Blogs > Business Divorce in NJ

Fifty Percent Shareholders Have Rights Too

When a minority shareholder has a dispute with his or her business partner, the aggrieved shareholder often intuitively knows that there must be some legal protection for someone in his situation.  He may not know the details – that there is a specific statute that provides protection for someone in just his position – but common sense may lead him to at least suspect that a competent lawyer might be able to obtain some relief for him.

The case of two 50% shareholders is a different animal altogether, at least with respect to a business owner’s expectations.  Often a shareholder who owns half the company has far less than half the power, simply as a result of the way the company has historically operated.  However, fifty percent shareholders often believe they have fewer rights and remedies than do minority shareholders because of the assumption that the law would not favor them over a co-equal shareholder.  That assumption is often incorrect.

There is ample case law in New Jersey holding that, under the right circumstances, a 50% shareholder may be considered an “oppressed minority shareholder” under New Jersey law, and that such a person may be entitled to the same rights and remedies as a 10% shareholder (for example) who is being mistreated by the majority.

A circumstance in which this frequently occurs is that of a “passive” shareholder who has no real involvement in business operations.  It happens equally often where one 50% shareholder has sole access to the money and makes the financial decisions that impact upon the company.  A 50% shareholder who is “frozen out” of the company’s finances may be treated as a minority shareholder and be able to force a buy-out, or obtain any of the other equitable remedies designed to protect minority shareholders.

The crucial point to remember is that the goal of the statute is to provide protection to shareholders who are not in a position to protect themselves, regardless of their ownership status.  If a shareholder is taking advantage of his position by denying his (on paper) “co-equal” business partner money, control, or even just information, the law may protect even a 50% owner.