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A claim of shareholder oppression may find its way to court

| May 30, 2018 | Firm News

Minority shareholders who feel they are the victims of corporate abuse or overreach can make a claim of shareholder oppression.

Courts normally recognize various definitions of shareholder oppression and, while it is usually not illegal, judges typically see it as improper conduct for which there are several remedies.

The minority shareholder viewpoint

Minority shareholders usually have no say in the operation of the company in which they are invested, and therefore cannot prevent management or majority shareholders from taking advantage of them. Oftentimes, minority shareholders are company employees who have no voice as to how the company manages its stock program.

Types of oppressive conduct

Although there is no uniform definition for shareholder oppression, courts agree that certain types of corporate conduct are common to the problem.

  • The company fails to pay stock dividends even though it is able to do so.
  • The company institutes a stock redemption plan that only benefits the majority shareholders.
  • The company denies minority shareholders input into the decision-making processes of the company.
  • The company pays excessive compensation to majority shareholders, ignoring minority shareholders.
  • The company does not provide minority shareholders the financial statements which they should have.
  • The company does not protect minority shareholders from the dilution of their equity.
  • The company tries to launch a stock redemption plan that only benefits the majority stockholders.

Legal remedies

Since there is little market availability for the shares of a minority shareholder, selling out might be a difficult undertaking. The best option for resolving shareholder oppression may be judicial relief. One approach may be a breach of fiduciary duty lawsuit. The rights of minority shareholders must be protected. If this is not possible outside of court, litigation is the next step. Remedies that are common in cases of this kind include damages as well as the purchase of the minority shares.

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