This page explains New York law for closely held corporations under the Business Corporation Law (BCL): who can bring a dissolution petition, what the court weighs, and how the buyout election works. KOR Law LLP's business divorce practice handles minority and majority shareholder disputes, including oppression claims, and negotiated and contested buyouts and exits. If your company is a limited liability company rather than a corporation, the BCL petition described here does not apply; members of an LLC rely on a different standard, explained in how to dissolve a New York LLC when the members cannot agree.
Who can file a petition under BCL 1104-a?
The petition belongs to "the holders of shares representing twenty percent or more of the votes of all outstanding shares" entitled to vote in an election of directors (BCL 1104-a(a)). Three limits are built in:
- Votes, not value. The test counts votes in director elections. Shares with no vote in director elections do not add to the count.
- No public market. The corporation's shares must not be listed on a national securities exchange or regularly quoted in an over-the-counter market.
- Not an investment company. A corporation registered under the federal Investment Company Act of 1940 is excluded.
The statute refers to "the holders" of the required shares, so several smaller shareholders may file together to reach 20%.
What grounds does the petition need?
The statute lists two (BCL 1104-a(a)):
- The directors or those in control "have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders."
- The corporation's property or assets "are being looted, wasted, or diverted for non-corporate purposes" by its directors, officers or those in control.
The statute does not define "oppressive." In practice the facts that bring shareholders to court are familiar: being frozen out of management or employment, losing access to information, distributions that stop while insiders are paid, or company assets used for an insider's benefit. Some of the earliest signs are collected in the warning signs that a partnership or LLC dispute is headed to court. When the claim rests on false statements, the separate elements of fraud are in what you have to prove to win a fraud claim in a New York business case.
What does the court weigh before ordering dissolution?
The court must take into account whether liquidation is the only feasible way for the petitioners to reasonably expect a fair return on their investment, and whether liquidation is reasonably necessary to protect the rights and interests of a substantial number of shareholders or of the petitioners (BCL 1104-a(b)). In a proceeding brought by shareholders, the benefit to the shareholders of a dissolution is of paramount importance, and in a petition under 1104 or 1104-a, dissolution "is not to be denied merely because" the business has been or could be run at a profit (BCL 1111(b)). Whether to dissolve remains within the court's discretion (BCL 1111(a)).
How does the process run, step by step?
- The petition. The qualifying shareholders file a petition for dissolution in the state Supreme Court. Dissolution cases can be heard in the Commercial Division without regard to its monetary threshold (22 NYCRR 202.70(b)(11)); see whether your business dispute belongs in the New York Commercial Division.
- Order to show cause. The court issues an order requiring the corporation and all interested persons to show cause, at a hearing not less than four weeks later, why the corporation should not be dissolved. The order is published once in each of the three weeks before the hearing and served on the state tax commission, the corporation, and the shareholders, creditors and claimants named, personally at least ten days before the hearing or by mail at least twenty days before (BCL 1106).
- Books and records within 30 days. No later than thirty days after the petition is filed, those in control must make the corporation's financial books and records for the three preceding years available for inspection and copying (BCL 1104-a(c)).
- The buyout election. Within ninety days after the filing, or later if the court allows, the corporation or any other shareholder may elect to buy the petitioners' shares at fair value, on terms the court approves (BCL 1118(a)).
- Valuation if no agreement. If buyer and petitioner cannot agree on fair value, the court may stay the dissolution proceeding and determine fair value itself (BCL 1118(b)).
- Protection in the meantime. At any stage, the court may make orders to preserve the corporation's property and carry on its business, including appointing a receiver (BCL 1113).
If assets are being moved before the court can act, a temporary restraining order may also be sought; see how fast you can get a TRO or preliminary injunction in a New York business dispute.
| Route | Who can file | Grounds | Buyout election under BCL 1118? |
|---|---|---|---|
| Special circumstances petition (BCL 1104-a) | Holders of 20% or more of the votes in director elections, in a corporation whose shares are not listed or regularly quoted | Illegal, fraudulent or oppressive actions toward the complaining shareholders; looting, waste or diversion of assets | Yes, within 90 days of filing or later if the court allows |
| Deadlock petition (BCL 1104(a)) | Holders of one-half of the votes in director elections (more than one-third if the certificate requires supermajority votes, BCL 1104(b)) | Board divided so votes for action cannot be obtained; shareholders divided so directors cannot be elected; dissension so deep that dissolution would benefit shareholders | The statute ties the election to 1104-a proceedings |
| Failure to elect directors (BCL 1104(c)) | Any holder of shares entitled to vote for directors | Shareholders so divided that they failed to elect successor directors over a period including at least two consecutive annual meeting dates | The statute ties the election to 1104-a proceedings |
How is "fair value" decided?
The court values the petitioner's shares "as of the day prior to the date on which such petition was filed," excluding any element of value that arises from the filing itself, but giving effect to any adjustment or surcharge found appropriate in the dissolution proceeding (BCL 1118(b)). That last part matters when insiders have drained the business: on a finding of wilful or reckless dissipation or transfer of assets without just or adequate compensation, the court may adjust stock valuations and surcharge the directors or those in control (BCL 1104-a(d)). How courts arrive at the number, including the marketability discount, is covered in how a business is valued in a New York buyout or dissolution.
