Minority Shareholder Rights When Faced With A Partnership Lock-Out and Shareholder Misappropriation
Options When you Are Faced With A Lock-Out, Freeze-Out and Minority Oppression
If you are a minority shareholder or partner (whether you own 50% of the business, less than 50% or you lack control over day-to-day operations) chances are that like many other New York and New Jersey shareholders, partners and business owners, you are faced with a serious dispute. That is, after months and even years of giving your partners and their actions the "benefit of the doubt", you are now faced with the realization that your trust was misplaced and that your partners are using your own business (the one you partially own) against you.. That is, the partner or partners that you have entrusted with your investment and, potentially, control over the day-to-day operations have violated your rights, are misappropriating business assets through unauthorized distributions and expenses, may be diverting business and are now in the process of using their management control to slowly "freeze you out" of the business and eventually "lock you out".
Consider that lock-outs and freeze-outs occur in many ways and in some instances they are obvious (i.e., where you are told to not come to the business, your salary is eliminated and distributions are withheld or never given) and in others they are gradual - slow freeze-outs - where your partners start questioning your actions, they reduce your responsibilities and make threats about the harm "you" are causing the business. In either case your partners are on a track to limit, diminish and, possibly, eliminate the value of your equity interests.
So How do You Respond and Protect Yourself?
Well, for minority or non-controlling shareholders and partners in New York and New Jersey, there are proven courses of action that you can take. These courses of action rely on the inherent legal "fiduciary duties and rights" that are owed to you and a "proactive" litigation strategy focused on commencing an emergency hearing to stop your partner's momentum and to "re-level" the negotiation playing field.
You must understand that the typical "negotiations" where lawyers send long letters demanding that, essentially, "…your partners stop what they are doing…" are, much more often than not, ineffective, viewed as a sign of weakness and lead to harmful delays based on the false promises of useless "sit down meetings". Sure your partners want to "sit down and negotiate" on their own terms since they are in control and using your investment, compensation and livelihood as leverage against you.
Consider that the vast majority of partnership cases and disputes "settle". But the key for you is when, on what terms and how do you "stabilize" your current position, rebalance the playing field and establish a position of strength that will force a certain and fair settlement.
A Proven Course of Action
Well there are proven courses of action and these actions do not involve senseless "sit down meetings" where you are left begging for what is yours. For Charles N. Internicola, Esq. - a New York and New Jersey litigator and author of the "Partnership Dispute Guide" the answer lies in a series of calculated steps involving:
- Review of your business, corporate structure and agreements (if any);
- Review of your partners actions;
- Properly noticed meetings and legal demands designed to document the impropriety of your partners actions;
- When appropriate, the commencement of a highly accelerated lawsuit involving an "emergency hearing" and requested injunctive relief to restrain the actions of your partners, reestablish your business access and rights.
If you are faced with a lock-out, gradual freeze-out or misappropriation of business assets, learn about how Mr. Internicola, Esq. assists shareholders and partners - contact Mr. Internicola's staff at (800) 976-4904 or (718) 979-8688 or by email. Also order a complimentary copy of Mr. Internicola's book "The New York and New Jersey Partnership Dispute Guide" and read Mr. Internicola's article: "Important Factors to Discuss with Your Lawyer when Faced with A Partnership Dispute" (click here to go to the article).