post or any other related matters, please contact me at dcroberts@norris-law.com.