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Shareholder Oppression in the LLC

On Behalf of | Mar 7, 2014 | Shareholder Oppression

Last week we touched on the kinds of actions that generally constitute shareholder oppression in Oregon. Many of those actions constitute a claim for shareholder oppression whether the actions occur in the context of traditional corporation or an LLC. But, while the actions making up the claim are often the same, the rights and remedies you are entitled to may change depending on whether your business operates as a traditional corporation or is structured as an LLC. Today, we’re going to focus on shareholder oppression in the LLC context.

As far as statutes are concerned, those allowing us to structure businesses as LLCs are relatively new compared to those pertaining to corporations. This means that while there are years and years of court cases providing protections to minority shareholders based on corporate statutes, there a only a limited number of similar cases dealing with LLCs. Some states, like Washington for example, have actively sought to cure this disparity in protections by enacting the Uniform Limited Liability Company Act. That act applies some of the corporate protections from majority shareholder oppression to minority LLC members. To this date, Oregon is not one of the states that has enacted the act.

As a result, protections for minority LLC members are limited to ORS Chapter 63, and the limited cases interpreting those laws. This means that in most cases, only extreme remedies such as dissolution of the LLC, or disassociation of the minority member, are available. Further, even in the limited situations where those outcomes are desirable, they can be extremely difficult to obtain. In the case of dissolution, the circumstances may require a showing that, as a result of the oppression, it is no longer “reasonably practicable” to carry on the LLC’s business – an extremely difficult, fact specific standard to meet.

Despite all this, minority LLC members can bargain for including greater protections in the company’s operating agreement. Terms such as those providing for mediation or arbitration when disputes arise, or giving the member a right to liquidate his or her interest, can operate to provide protections where the statutes and case law do not. If you anticipate a dispute within your LLC, or you’re looking at LLC membership opportunities, you should contact a local business law attorney to make sure you are protected in your business endeavors.