It starts small. Maybe they hired a new vendor without asking. Then they fired a key employee. Now, they are signing leases or taking out loans without even cc’ing you on the email.
When a co-owner goes rogue, it creates chaos. But can they legally do that? The answer depends entirely on your business structure (LLC vs. Corp) and the specific governing documents you signed. In New Jersey, “majority rule” is common, but it is not absolute.
The “Ordinary Course of Business” Rule
In most New Jersey LLCs and corporations, the day-to-day operations are governed by a majority vote or delegated to a “Managing Member” or President.
If your co-owner holds 51% of the equity (or is the designated Manager), they generally do have the right to make “ordinary” decisions without your specific approval on every item. This includes things like ordering supplies, setting minor policies, or handling routine hiring.
However, Ordinary does not mean Unlimited.
Decisions That Require Unanimous Consent
Even a majority owner cannot do whatever they want. Under the New Jersey Revised Uniform Limited Liability Company Act (RULLCA), certain actions typically require unanimous consent of all members, unless your Operating Agreement says otherwise.
Common actions requiring approval include:
- Selling the entire business or substantially all assets.
- Amending the Operating Agreement.
- Admitting a new partner/member.
- Filing for bankruptcy.
- Engaging in a transaction that fundamentally changes the nature of the business.
If your partner sold the company building without your input, they likely violated state law. This is a major area where corporate governance review services become critical to determine if a line was crossed.
The Operating Agreement: The Law of Your Land
This is where the rubber meets the road. If you have a written Operating Agreement or Shareholder Agreement, it trumps default state laws.
- Supermajority Clauses: Does your agreement require a 75% vote for spending over $10,000?
- Veto Rights: Do minority members have a veto power over debt issuance?
- Management Authority: Is the business “Member-Managed” (everyone votes) or “Manager-Managed” (one person decides)?
If you don’t have a written agreement, you are at the mercy of the default NJ statutes, which can be messy. This is why we always stress the importance of robust partnership formation agreements at the start.
Minority Oppression: When “Majority Rule” Becomes Abuse
If you are a minority owner (say, 40%) and the 60% owner is freezing you out of decisions entirely to harm your investment, you may have a claim for Minority Oppression.
New Jersey courts protect minority shareholders from being mistreated. If the majority owner is paying themselves exorbitant salaries while refusing to issue dividends to you, or making decisions specifically to devalue your shares, they are acting oppressively.
Reddit Discussion: You are not alone in this frustration. See this thread on r/smallbusiness where owners discuss how they handled rogue partners. Note: Always verify online advice with a qualified attorney.
What Can You Do?
- Check the Books: Are these unauthorized decisions costing the company money? If so, it might be a breach of fiduciary duty.
- Call a Meeting: Formally request a meeting to vote on the disputed actions. Make them put their vote on the record.
- Injunction: If they are about to make a catastrophic decision (like selling the IP), a lawyer can file for an immediate court order to stop them.
- Dissociation/Buyout: If they refuse to collaborate, you may need to negotiate a separation.
We often act as virtual general counsel for businesses in this exact situation, serving as the “referee” to enforce the agreement and ensure that no single partner acts like a dictator.
