Perhaps you are a minority shareholder in an up-and-coming, closely held company. You had high hopes for your investment, but now you are having second thoughts.
You see signs of shareholder oppression and you believe the company is violating its fiduciary duty.
A variety of definitions
Different courts have developed different definitions of shareholder oppression. Some call it “burdensome, harsh and wrongful conduct.” Others see it as a violation of the fiduciary duties of “good faith and loyalty” that a company owes to its shareholders. While the action that causes distress to you as a minority shareholder may not be fraudulent or illegal, it is a clear example of improper conduct.
How courts view shareholder oppression
Many common elements are present in cases of shareholder oppression:
- A company fails to pay dividends when it is financially able to do so.
- Majority shareholders receive excessive compensation, which is unfair to minority shareholders.
- A company seeks to implement a stock-redemption plan that favors majority shareholders.
- Shareholders are not permitted to have a voice in management decisions.
- The company does not provide shareholders with the financial statements they should receive.
- The company fails to provide minority shareholders with the paperwork necessary to evaluate options when they are considering selling their shares.
Freezing minority shareholders out
One of the most egregious acts of oppression is freezing out minority shareholders by terminating their employment with the company. When shareholders do not receive dividends, they receive their return on investment through the salary they earn. Termination defeats the purpose of becoming a minority shareholder.
As a minority shareholder, you have no control over the workings of the company and cannot prevent any actions that you see as unfair to those of you who do not have a majority stake in the venture. However, you do have the option of seeking judicial relief through a breach of fiduciary or shareholder oppression lawsuit, and you should not hesitate to pursue such relief.