In New Jersey, What is Shareholder Oppression?

New Jersey’s General Corporations law provides a statutory remedy for oppressed shareholders in a closely held corporation.  N.J.S.A.  14A:12-7 that so long as a corporation has 25 or fewer shareholders, then any shareholder can bring an action in New Jersey Superior Court seeking dissolution of the corporation when “the directors or 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 shareholders in their capacities as shareholders, directors, officer or employees.”

Shareholder oppression is not the only circumstance under which such a lawsuit can be commenced, but the other bases for such a lawsuit are relatively straight forward.  Thus, the definition of “shareholder oppression” requires some explanation as that term is interpreted by the courts.

As defined by New Jersey’s courts, shareholder oppression means conduct which “frustrates a minority shareholder’s reasonable expectations.” Brenner v. Berkowitz, 134 N.J. at 506.   In determining whether a particular course of conduct has oppressed a minority shareholder, courts will examine the understanding of the parties concerning their roles in corporate affairs. Muellenberg v. Bikon Corporation, 143 N.J. 168, 178-9 (1996).   When reviewing an oppression claim, the courts will consider even non-monetary expectations of the shareholder when determining whether a shareholder’s expectations are reasonable and whether the corporation or controlling shareholders or directors unreasonably thwarted them.  One of the most common expectations of a shareholder in a closely held corporation is continuing employment by the corporation and the termination of a shareholder’s position as an employee frequently leads to shareholder oppression litigation.