Shareholder and partnership disputes in the context of “business divorce” in New York, New Jersey, and other jurisdictions generally falls into two categories – namely, dissenting shareholder actions and minority oppression actions.
Dissenting shareholder matters relate to the “appraisal rights” held by minority shareholders that provides them the opportunity to dissent from extraordinary corporate actions that will adversely impact their interests. Appraisal rights, which are governed by state statutes and case law, can be triggered by a number of actions, including a merger, sale of assets, or the exchange of shares, to which a minority shareholder objects. A shareholder must “perfect” their appraisal rights by following a series of necessary steps before they are allowed to seek any remedy for the triggering action, which is generally the fair value of their shares in the context of business divorce.
Minority oppression actions are founded in corporate dissolution statutes. These statutes allow minority shareholders who have been “oppressed” to file for judicial dissolution of a corporation and also seek business divorce. Acts of oppression are generally those by majority shareholders or directors of a company that are considered illegal, fraudulent, or oppressive, or serve to waste or misapply the assets of the corporation. Many states have adopted statutory provisions which allow for the buy-out of a minority shareholder’s interest at fair value as a remedy for oppression, in addition to the standard remedy of judicial dissolution of the corporation at issue.
A valuation may also be required in a variety of other disputes among shareholders or partners, including the terms of a buy-sell or operating agreement, or involving transactions between new or departing shareholders or partners. These matters are often guided by the agreements or other governing documents between the owners of a business.
While the standard of value in New York and New Jersey is generally “Fair Value”, the case law applicable to the valuation of minority interests differs based on jurisdiction. In New York, court acceptance of discounts for lack of marketability has been a contested area where the courts are in a state of flux. In New Jersey, case law differs from that of NY, and the application of such discounts may be appropriate when the shares of an oppressing shareholder are being acquired as part of a court proceeding. Accordingly, it is very important to retain an expert who understands the differences that exist between NY and NJ case law, as well as other jurisdictions.
At Sigma Valuation Consulting, we specialize in providing comprehensive valuation reports that are carefully documented and rigorously supported. Our professionals have the knowledge, expertise and credibility to effectively communicate their findings to clients, courts, arbitrators and mediators, resulting in a positive outcome for our clients.