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Buyouts of Shareholders or LLC Members Alleging Minority Oppression

At the startup of a business, co-owners envision working together productively and profitably. But co-owners frequently encounter a serious impasse over business operations or corporate governance. When disputes arise that prevent the co-owners from doing business together any longer, one of more of them may need to exit the company through a buyout. This often occurs when minority shareholders claim oppression by the majority’s actions.

For companies organized as corporations, the Illinois Business Corporation Act (BCA) lets shareholders pursue legal action against each other based on allegations of fraud, illegal activity, corporate waste or other disruptive conduct. The BCA lists 12 types of relief the court may order as an alternative to dissolving the company. One common remedy is a buyout, in which an exiting owner’s shares are purchased by the remaining shareholders for fair value. For companies organized as LLCs, the Illinois Limited Liability Company Act (LLC Act) likewise provides that a court may order the entity or the remaining members to purchase the interest of the outgoing member.

A buyout may be appropriate when a minority owner alleges shareholder oppression. This means a claim that the minority owner is being hurt by actions taken by the other owners, such as refusal to pay dividends or to allow access to company records. Minority owners are at a disadvantage because they cannot sell their shares publicly and therefore stand to lose if the majority takes actions that devalue their shares. The majority may also force out minority shareholders by compelling them to sell back their shares, often at unfair prices.

While a buyout is simple in principle, things can get contentious when it comes to hammering out a deal. The valuation of the company can be a major area of disagreement. The outgoing party wants a high value so they receive more for their shares and the remaining parties want the opposite. Valuators also tend to discount minority share value on the theory that the shares have no value on the open market and therefore should be sold at a discount to the remaining parties.

Additional issues may arise in the context of a buyout, such as negotiating noncompete agreements affecting both sides. Whether you are a minority owner alleging oppression or are part of the controlling group of owners, you need to retain an Illinois law firm highly experienced in complex commercial litigation so that your interests are fully protected.

The Chicago attorneys of Schwartz Law Group, LLC have wide experience in shareholder oppression litigation, including buyouts and related issues. Our goal is to provide effective legal representation while being mindful of your bottom line. Call 312-436-1442 or contact us online to speak with one of our lawyers. We represent clients in DuPage, Cook and Lake Counties, and throughout the state.

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