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What is the Standard for Allowing a Company That Was Incorporated Outside of New Jersey to Use the New Jersey Minority Oppression Statute?

Do corporations with business operations in New Jersey that were incorporated in other states have the right to avail themselves of the protections of the New Jersey Oppressed Shareholder Statute, N.J.S.A. 14A:12-7(1) (c) (“Shareholder Oppression Law”)?

The Shareholder Oppression Law provides a remedy for shareholders of a closed corporation that feel that the majority shareholder(s) took action that oppressed them. Of course, any business decision might have unintended consequences to the minority shareholders, and that is the nature of running a business. Therefore, in order to obtain relief under the Shareholder Oppression Law, the minority shareholder generally has to show that

“In the case of a corporation having 25 or less shareholders, the directors or those in control have acted fraudulently or illegally, mismanaged the corporation, or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more minority shareholders in their capacities as shareholders, directors, officers,  or employees.”

Id.

Under prevailing New Jersey case law, a corporation that has little or no connection to New Jersey generally cannot avail itself of the Shareholder Oppression Law. Krzastek v. Global Resource Indus. and Power, Inc., 2008 WL 4161662 (N.J. Super. Ct. App. Div. Sept. 11, 2008).

Some of the factors the Court will consider are:

  • Whether the operating agreement or shareholders agreement had a New Jersey choice of law section;
  • Whether either of those agreements had a choice of New Jersey jurisdiction section; and
  • Where the entity conducts its business;

Hopkins v. Duckett, 2012 N.J. Super. LEXIS 93 (N.J. Super. Ct. App. Div. Jan. 17, 2012)

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