In many businesses, including limited liability companies (LLCs), partnerships, and “S” and “C” corporations, unequal ownership responsibilities and rights often result in significant tension and disputes. The majority owner (usually a person or group controlling voting rights) often directs business operations and makes policy decisions at the expense of the outvoted minority equity interest holder.
However, majority owners do not have unfettered rights. Minority equity owners may often claim damages for business oppression. Controlling equity interest owners in small closely-held entities usually owe fiduciary, contractual, and statutory duties to consider the impact of their decisions on the minority owners. This means that the majority cannot always take actions that only benefit themselves to the detriment of the minority owners. Business oppression claims arise when those in the minority assert that the majority has improperly taken advantage of them for undue individual gain. Examples include having the entity engage in business with other companies owned by majority owners at inflated prices, forcing the entity to take illegal actions that put the company and owners in jeopardy of civil and/or criminal action, and refusing to issue distributions to force a minority equity owner to sell the interest at deflated prices. Indeed, methods to oppress minority equity owners are often limited only by the majority’s imagination.
Business oppression cases can be difficult to win. Those with controlling interests are generally allowed wide latitude in deciding what is good for the company and its owners. As a general proposition, the minority owners must abide by the good faith decisions of the management and majority members. That said, egregious behavior by business owners can often support a business oppression claim.
Schwartz & Kanyock, LLC of Chicago represents individuals, businesses, and business owners throughout the region and nation. If you or your company have an individual, shareholder, partnership, LLC or business oppression matter, then please feel free to contact us online or call 312-441-1040 for an initial consultation.
