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The information and advice that I am about to give is derived from fighting (in litigation, of course) to protect the interests of minority shareholders and non-controlling shareholders who, after years of hard work and financial investment, find themselves locked-out and on the “outside” of their own business. Much more often than not, these individuals are left either unprotected by a poorly drafted shareholders agreement or, worse, with no agreement at all.
So, if you could go back in time or, better yet, assuming that you have not made your investment yet – if you are going to be a minority shareholder (i.e., you control less than 50 percent of the voting shares) – what provisions should you consider and put in place to protect yourself?
“The Parties expressly acknowledge and agree that it is our intention that as long as each party remains a shareholder that each party shall also serve as an officer and director who participates in the day-to-day management and absent a showing of fraud or harm caused to the corporation that courts are advised that a shareholder that is locked out will suffer irreparable harm (as will the corporation as its management structure will have been violated) and that an injunction, temporary restraining order and preliminary injunction should be granted to the locked-out shareholder”.
There are other points, but these four are big for minority shareholders who are faced with a lock-out or oppression from the majority. Addressing these four points will take you a long way toward better securing your rights.
Learn more: Order a complimentary copy of Charles N. Internicola’s book “The New York and New Jersey Partnership Dispute Guide”.
Category: Partnership Disputes
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