Local Law Blogs

Minority Oppression: Conflicts of Interest

By Scott I. Unger

The New Jersey minority oppression statute provides redress when '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(c). Hence, a majority shareholder's conflict of interest which negatively affects the minority shareholder's rights could constitute unlawful minority oppression.

Sometimes the majority shareholder will drain corporate profits by having other companies perform services for the corporation under unfair contracts. For example, in my last minority oppression trial, my client alleged that his company was renting extremely valuable and sought after commercial real estate to another company owed by the majority shareholders at below market rents. In that case, it was alleged that the majority shareholders voted in favor of a lower rent which benefitted their interests in the other company to the detriment of my client and his company. In other words, it was the alleged conflict of interest that constituted mismanagement or unfairness which brought it within the purview of the minority oppression statute.
 

Full post as published by New Jersey Law Blog on October 18, 2010 (boomark / email).