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Minority Oppression: The Business Judgment Rule May Not Shield The Oppressor

By Scott I. Unger

The business judgment rule shields directors and officers of a corporation from liability if the decisions made by them were made in good faith, with due care and in the corporation's best interests.  New Jersey Courts have clarified that the 'business judgment rule' is not a defense in cases of oppression of a minority shareholder in a close corporation. 'Simply put, judicial consideration of a claim of minority oppression or freeze out in a closely held corporation is guided by considerations broader than those espoused in the ‘business judgment rule.'' Maul v. Kirkman, 270 N.J. Super. 596, 614 (App. Div. 1994).  Hence, a majority shareholder will bear the burden of proving their decisions which negatively effect the minority shareholder or the corporation were made in good faith and in the honest belief that those decisions were in the company's best interests.

Full post as published by New Jersey Law Blog on December 15, 2010 (boomark / email).