Self-dealing is a common occurrence in minority shareholder oppression claims. When majority shareholders sell the corporate assets of one entity to another in order to eliminate a minority shareholder(s) from the enterprise, the oppressed shareholder can claim the shareholder agreement was violated. The minority shareholder may be successful in petitioning a Court of law to set aside the sale of the corporate assets if they can show that there was "self-dealing" involved and that the price or terms or both were unreasonable to the corporation.  

 

Arguably, in New Jersey, all the minority may have to show is that the corporate assets were sold to another entity controlled or owed by the majority. Even if the company receives a fair price for the business and assets, if the minority shareholder does not receive stock in the going concern (and had a reasonable expectation of future profits or employment) then they may be deprived the prospect of future earnings. The test in New Jersey is whether or not the minority shareholders "reasonable expectations" have been interfered with by the actions or in-actions of the majority. 

 

In states which require an inquiry into whether or not the purchase price was reasonable, Courts will subject that sale to "close" or "rigorous" scrutiny. In most states, whenever a corporation enters into a transaction with one of it’s officers or directors or with a controlling shareholder, the insider has the burden of showing that the transaction between the corporation and one of its officers, directors or controlling shareholder is an arms length transaction. If it is found not to be, the Court may set aside that transaction. 

 

On the other hand, if the sale was made to outsiders as opposed to corporate officers, directors or to the majority shareholders (or those related to them), Courts are reluctant to reluctant to set aside the sale. That is because Court’s adhere to the "business judgment rule" which provides that Judges should not substitute their judgment for the parties concerning matters of business judgment. 

 

If you believe you are a victim of self-dealing which violates your shareholder agreement, feel free to contact me in my Lawrenceville, New Jersey office.