Shareholder oppression claims arise when the majority shareholders in a corporation take actions that unfairly prejudice minority investors. Most instances of shareholder oppression occur in small closely-held corporations, and the small nature of the situations make minority shareholders particularly vulnerable.
There are several different manners in which minority investors may be mistreated, and they are not always easy to define, though as a general rule, if the majority shareholders harm the economic interests of the minority, the minority shareholders may have a claim against the corporation, and file a lawsuit for rightful compensation.
Joe Lyon is a highly-rated Cincinnati, Ohio lawyer representing plaintiffs nationwide in a wide variety of corporate labor disputes.
The most common way the courts determine shareholder oppression is if the “reasonable expectations” of minority shareholders are violated. This is sometimes a subjective benchmark as far as what is fair and what is not. However, if the majority shareholders in your case have tried the following, you may have a claim:
• Refusing to declare dividends, or “informal dividends” issued to only majority investors
• Attempting to push the minority out of the company
• Physically locked the minority out of corporate premises
• Denial of company information, and denying the minority the chance to inspect corporate records
• Attempt to deprive stock ownership
• Attempt to purchase minority shares at an unfair price—Implementing an unfair stock redemption plan that favors majority shareholders
• Cash-Out merger that cuts minority out of deal
• Loss of Employment—termination of a minority shareholder’s employment from a closely held corporation likely constitutes oppression
• Change in employment status
• No notice of shareholder meetings—denial of participation
• Attempt to change minority shareholder terms
• Inequality of company shares
• Altering corporate books
• Not allowing minority shareholders to protect themselves from dilution of their equity
• Using corporate funds to pay the personal expenses of other shareholders or related parties (family)
Proving true shareholder status is sometimes the central issue in oppression cases. Because shareholder status is the prerequisite in asserting claims on behalf of the corporation, proof of share ownership is critical.
Although proof of ownership is essential to the case, it is important to note that in the eyes of the court, the issuance of a stock certificate is not necessary for a person to be a shareholder. There are other ways to prove you are a rightful shareholder.
Frequently, a minority shareholder is an employee who has made an agreement to earn shares of ownership over time. In some oppression cases, after the employee has performed his part of the agreement, the majority shareholder may renege on the deal and delay or refuse to issue the promised shares.
Per the law, the transfer of share ownership is a matter of contract. In the example above, the employee becomes a legal shareholder when he has performed his obligation, and possession all of a stockholder’s right, even if no official certificate is issued.
A common instance of minority shareholder oppression occurs when company funds are spent or distributed improperly. These instances include when funds are used for personal expenses or expenses not pertaining to corporate activity, even spent on those outside of the company.
Dividend distributions may be withheld or delayed for minority shareholders, which is also a breach of contract. This is a common issue when a shareholder no longer works in the company, whether by termination, resignation, retirement, disability, or death. The company profits may still be rightfully theirs, but distributions are withheld or distributed to other shareholders.
Any majority shareholder behavior that includes “acts of willful breach of fiduciary duty” may be worthy of a claim. Note that a financial loss is not necessarily needed to file claim. Shareholder oppression claims are not dependent upon any measurable loss. The working, objective definition of minority shareholder oppression may include the following important points:
1. The majority shareholders’ actions and behavior substantially defeat the minority’s reasonable expectations, which were central to the minority shareholder’s decision to invest and join the venture in the first place.
2. The majority shareholders engage in burdensome, harsh, or wrongful conduct. They show a lack of fairness in company affairs to the prejudice of only minority members.
Shareholders in a company, both the majority and minority investors, have a responsibility to seek success for the company, and distribute profits, but not at the cost of anybody in the company. Oppressing the minority, vulnerable shareholders in a company is not only unethical, but deemed illegal in the court of law.
Courts focus on broken contracts and promises, missing protections, the vulnerability of minority shareholders, and basic fiduciary duties. If you are currently, or were recently, a minority shareholder in a company who did not fulfill their end of the bargain, and did not act in objective fairness, but rather their own benefit, you may have a good minority shareholder oppression claim. Other Financial fraud claims may include:
Employees and investors should protect themselves and should not wait to discuss legal and financial disputes with an attorney. It may be natural for some individuals to only confront litigation until a suit is filed. But it benefits vulnerable investors and minority shareholders to build a case as soon as possible.
We try cases involving unlawful loss of employment, attempts to deprive stock ownership, attempts to purchase shares at unfair prices, cash-out mergers, inequitable dividend distributions, denial of participation, and other fraudulent acts.
If a minority shareholder believes that corporate management has attempted to defraud them, or exercised power in a manner that is oppressive, prejudicial, or that unfairly disregards the minority shareholder’s interest, a viable lawsuit may be filed.
The Lyon Firm can help you build a strong case to not only recover possible lost investor earnings, but will seek full compensation for the loss of shares or damages related to employee status and future earnings.
If you were contractually promised company ownership or shares in a company, when a dispute arises it helps to have some proof or evidence of such a contract or sale. But, it is not always necessary, and we can assist plaintiffs with aggressive legal action.
Below is a summary of the various types of intellectual property laws that are relevant to the permissions process.
Two common types of breach lawsuits include:
A contract, or any legally binding agreement, presupposes that both parties must fulfill the terms of the contract. If a contract breach occurs, the affected party can seek legal action and compensation for any actual past, current or future losses.
Commercial attorneys negotiate contracts and commercial agreements, and file lawsuits when the following contracts are broken:
Breach of fiduciary duty generally involves allegations that an individual or company breaches a duty to others. A fiduciary duty requires a level of loyalty and there are both legal and ethical implications. A breach of fiduciary duty commonly includes claims of fraud and breach of contracts.
Breach of Duty claims should be addressed as soon as possible with the help of business litigation attorneys experienced in commercial law.
Business fraud occurs through the omission, deception or misrepresentation of a contract, prospect, investment, project or other business entity. Business fraud litigation can result in monetary damages and irreparable damage to the reputation of a company or brand. Victims of fraud should consult an experienced business law professional. Fraud disputes involve various areas of law and may involve: