{"id":351,"date":"2009-09-09T00:00:00","date_gmt":"2009-09-09T00:00:00","guid":{"rendered":"https:\/\/norrismclaughlin.com\/sdnj\/2009\/09\/09\/excess-compensation-as-oppression\/"},"modified":"2009-09-09T00:00:00","modified_gmt":"2009-09-09T00:00:00","slug":"excess-compensation-as-oppression","status":"publish","type":"post","link":"https:\/\/norrismclaughlin.com\/sdnj\/what-constitutes-oppression\/excess-compensation-as-oppression\/","title":{"rendered":"Excess Compensation as Oppression"},"content":{"rendered":"<p>What are the rights of a minority shareholder in a closely-held business who is not directly involved in running the company and receives no benefit whatsoever for his shares \u2013 no salary, no dividend, no benefit of any kind?\u00a0 Of course, the answer depends on the specific facts of any particular case.\u00a0 However, if the company could afford to pay dividends but for the \u201cexcess compensation\u201d paid to the majority shareholders, New Jersey law may afford protection to the minority shareholder.<\/p>\n<p>Shareholders find themselves \u201con the outside looking in\u201d for a variety of reasons.\u00a0 The case of a shareholder-employee who was terminated was addressed in an <a title=\"Terminated Shareholder-Employee\" href=\"https:\/\/norrismclaughlin.com\/sdnj\/1907\" target=\"_blank\" rel=\"noopener\">article dated September 2, 2008<\/a>. \u00a0In addition to termination, the shareholder may have simply decided to change fields, or may never have been involved in management, or as an employee, in the first place.\u00a0 Such a situation is more prevalent in a family-run business, in which family members may inherit shares but assume no management role.<\/p>\n<p><!--more--><\/p>\n<p>No matter the circumstance, the majority shareholders do not have the right to award themselves \u201cexcess compensation,\u201d which is quite often the main reason for minority shareholders to receive no benefit for their shares.\u00a0 For example, in a recent case, the managing shareholders cut their salaries in a year in which sales decreased dramatically.\u00a0 However, in the following year, when only half the sales loss was made back up, salaries skyrocketed past where they were when the losses started.\u00a0 Of course, it is the passive minority shareholder who is most impacted by this \u201cexcess compensation,\u201d since it left nothing for him in the form of dividends.<\/p>\n<p>Under New Jersey law, which protects a minority shareholder against \u201coppression\u201d and \u201cmismanagement,\u201d there is ample support for the argument that such a circumstance is a violation of law, and that the majority shareholders should have paid a dividend to the minority, rather than sucking every penny out of the company in the form of salary and bonuses.<\/p>\n<p>Minority shareholders in such a situation sometimes are unaware that they have certain rights to see certain company books and records so that they can see for themselves the compensation being drawn by those in charge.\u00a0 Or, even if they vaguely know they have such a right, they do not know what to do when their requests for information are ignored.\u00a0 A letter from an attorney is often enough to compel compliance with the statutory requirement.\u00a0 If that does not work, court intervention may be necessary.\u00a0 However the records are obtained, majority shareholders who pay themselves far more than is standard in the industry, leaving nothing to be distributed to minority shareholders, may be required to buy out the minority shareholders for the \u201cfair value\u201d of his shares.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What are the rights of a minority shareholder in a closely-held business who is not directly involved in running the company and receives no benefit whatsoever for his shares \u2013 no salary, no dividend, no benefit of any kind?\u00a0 Of course, the answer depends on the specific facts of any particular case.\u00a0 However, if the [&hellip;]<\/p>\n","protected":false},"author":17,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"coauthors":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.1 (Yoast SEO v22.1) - 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