NShareholder Oppression New Jersey

New Jersey Legislature Creates Oppression Remedy Applicable to LLCs

The Revised Uniform Limited Liability Company Act (RULLCA), signed into law by Governor Christie on September 19, 2012, creates an oppression remedy for New Jersey limited liability companies.  Until now, New Jersey courts have held that the oppression remedy contained in the New Jersey Corporation Law, N.J. Stat. § 14A:12-7, did not extend to LLCs – because this remedy did not appear in the LLC Act.  See, e.g., Hopkins v. Duckett, 2012 N.J. Super. Unpub. LEXIS 93, at *33 (App. Div. Jan. 17, 2012).

The RULLCA added the following provision:

A limited liability company is dissolved, and its activities shall be wound up, . . . on application by a member, the entry by the Superior Court of an order dissolving the company on the grounds that the managers or those members in control of the company . . . have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant.

2012 Bill Text NJ A.B. 1543, Art. 7, par. 48(5)(b) (Dissolution and Winding Up).  This formulation is different from the one in the Corporation Law, which provides:

The Superior Court, in an action brought under this section, may appoint a custodian, appoint a provisional director, order a sale of the corporation’s stock as provided below, or enter a judgment dissolving the corporation, upon proof that[, in] the case of a corporation having 25 or less shareholders, 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 minority shareholders in their capacities as shareholders, directors, officers, or employees.