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Shareholder Disputes: The Tactical Role of "Dissolution" When Faced with a Serious Shareholder/Partner Dispute

The Tactical Role of Dissolution in Shareholder Disputes

When faced with a "serious dispute" and conflict with your partners/shareholders - that is a dispute that jeopardizes the continued profitability of your business and livelihood - shareholders and partners of small closely held New York corporations must consider their rights under the New York Business Corporation Law. In particular you must evaluate your ability to (commence an emergency proceeding commenced by the filing of an "Order to Show Cause") respecting injunctive relief and the dissolution of your business.

Factors to consider include:

  • The Necessity of Preserving Your Livelihood. The majority of New York and New Jersey "corporations" are comprised of small closely held businesses with two to six shareholders. For these small businesses chances are that your livelihood is tied to the continued existence of your business. If you are faced with a dispute with your partners/shareholders you may face the threat and/or realistic possibility that your partner is misappropriating and diverting assets (including clients) of your business or his or her personal benefit. If this is a situation that you face, it is critical that you take immediate measures to "secure" the assets of your business and prevent the diversion of assets. One critical tool available to you relates to the dissolution rights afforded to you under New York Business Corporation Law.
  • Emergency Dissolution Proceeding. When faced with actual or threatened improprieties by your partner(s) (i.e., the establishment of a competing business or the diversion of corporate assets) it is critical to consider the substantive and strategic benefits afforded under New York Business Corporation Law Section 1106. Section 1106 affords aggrieved shareholders the right to an "emergency judicial dissolution proceeding" commenced by the filing of an "order to show cause". The benefits of commencing Section 1106 proceeding relates to the emergency nature of the procedures, and immediate hearing before a court wherein an aggrieved shareholder/partner should seek some of the following interim relief:
    1. Temporary restraining order prevention your partner(s)/shareholder(s) from establishing a competing business;
    2. Temporary restraining order preventing your partner(s)/shareholder(s) from diverting customers and assets of your business;
    3. Order directing an accounting of all funds and assets of your business; and
    4. Ordering the "orderly" dissolution of your business and its assets. There are additional "fact specific" remedies that should be considered and discussed with your business attorney. Although "dissolution" is a drastic remedy, this right and the advantages of commencing on emergency hearing under BCL Section 1106 represents a critical tool for an aggrieved shareholder/partner to recapture control over your own business.

To learn more about the potential dissolution of your corporation and the strategic benefits that dissolution may afford you when faced with a Shareholder Dispute, contact The Internicola Law Firm, P.C. at (800) 976-4904 or (718) 979-8688.

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