Chicago Business Disputes
In general, majority rule is the order of the day for corporations and partnerships big and small. The exact thresholds depend upon the company’s bylaws, though simple majority (greater than 50%) is the most common. And when things are going well for the company, majority rule works well enough. But of course it is possible for disagreements among the partners, directors or shareholders to disrupt corporate governance and if a majority cannot be reached, the company can end up hamstrung.
When a corporation is unable to pass new votes or elect new directors, it has entered deadlock. If this deadlock is causing harm to the business, if the inability of its directors or board or shareholders to take action is making the company uncompetitive or is otherwise detrimental to the company, in that situation the courts have the authority to intervene.
In Illinois, one of two conditions must be met for a court to intervene to breakup corporate deadlock. Either the directors are deadlocked by an even split over an issue, or by the inability to acquire the necessary votes to move forward or the shareholders have for two annual meetings failed to elect new directors after the terms of the previous directors have expired. In either case the law further stipulates that the existence of deadlock alone is not enough to justify court intervention. The deadlock must be also be causing demonstrable harm to wellbeing of the company and its shareholders. These rules of intervention also apply when the court is coming to the defense of an oppressed shareholder, or when it is deemed the corporation or its directors have acted illegally.
Once Illinois courts have grounds for intervention they wield tremendous power, being able to remove or appoint officers and directors, appoint interim directors to serve until the situation is resolved, rewrite corporate bylaws or amend corporate charters. They may override the actions of any officer or director. They can cause the payment of dividends, award damages, arrange terms for one shareholder to buy the shares of another, submit the corporation to some form of official dispute mediation, or they can even cause the corporation to dissolve, although this final option is reserved as a last resort solution. Generally a period of court intervention concludes with a new cycle of elections to appoint the board of directors.
The prospect of court intervention may be the light at the end of the tunnel for an oppressed shareholder or partner or it may persuade the disputing parties to settle their disagreements. After all, there is no guarantee a judge will understand the particulars of a business or will necessarily know what is best for the company.
Horowitz Law Offices has represented shareholders and partners to litigate and resolve their complex disputes.
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