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May 12, 2023

Shareholder Lockout in New York: Legal Steps and Options for Recovery

Shareholder Lockout in New York: Legal Steps and Options for Recovery

Shareholder lockout is a situation where a shareholder is prevented from accessing the financial records or participating in the management of their own corporation. It's a common problem in New York and can occur for a variety of reasons, such as disagreements between shareholders or management, disputes over business operations, or failure to comply with corporate governance requirements.

If you have been locked out of your own corporation, you have legal rights and options to address the issue.

First, review the corporation's bylaws and shareholder agreement to determine your rights and responsibilities as a shareholder.

If you believe you have been wrongfully locked out, consult with a commercial litigation attorney who can help you understand your legal options.

One legal step you can take is to file a petition for an accounting under CPLR 702. This petition allows you to request a formal examination of the corporation's financial records to determine if any financial improprieties have occurred.

The accounting can help you determine if any shareholders or management have misused corporate assets or engaged in fraudulent activity.

If the accounting reveals any improprieties, you can take legal action to recover any losses and hold the responsible parties accountable.

Another legal step you can take is to file a petition for dissolution under CPLR 1104. This petition allows you to seek the termination of the corporation and a distribution of its assets.

To file a petition for dissolution, you must demonstrate that the corporation is unable to operate effectively or has engaged in fraudulent or illegal activities.

If the court grants the petition, the corporation's assets will be distributed among the shareholders according to their ownership interests.

If you are successful in your petition for dissolution, you can use the proceeds to start a new business or invest in other opportunities.

It's important to note that filing a petition for dissolution should be a last resort, as it can be a lengthy and expensive process.

Other legal steps you can take include filing a lawsuit for breach of fiduciary duty or seeking an injunction to prevent further harm to the corporation.

To file a lawsuit, you must prove that the responsible parties breached their legal duty to act in the best interest of the corporation and its shareholders.

Seeking an injunction can prevent the responsible parties from engaging in further harmful actions while the legal dispute is resolved.

According to Jacqueline Weiss, a commercial litigation attorney at Pardalis & Nohavicka, LLP, "When a shareholder is locked out of their own corporation, it can have significant financial and legal implications. It's important to work with an experienced attorney who can help you navigate the legal process and protect your rights."

In conclusion, shareholder lockout can be a challenging and frustrating situation for any shareholder. However, by understanding your legal options and working with an experienced attorney, you can take steps to protect your rights and potentially recover any losses that may have occurred.

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