At Sadis, we have noticed that many investors with a minority position in a partnership, LLC or corporation, [come to us with an issue and] are surprised when we advise them of the broad range of minority investor rights and remedies available to address their situation. Often, we are able to monetize what they thought was an illiquid interest. Here are the top 5 mistakes we see minority investors make:
“I own a very small interest in the entity so I really have no rights” This is incorrect. Minority investors have many rights provided by statute and common law, some of which cannot be waived.
“I signed an LLC Operating Agreement with a provision stating I waived my right to seek a dissolution, so therefore, I cannot seek dissolution” Not all waivers are enforceable. States that adopted the model Uniform LLC Act often have LLC Acts that prohibit the waiver of the right to dissolution. We recently handled such a case and obtained a ruling that the dissolution waiver was unenforceable. This was a primary factor in allowing us to secure a $14.5 million buyout of our client’s minority membership interest.
“I don’t have a formal signed agreement documenting my interest in the company, so I have no rights” This is not necessarily true. Oftentimes, emails or other conduct are a sufficient writing to form an enforceable contract. In certain situations, even an oral agreement regarding ownership in a partnership or company can be enforceable.
“The Deal Will Be Approved No Matter How I Vote – So There’s Nothing I Can Do”: Wrong. Minority Investors have appraisal rights to opt out of a bad merger, acquisition or similar deal and to instead get paid the fair value of their investment plus interest, as decided by a court. Minority investors can also sue to recover damages for deals involving conflicts of interest or a grossly unfair deal price. We have won appraisal rights actions awarding investors a premium of 12%-200% over the deal price, with total recoveries over $60 million.
“The Largest Investor Has All the Power, So I Have to Do What He Says Or Else”: Not true. The law protects minority investors against coercion, self-dealing, oppression, waste, and other misconduct by majority investors, officers, and directors. Courts can award you significant damages, or invalidate majority investor actions that involve wrongdoing. We have won many cases for minority investors who thought they had no real options before they spoke to us. With the right lawyer and the fee arrangement, you can stand up to the bully.
Over the last three years, we have recovered more than $120 Million for our clients in New York, Delaware and Florida. We specialize in handling shareholder, partnership, and LLC disputes and often handle the cases on a full contingency basis. We’d welcome an opportunity to speak with you and the initial consultation is at no cost to you. If you have an investment or business dispute and would like our help resolving it, please reach out to Doug Hirsch at dhirsch@sadis.com, or Sam Lieberman at slieberman@sadis.com.
