The New Jersey Shareholder Oppression Statute, N.J.S.A. § 14A:12-7, provides that when those in control of a corporation having 25 or fewer shareholders “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 minority shareholders in their capacities as shareholders, directors, officers, or employees,” the Court can impose a wide variety of equitable remedies, including ordering a buy-out at “fair value.” (emphasis supplied).
The buyout that the Court can order does not necessarily have to be of the minority shareholders’ interest. It can order a buyout of the majority’s interest. The purchaser can be the corporation or the other shareholders.
What is Oppressive Conduct?
Oppressive conduct is defined in New Jersey as conduct that frustrates the “reasonable expectations” of the minority as of when they joined the enterprise.
In Brenner v. Berkovitz (1993), the New Jersey Supreme Court stated that the special circumstances, arrangements and personal relationships that frequently underlie the formation of close corporations generate certain expectations among the shareholders concerning their respective roles in corporate affairs, including management and earnings. A court, then, must determine initially the understanding of the parties in this regard. Generally, the court noted that any increase in benefits to the majority shareholders without corresponding benefit to minority may provide a claim of oppression.