Minority shareholders (those who hold less than 50% of a company’s voting shares) are often vulnerable to oppression or abuses perpetrated by majority/controlling shareholders. This can occur because minority shareholders do not typically have the ability to affect the actions of the company. Though the law provides minority shareholders with methods to protect themselves from ongoing unfair treatment, certain criteria must be met for the courts to grant aggrieved parties relief. Shareholder oppression is more common in private companies than it is in publicly traded corporations (though it can still happen). Before a shareholder can prove that the majority has engaged in oppressive conduct, they must be able to recognize what it is and what actions they can take to gain relief from said actions. According to business attorney Wade McClure, “each situation is unique and requires an experienced professional to recognize exactly what happened, and what type of remedy is appropriate.” Listed below are common examples of shareholder oppression.
Examples of Shareholder Oppression
Shareholder oppression covers a wide swathe of activities that can be considered oppressive conduct. Due to the nature of business and the specific issues that each company deals with, there is not a “one size fits all” definition for shareholder oppression. Notable examples include:
● Majority shareholders making decisions that are in their own best interest while suppressing minority shareholder votes.
● Majority shareholders using their leverage to dilute minority shares.
● The fundamental change in the structure or nature of the business that marks a change in the initial agreement when the relationship was formed (i.e. loss of substratum).
● Minority shareholders being excluded from management decisions, financial decisions, and/or profit participation.
● Denying dividends (or refusing to declare) to minority shareholders in lieu of higher salaries, bonuses, or other benefits for the majority.
● Fraudulent activities carried out by the majority and/or controlling shareholders.
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Proving Shareholder Oppression
There are countless examples of shareholder oppression. However, proving that majority shareholders have engaged in oppressive conduct is no easy task. This can be especially true of private companies that are not required by law to publish information about their company finances and interworkings. A successful shareholder oppression claim will require that the complaining party proves that the majority or controlling shareholder has engaged in the following conduct:
- Engaged in conduct that is contrary to the interest of minority shareholders
- Engaged in conduct that is oppressive, prejudicial, and/or discriminatory towards minority shareholders
It should be noted that oppressive conduct can include actions taken against minority shareholders outside of their capacity as a shareholder. For instance, if they are discriminated against and/or given prejudicial treatment as a manager or director (that holds shares), it can still be considered an act of shareholder oppression.
Working with a Business Attorney
Shareholder oppression comes in many forms. Most are subtle and not easily noticed. While it is certainly advisable to formally complain to majority shareholders if acts of shareholder oppression are recognized, this does not always yield positive results. In many cases, complaints are pacified and/or ignored with little to no action taken. Working with an attorney can help minority shareholders to gain relief from oppressive tactics (potentially without having to go to court). In the event that your issues are not remedied, an adept business attorney will have the right tools and experience to investigate the case and mount a strong case against the majority shareholders in court.
