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Minority Oppression: Stealing

By Scott I. Unger

Stealing from the minority shareholder or the corporation itself is a form of actionable oppression. Sometimes shareholders simply steal. More often than not, the bad actor will employ a number of techniques in order to covertly steal from the corporation. One widespread technique used by dishonest shareholders is the false inflation of expense accounts. Another technique is to place a relative (usually the majority shareholder's) spouse or children on the company's payroll at regular salaries even though those people never actually perform services for the company. 

A number of remedies are available to rectify stealing. First, if the honest shareholder is seeking to purchase the stock of the dishonest shareholder the Court possesses the equitable powers to apply discounts. Those discounts could reduce the purchase price by 25% to 50%. Second, the injured shareholder may be awarded compensatory damages, attorneys' fees and costs. Third, the law abiding shareholder's expert could present opinion testimony as what the company may have been worth if the theft had not occurred. In other words, the expert could 'normalize' the company's financial records to reflect the true cash flow of the company. That, in turn could result in a higher valuation. Finally, if a party was able to prove stealing or fraud during the course of the litigation, the Court could remove the dishonest shareholder and appoint a receiver to manage the day to day affairs of the company. N.J.S.A. 14A:12-7(2), (3), (4), (5), (6) & (7).

Full post as published by New Jersey Law Blog on October 25, 2010 (boomark / email).