Ask the Lawyer

Business Law

Posted

Q: I am a shareholder in a corporation and I have been frozen out of management, what rights do I have?

A: The first step is to look and see what agreements there are. If you have a shareholders’ agreement, then does it promise employment? Does it promise a role in management? You do not need to have a shareholders agreement, and if you do not have one, then the questions to ask are:

How much stock do I own?

Has my role in the corporation changed?

What payments am I getting from the Corporation?

How much money are the other shareholders taking out, and is that more than me?

Are the others taking steps to force you out?

As a shareholder, you have a right to the “reasonable expectations of your investment” in the corporation. That means that you have the right to return on your investment. A court will look at whether there is a history of dividends, or whether the shareholders are all just getting paid salaries. If you are a shareholder who does not work at the company, and you are not being paid dividends (and you are receiving no salary), a court may consider this “oppression.” Whether there is oppressive behavior or not, is a question for the court to decide.

If you have no contract right to employment, then being fired may or may not be evidence of oppression. In New York, if you own 20% of the stock of a privately held company (or collectively own 20% with one or more other shareholders), you can bring a suit that seeks to dissolve the corporation. This right is found in section 1104-a of the Business Corporation Law.

Erica B. Garay is the Chair of the Alternative Dispute Resolution practice group and a member of the firm’s Litigation practice. She is also an arbitrator and mediator and serves on the American Arbitration Association roster of neutrals for commercial and complex litigation.

For the past fifty years, the law firm of Meyer, Suozzi, English & Klein, P.C. has created a reputation for integrity, insight and intellect that has helped establish the standard for excellence in the practice of law. With offices in Albany, Garden City, Manhattan and Washington, D.C., the firm provides legal advice in the areas of Alternative Dispute Resolution, Bankruptcy, Corporate Finance, Corporate, Criminal Defense, Disability Insurance Claims, Employee Benefits, Employment Law, Government Relations, Labor Law, Litigation, Real Estate, Tax Certiorari & Condemnation, Trusts, Wills and Estates. “Ask the Lawyer” is provided by Meyer, Suozzi, English & Klein, P.C. to inform on matters of public interest. The information contained herein is not to be construed as legal advice or opinion. We provide such advice or opinion only after being engaged to do so with respect to particular facts and circumstances.