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Disputes Involving Corporate Control

On Behalf of | Feb 5, 2014 | Business Litigation

Buffington Law Firm’s Orange County business trial lawyers have handled numerous cases dealing with situations in which a minority shareholder wished to force the dissolution of a small corporation. The law provides several remedies to minority shareholders who are being victimized by negligent or abusive management. This situation is not uncommon in small corporations.

Similarly, it is unfortunately not uncommon for a disgruntled minority stockholder to make unfounded claims against a corporation’s Directors and Officers.  Such lawsuits can be expensive and time-consuming.  In a 2013 case, Buffington Law Firm successfully defended the directors and the majority stockholders of a small family corporation against meritless claims brought by a minority stockholder.

Under California law and the law of most or all other states, if the Directors of a small corporation simply cannot work together harmoniously, the corporation can usually be dissolved by means of a lawsuit. In California, shareholders who collectively own 33 1/3% or more of a corporation can bring a lawsuit asking the Court to dissolve a corporation on grounds the directors or officers running the corporation “… have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement, or abuse of authority or persistent unfairness or … [that corporate] … property is being misapplied or wasted by its directors or officers.” [Cal. Corp. Code §1800(b)(4)]. More generally, a shareholder can bring suit to dissolve a corporation on the grounds that “…liquidation is reasonably necessary for the protection of the rights or interests of the complaining shareholder or shareholders…” [Cal. Corp. Code§1800(b)(5)].

The stock owned by persons who are guilty of the fraud and mismanagement is not counted in calculating the 33 1/3% threshold – thus often shareholders in a small corporation who own much less than 33 1/3% of the stock can nonetheless successfully bring suit to dissolve a corporation and distribute its assets to the shareholders.

If it has actual merit, a lawsuit of this type can be an economical way to force the dissolution of a small corporation and the distribution of its assets to its owners.  If a stockholder brings a meritless lawsuit, it is important for the corporation and its management to retain competent and experienced legal counsel.  If you are confronted with one of these situations, Buffington Law Firm’s experienced business trial lawyers can help.  Give us a call for a free legal consultation today!