LLC Members Have Equal Rights as Corporate Shareholders When It Comes To Minority Owner Oppression
Many times a law is enacted, but a judge or appellate court makes a decision that casts the interpretation of that law into chaos. (Of course, none of the judges I regularly appear before would ever do this.) Almost one year ago, the New Jersey LLC Act was amended to give LLC members the minority owner oppression remedies historically applied to shareholders of a corporation. Happily, one year later, the amendment is working exactly as the legislature planned.
What that means for owners of a New Jersey LLC is that they now have the same protections against majority oppression that owners of a corporation have historically enjoyed. If a majority owner commits fraud; pays himself way too much; uses the company as a personal piggy bank to subsidize personal expenses; fires a member who had an expectation of continued employment; freezes the minority owner out of the company; or does any of the other things that have been held to constitute oppression in the shareholder context, the same remedies now apply to LLC members. As readers of this site know by now, the most common and sought-after remedy, a fair value buyout, now is a statutory right of LLC members when oppression can be shown.
This may not seem like news, because it is exactly what the statute says is supposed to happen. However, practitioners in this area were at least mildly concerned that courts may not apply the amended law to existing disputes. Or that a court may decide that there was something particular about employment by a corporation, as opposed to an LLC, that warranted protection. Worse decisions have been made. However, with no such decision thus far, it appears that the transition to equal protection for LLC members has been a smooth one.
There have been many articles written on this site detailing what, exactly, may constitute oppression. Frankly, it never made much sense to, in effect, punish minority members of an LLC by not affording them the same protections that corporate shareholders enjoyed. But those days appear to be over. Now, in New Jersey, if you are having a dispute with your co-owner and feel you are being oppressed and taken advantage of, your rights are not dependent upon what business form some lawyer or accountant decided to use years ago when forming the company. If you feel your rights are being violated, you should seek the guidance of a business owner rights attorney, no matter what business form you utilize.
If you have any questions about this post, or other related matter, please email me at firstname.lastname@example.org.