Document Type

Article

Publication Date

2023

Publication Information

22 Florida State University Business Review 15 (2023)

Abstract

For many decades, the law of closely held businesses was the law of closely held corporations. For entrepreneurs and attorneys, the corporate liability shield was the key desideratum, and before the advent of limited liability companies the corporation was essentially the only game in town. Unfortunately, for many decades the liability shield came with a potentially dangerous price for minority owners. The traditional corporate norms of majority rule empowered majority shareholders to “oppress” minority shareholders or defeat such shareholders’ “reasonable expectations.”

Today, in almost all U.S. jurisdictions special rules protect minority shareholders from outright expropriation; controlling share-holders must avoid abusing their co-owners; and the law recognizes what was many years ago described as an “incorporated partner-ship” —i.e., “an intimate business venture [in which] stockholders . . . occupy a position similar to that of joint adventurers and partners” and, concomitantly, have important duties inter se.

However, today the closely held corporation (“CHC”) is no longer the only game in town. Far from it—in every U.S. jurisdiction, formations of limited liability companies far exceed new incorporations, and for some jurisdictions a better verb choice might be “dwarf.” Every year, the percentage of closely held businesses formed as a limited liability company rises as the percentage for corporations falls.

As with corporations, the overwhelming majority of limited liability companies are closely held, so increasingly disputes about power abuses within closely held businesses occur in the context of limited liability companies rather than corporations. Thus, it is worth asking: (i) whether corporate-like risks of oppression exist in the context of limited liability companies; (ii) if so, whether LLC law provides protections against oppression; and (iii) if so, to what extent do those protections parallel protections under the law of close corporations and (iv) in what ways do the former category of protections differ from the latter?

As this Article briefly recaps, and the author and a few others stated almost 30 years ago, the answer to the each of the first two questions is “yes.” The answer to the third question is “substantially,” while the answer to the fourth question is “somewhat for some protections against oppression, but not much (if at all) for others.” Therefore, understanding established CHC oppression doctrine should help judges, practitioners, and others understand the still developing doctrine of LLC oppression, and this Article seeks to provide the necessary help.

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