Shareholder oppression occurs when majority shareholders use their control to deny minority shareholders their right to participate and enjoy financial returns from a corporation. This generally occurs in a small, closely held corporation.
Oppression comes in a variety of forms. Courts have found oppression when majority shareholders:
- Dilute the minority’s ownership interest;
- Withhold or conceal the corporation’s books and records;
- Disregard a shareholder’s reasonable expectations;
- Remove the minority owner from the board or other management position;
- Refuse to declare dividends when the corporation is profitable;
- Pay excessively high rents for properties leased from majority shareholders;
- Divert earnings to the majority shareholders via excessive compensation;
- Misappropriate corporate assets for personal use; and
- Terminate employment.
In a large public corporation where stock is traded on an index, an oppressed or aggrieved shareholder can sell her shares on the market and escape oppression. This is not the case in closely held corporations where minority shareholders tend to have a substantial amount of personal assets invested in the corporation and rely upon the corporation for income. Unlike a shareholder in a large public corporation, a minority shareholder in a closely held corporation has no market in which to sell her shares and is unlikely to convince the oppressive management to buy them back. Thus, the minority shareholder can be left holding stock in a company that declines to pay dividends, deprives the shareholder of gainful employment, and disregards the shareholder’s rights.
Minority shareholders suffering from shareholder oppression possess legal remedies. Because majority owners owe fiduciary duties to run the affairs of the company in the best interest of the company and not for their personal interest, a minority shareholder can bring a suit for breach of fiduciary duty against her oppressors. However, oppression is a separate concept found in the Business Corporation Act. Conduct that does not equal breach of fiduciary duties might equal oppression. Remedies in such suits include: (1) damages, (2) a court-ordered buyout of the minority shareholder’s ownership interest and (3) dissolution of the corporation.
If you believe that you are a victim of shareholder oppression and would like to seek legal recourse, please call us at (312) 223-1699 to speak with one of our experienced attorneys or email Thomas E. Patterson at email@example.com.