Shareholder and LLC Member Disputes
Shareholders, minority owners, and partners have legal options when management breaches their duties and shareholders are not properly compensated. When you have a financial stake in a company or enterprise, you have rights that protect your investment.
Officers and directors of corporations owe fiduciary duties to shareholders. Management and majority shareholders must make disclosures and adhere to high standards in the best interest of shareholders. If controlling shareholders pursue their own interest rather than the interest of the company they are likely committing a breach of fiduciary duty.
Some common ways that fiduciary duties are breached include: accepting bribes, taking excessive compensation, taking corporate opportunities for themselves, or stealing from the company. Shareholders can file a derivative lawsuit against the leaders of the corporation for breaching their fiduciary duties.
Shareholder oppression frequently applies to minority owners, who can be unlawfully pushed out altogether by an abusive majority or their ownership illegally diluted. There are numerous statutory protections for minority shareholders in this situation.
Oppressive conduct includes freezing minority shareholders out of operating of a close corporation, not paying dividends, improperly terminating employment by the corporation, excessive profit taking, or withholding access to corporate information. A non-controlling or minority shareholder in a close corporation who is the victim of “oppression” by the controlling or majority shareholder may petition a court for dissolution of the corporation or, in other words, a business divorce. 805 ILCS 5/12.56.
Our contingent fee business model aligns our success with the success of harmed shareholders. If you are a shareholder and feel you are not being treated fairly by management or controlling shareholders and have not been paid your fair share of the profits, please contact the Stoltmann Law Offices Commercial Litigation Group at 312-332-4200.
- Valuation issues
- Ownership Issues
- Freeze-out issues
- Squeeze-out issues
- Minority oppression issues
LLCs are a relatively new form of business. In Illinois they are governed by the Illinois Limited Liability Company Act. 805 ILCS 180 and by their operating agreements. The rights of members of LLCs are not identical to the rights of shareholders and partners, although they are similar. For example, a member and a shareholder may both have rights to inspect the company records and bring a derivative suit on behalf of the company against officers or directors who are harming the company. But the rights and rules that govern these derivative suits are different. If you are involved in litigation involving an LLC, you should consult the Illinois lawyers at the Stoltmann Law Offices Commercial Litigation Group.
Closely held businesses like LLCs are particularly prone to internal problems, and it is common for members to disagree at some point in the life of the entity. Their disputes may arise over business operations, employment, management, real estate, purchase of equity interest, or member withdrawal.
Members owes fiduciary duties to the company but these duties are informed by the company’s operating agreement. An operating agreement should provide for various events and contingencies that may arise during the life of the business. Among these events is the possibility that a member will want to “dissociate” from the LLC. Dissociation is the termination of a member’s LLC interest.
If an operating agreement does not expressly spell out when a member may be expelled, another member or the company will have to ask the court to order dissociation pursuant to the applicable statute depending on which state the company was formed in.
In the context of an LLC member dispute, the first place to look for guidance is the LLC operating agreement. Members of Illinois limited liability companies have broad freedom to decide ahead of time what their rights and obligations are, and how disputes are to be resolved. In some circumstances, such as when the parties are all represented by counsel and are sophisticated businesspeople, LLC members may even agree in the operating agreement that they do not owe fiduciary duties to one another, and that they can engage in other business ventures and compete with the LLC. However, members of an LLC that have a less comprehensive operating agreement may not have a statutory remedy if they are faced with oppressive acts by fellow members.
If you are a member of an LLC and feel you are not being treated fairly by the other members or have left an LLC without being paid your fair share of the business, please contact the Stoltmann Law Offices Commercial Litigation Group at 312-332-4200.
- Covenant issues
- Territorial restriction disputes
- Non-compete covenants
- Covenants not to compete
- Geographical disputes
- Temporary restraining orders
- Equitable relief
- Preliminary injunctions
- Temporary injunctions
- Permanent injunctions
Attorney Loftus settled a a business divorce case for over $150,000 on behalf of a minority business owners my had a negative capital account (owing more to the business than his shares were worth).
$270,000 settlement via mediation in a business divorce case result from split of construction company.