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Small Business Law: Minority Shareholder Rights

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Unlike the vast shareholder protections afforded to public corporations, closely held corporations often allow majority shareholders to oppress minority shareholders. This issue is exacerbated by the lack of fair market demand where the minority can sell their shares. Therefore, a minority shareholder cannot safely remain or profitably exit the corporation during disputes.

Shareholder oppression refers to conduct that substantially defeats the “reasonable expectations” held minority shareholders in committing their capital to a particular venture. Minority shareholder oppression comes in many forms. 

Examples of Minority Shareholder Oppression

  1. “Freezing out” or “squeezing out”
  2. Excluding from a meaningful role in the company
  3. Terminating employment
  4. Authorizing transactions with closely related companies for the sole purpose of economically harming the minority

Tools to Combat Minority Shareholders Oppression

  1. Court intervention to stop oppressive conduct
  2. Order full disclosure of the company’s books and records
  3. Voiding and unwinding corporate transactions
  4. In severe cases, dissolve and wind up the business affairs of the company

Relief granted by a court could also include the buy-out of the minority shareholder’s equity interest in the business. Additionally, the court may award compensatory damages if appropriate. This typically requires the need for business valuation experts to determine the fair-market value of member’s interest in the company.

Each shareholder is in a unique position. For assistance with combatting unfair treatment as a minority shareholder, please contact the Attorneys at Fazzio Law, we are in your corner!


Category: Small Business Law

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