Minority Shareholder Oppression Lawsuits: Strategies & Legal Remedies
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.
Common Examples of Shareholder Oppression
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)
How do You Prove Shareholder Status?
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.
Improper Dividend Distribution
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.
Definition of Oppressive Conduct
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.
Legal Action for Victims of Shareholder Oppression
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:
If you have been a shareholder in a company, oppressed by the larger shareholders, and have questions about the legal options available in Ohio, contact The Lyon Firm (800) 513-2403. You will speak directly with Mr. Lyon, and he will help you answer these critical questions.