Why a Shareholder Oppression Lawsuit Can’t Wait

The current pandemic has thrown a wrench into everyone’s plans, so suing your business partner or majority shareholders might not be at the top of your to-do list right now. After all, isn’t almost every business struggling as a result of COVID-19?

But maybe you felt your financial concerns weren’t a priority for the majority shareholders (or your business partner, if it’s a closely held business) even before the pandemic. Or maybe the pandemic prompted the company’s managers and/or majority shareholders to do things that were in their best interests, but not yours. It could be tempting to wait until the pandemic has settled down, but there are at least two reasons you should sue now.

Remember when we thought this would all be over in a few months? It’s now been more than seven months since the first shelter-in-place orders were issued, and many places across the country are seeing a resurgence of COVID-19 cases. If you’re trapped in a situation where the shares you own in a company are plummeting in value and you feel it’s a result of mismanagement, rather than bad luck, you need to act now.

Most cases of minority shareholder oppression seek to have the company buy back their shares, and if the company is losing money during the pandemic, you’re better off filing the lawsuit sooner rather than later. When determining the value of the shares to be bought back, courts will generally consider the price of the shares at the time the lawsuit was filed. If you wait to file your lawsuit and your shares continue to lose value while you wait, the time you spent waiting could end up costing you a significant amount of money, depending on the price of the shares and the number of shares you own.

If the pandemic has cost your business money and you and/or the managers have not found a way to turn it around and make a profit during the pandemic, chances are good that things will only get worse and your stock will continue to lose money. Not only does this impact the value of your stock at the time you file your lawsuit, but it could also impact your ability to argue for a higher price point during the valuation. Attorneys for the majority shareholders might argue that the full financial effect of the pandemic has yet to be seen, but at least you can argue that estimates of the future value of the stock should not be considered when determining a price point for your buyout.

Any valuation should take into account the current risk to the price of the stock, and there’s no denying that COVID-19 poses a serious risk to almost every business, but filing sooner rather than later gives you your best chance of getting the highest price for the stock you can get, whereas waiting only increases your risk. Your case will be even stronger if you can prove the issues had been causing problems within the company even before the pandemic started, but either way, you should be sure to get an experienced business attorney on your side to make sure you take advantage of every opportunity and leave nothing on the table.

If you are involved in shareholder, partner or LLC oppression, freeze out or squeeze out situation call one of our LLC or shareholder dispute lawyers at our toll-free number 630-333-0333 or contact us online here.