Notice of Special Shareholder Meeting: A Sign of a Partnership Dispute
Special Shareholder Meetings and Partnership Disputes
"Special shareholder meetings" (or partnership meetings or member meetings) frequently come about in response to a shareholder or partnership dispute. That is, the "special meetings" is typically noticed by one group of shareholders against another and the topic to be voted on at "special meeting", typically, relates to locking-out a shareholder or significantly undermining his or her rights as an officer and employee of the company.
- The Dispute. A partnership dispute occurs or is about to occur and one shareholder or group of shareholders is/are looking to reduce the access and rights of another shareholder.
- Use of Control. The shareholders who are looking to call the "special meeting" have reviewed corporate by-laws and/or agreements and they believe that their voting control or some shareholder agreement provision permits them to call a special meeting and, at such meeting, terminate or, at least, reduce the role and responsibilities of the non-controlling shareholder.
- Notice of the Meeting. The controlling shareholder(s) - typically with the advice of a lawyer - serve the non-controlling shareholder wherein they advise that a shareholder meeting will be held on a particular date and that at such meeting a vote will be held as to certain proposed actions.
What Happens Next?
Well, what happens next depends on the position that you are in. Are you the controlling shareholder serving the notice or are you the shareholder receiving the notice? Either way, you need to understand that these "special meetings" are a common tactic and an extremely common precursor to a larger dispute.
- If your Are the Shareholder Receiving the Notice. Then your next step must be to review the notice with an experienced shareholder dispute lawyer. Your lawyer will review the notice, review your corporate documents and then evaluate the propriety of the notice. Very often we will challenge the propriety of the notice and, in many instances, will file an emergency lawsuit preventing the meeting from occurring and to prevent a lock-out.
- If Your are The Shareholder Sending the Notice. Then you need to proceed with caution and ensure that you have followed the correct steps. Far too often, controlling shareholders - even with the advice of legal counsel - fail to follow the appropriate steps and procedure and "prematurely" serve notices of a special meeting. Also, you need to understand that this is a common and obvious tactic that precedes a lock-out. Typically, more planning and steps are involved before you take this action.
To learn more about issues of shareholder governance and the role of "special shareholder meetings", order a complimentary copy of "The New York and New Jersey Partnership Dispute Guide".