Three other terms can affect what the petitioner actually receives:
- Interest. The court may award interest at an equitable rate from the date the petition is filed to the date of payment (BCL 1118(b)).
- Security. Before the purchase closes, the court may require a bond or other security sufficient to secure the fair value (BCL 1118(c)(2)).
- Expenses for a late election. If the election comes more than ninety days after filing and the court allows it, the court may award the petitioner reasonable expenses, including reasonable attorneys' fees, incurred before the election (BCL 1118(c)(1)).
The statute sets the valuation date and what to exclude; it does not prescribe a formula. Valuation evidence is gathered through the document exchange the court allows, and the Commercial Division's limits are summarized in what discovery limits apply in the New York Commercial Division.
What changes the answer?
- The size of the voting stake. 20% of the votes for the special circumstances petition, one-half for deadlock (BCL 1104-a(a), 1104(a)).
- Whether the shares trade publicly. Listed or regularly quoted shares take a corporation outside 1104-a (BCL 1104-a(a)).
- The certificate of incorporation. Supermajority voting provisions lower the deadlock filing threshold to more than one-third (BCL 1104(b)).
- The timing of the buyout election. Within ninety days, or later with the court's permission and a possible award of expenses (BCL 1118(a), (c)(1)).
- Evidence of looting or dissipation. It can support a surcharge and an adjusted valuation (BCL 1104-a(d)), and it may also support a claim in the company's name, explained in when a shareholder or member can sue on the company's behalf in New York.
- The type of entity. LLC members proceed under LLC Law 702, not the BCL (LLC Law 702).
- The court chosen. Commercial Division assignment for dissolution cases does not depend on the threshold (22 NYCRR 202.70(b)(11)). On choosing between court systems generally, see federal court or state court for a New York business dispute.
For example: a 25% shareholder frozen out of a family company
For example, imagine a Queens distribution company organized as a corporation, owned 75% by one brother and 25% by his sister, who worked there for fifteen years. (This is a made-up illustration, not a real client or result.) After a falling out, she is removed as an officer, her salary ends, and the company stops paying dividends while her brother's compensation doubles. Her 25% equals 25% of the votes in director elections, and the shares are not traded anywhere, so she can petition under BCL 1104-a, alleging oppressive actions and diversion of assets.
She files on March 3. By April 2, the company must make its financial books and records for the three preceding years available to her (BCL 1104-a(c)). Her brother elects to buy her shares on May 20, within the ninety days, and the election cannot be withdrawn unless the court allows (BCL 1118(a)). They cannot agree on price, so the court is asked to determine fair value as of March 2, the day before the filing (BCL 1118(b)), and her counsel asks the court to require a bond to secure payment (BCL 1118(c)(2)).
Common mistakes
- Counting equity instead of votes. The 20% test is measured in votes in director elections (BCL 1104-a(a)).
- Filing under the BCL for an LLC. LLC members use LLC Law 702, which has its own standard.
- Assuming profits defeat the petition. Dissolution is not to be denied merely because the business is or could be profitable (BCL 1111(b)(3)).
- Electing to buy without planning. The election is irrevocable unless the court decides otherwise for just and equitable reasons (BCL 1118(a)).
- Moving assets after the filing. Wilful or reckless dissipation can lead to a surcharge and adjusted valuation (BCL 1104-a(d)).
- Overlooking the shareholders' agreement. A buy-sell clause or exit terms in the agreement can shape the negotiation from day one.
What to do this week
- Find the certificate of incorporation, by-laws and any shareholders' agreement, with every amendment.
- Confirm how many votes your shares carry and whether other shareholders would join a petition.
- Write a timeline of the conduct you object to, with dates, amounts and documents.
- Send a written demand for the corporation's financial statements (BCL 624(e)).
- Keep copies of tax forms, pay records and dividend history you already have.
- Speak with counsel before any meeting where your role, shares or pay could change.
Frequently asked questions
Can I bring this petition if I own 10%?
Not alone, because BCL 1104-a requires holders of 20% or more of the votes. Shareholders can combine their shares to reach that level, and the separate petition for failure to elect directors over two consecutive annual meeting dates is open to any voting shareholder (BCL 1104(c)).
Does the petition force the majority to buy me out?
No. The buyout is an election the corporation or other shareholders may make (BCL 1118(a)). If no one elects to buy, the court decides whether to order dissolution under the statutory factors (BCL 1104-a(b), 1111).
Can the buyer withdraw the election if the price comes in high?
An election is irrevocable unless the court, in its discretion and for just and equitable considerations, decides it can be revoked (BCL 1118(a)).
Does filing the petition change the value of my shares?
The court values the shares as of the day before the filing and excludes any element of value arising from the filing (BCL 1118(b)). That keeps the valuation from reflecting the dispute itself.
Who runs the company while the case is pending?
The court may make orders to preserve the corporation's property and carry on its business at any stage, including appointing a receiver, who may be a director, officer or shareholder (BCL 1113).
Will I get to see the books?
Yes. Within thirty days after the petition is filed, those in control must make the financial books and records for the three preceding years available for inspection and copying, in addition to other disclosure rights (BCL 1104-a(c)).