Shareholder Dispute NJ

Archive for October, 2010

Representing closely-held businesses with multiple owners presents numerous challenges to the accounting professional.  When representing their small-to-medium-sized business clients, most accountants today rarely limit their services to accounting and inevitably wind up delving into business advice.  When acting as a business advisor, there are certain matters relating to business entities that every accounting professional must keep in mind.

Accountants are often asked whether their newly created client should incorporate, form an LLC, or create a partnership.  There are many more issues than tax implications that go into making this determination, including what rights minority investors expect to have, or, conversely, what limitations on minority rights the majority owners expect to be in place.

This seminar will discuss various issues relating to different types of business entities, including:

• Different rights that minority owners have under different types of business forms, including corporations, LLCs, and partnerships
• How to avoid unintended consequences of choosing a particular type of business entity
• How an accountant should handle competing interests among the various owners, including how to avoid inevitable conflicts involving such entities
• Long-range planning issues an accountant should consider when assisting the owners in setting up various business entities
• What may constitute shareholder oppression, and how to avoid being blamed for participating in such actions
• The accountant’s duty, if any, when he or she becomes aware of improper transactions that may harm minority owners
• Remedies available to minority owners in the various business entities who successfully litigate such a claim, including a forced buy-out
• Valuation issues and clauses in formation documents that relate to how and in what circumstances an owner’s interest is valued in case of a forced buy-out

The seminar will be presented by David C. Roberts, Esq., Member of Norris McLaughlin & Marcus and Edward Kurowicki, MBA, CPA/CFF, CVA, of Bedard, Kurowicki & Co., CPA’s, PC.

The seminar will take place on Wednesday, October 27, 2010 at the Bridgewater office of Norris McLaughlin & Marcus.  Registration begins at 8:30 am and the program starts at 9:00 am and goes till 10:00 am followed by a 30 minute question and answer session. 

We are offering this seminar free of charge.  However, space is limited.

CPE Credits are available.

To register email your contact information to, Cassie Howlett at chowlett@nmmlaw.com.

Majority shareholders often will not be so bold as to fire a fellow shareholder from his job during a business partner dispute, and they cannot simply take away a minority shareholder’s stock interest.  Instead, the Freeze-Out, or Squeeze-Out, can become the weapon of choice.

A Freeze-Out can occur in many different forms.  A minority shareholder who used to be involved in crucial decisions suddenly finds that his opinion is no longer sought after.  Financial information that used to be routinely provided is withheld.  The accountant no longer returns your call, obviously instructed not to speak with you.

Everyone knows that closely-held businesses are almost always run informally, and written agreements are often sorely lacking.  Many companies have long-standing informal, unwritten agreements, like the mid-sized company in which the shareholders historically agreed that they would all take the same pay raise.  When the majority shareholders started to ignore this informal agreement, and decided that they alone deserved huge raises and bonuses, the minority shareholder felt frozen-out and could see the handwriting on the wall.

One of the most prevalent methods of freezing someone out of a company is changing an employee-shareholder’s job responsibilities.  Rather than outright fire a shareholder from his job as head of sales, for example, the employee-shareholder now finds himself the office or plant manager, no longer eligible for the sales commissions on which he and his family depend.  The common denominator among all these situations is a shareholder who can’t shake the feeling that he is now on the outside of his own company, looking in.

While all of these examples may constitute a Freeze-Out, and may be shareholder oppression under New Jersey law, any one of these alone may not be actionable.  Majority shareholders are allowed to change an employee’s role or decide to change a company’s direction.  Not all prior informal agreements have to be honored, regardless of changed circumstances.  The totality of the circumstances must be taken into account at all times.  The key is to seek the advice of an attorney who handles business partner disputes, and is familiar with the law in this area and who has the experience to differentiate between wrongful action and legitimate, protected business decisions.