Minority Oppression & the Limited Liability Company: Learning (or Not) from Close Corporation History
Corporate Practice Commentator, Vol. 47, p. 1031, 2006
95 Pages Posted: 13 Dec 2005 Last revised: 24 Aug 2010
Date Written: August 22, 2010
The problems of minority shareholder oppression have long been a part of the close corporation setting. Largely due to the principle of majority rule and the lack of a market exit, minority shareholders of close corporations are peculiarly vulnerable to abuse. Perhaps not surprisingly, therefore, judicial precedents and statutory provisions in many jurisdictions afford some protection to the close corporation minority investor from the improper exercise of majority control.
Many closely held businesses today, however, are structured not as close corporations, but as limited liability companies ("LLCs"). As a consequence, it is important to ask whether the LLC form of business organization poses the same risks of oppression to minority owners, and, if so, whether judicial and legislative assistance is needed. The author explores these questions and concludes that the problems of minority oppression are likely to arise in the LLC setting as well. Because the "seeds" of oppression are also present in the LLC, in other words, the author argues that LLC minority owners will need a protective oppression doctrine just like their close corporation brethren.
Keywords: oppression, shareholder oppression, minority shareholder, limited liability company, llc, member, close corporation, shareholder, minority, corporation
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