David H. Schwartz
How to Combat Minority Shareholder Oppression
Two best friends sharing the same passion for baking, Jessica and Lucy decided to put up a bakeshop together in San Francisco. Jessica owns 30% of the share, while Lucy owns 70%. The business took off and became the go-to customized cake shop in their small city. Everything was going well in the beginning, but Jessica eventually sensed some irregularities. Among other things, Jessica found out about meetings from which she was excluded, and she can’t seem to get her hands on some accounting records. Jessica felt that her best friend was freezing her out as a shareholder.
There have been many stories of minority shareholder oppression similar to Jessica’s. This majority-minority power structure can pose problems, especially when a dispute or conflict arises within the company. One who holds more than 50% share has the position of power to make decisions for the company. He or she can easily make a move that is completely disadvantageous to the minority shareholder. This is unjust for the minority shareholder, who will naturally feel undervalued and downtrodden.
What is Minority Shareholder Oppression?
Minority shareholder oppression means that a majority shareholder takes action using their position or power, which puts the minority shareholder in an extremely unfavorable plight. The tactics can be so damaging as to result in the minority shareholder selling their share and leaving the company. This can happen in any corporate setting, although it most often occurs in closely held corporations.
Oppression tactics can include (but are not limited to) any of the following:
- Freeze out/squeeze out: When the oppressing majority restricts or prevents the oppressed minority from getting access to the company books and corporate shareholder information;
- Manipulation of company finances: When profits are not properly distributed as dividends; also failure to declare a dividend;
- Disproportionate compensation (for majority shareholders): When profits or dividends are distributed to majority shareholders in the form of excessive salaries and bonuses instead of being apportioned with the minority shareholders;
- Termination: When a minority shareholder gets fired or locked out of the physical premises of the corporation; their economic benefit from being one of the shareholders consequently gets cut off.
If you are a victim of minority shareholder oppression, you should contact corporate litigation attorney David H. Schwartz immediately. David has been handling all types of business litigation cases since 1974, including those between shareholders.
What Can be Done to Fight Minority Shareholder Oppression?
Knowing one’s rights — and exercising them — as a minority shareholder is one major step toward fighting minority shareholder oppression. For example, as a shareholder in a San Francisco Bay Area company, you have every legal right to access company records and books within your reasonable interest. It does not matter that you own less than 50% of the company’s stock. Denial of this basic entitlement counts as minority shareholder oppression under the law.
As a minority shareholder, your rights include:
- Access to the company’s record books
- Access to shareholder meetings
- The right to participate in the governance of the company
Aside from knowing your rights, another effective way of fighting this oppression is to examine your shareholder agreement. Have a careful look at the provisions, specifically, the right to buy-sell, right of first refusal and pre-emptive right, and the right of redemption. Does the agreement reflect the mutual expectations of the shareholders? Are there any indications that the majority shareholder is withholding information? Are the fundamental rights, as listed above, addressed in the agreement? Is the agreement legally sound?
Where Does a Commercial Litigation Attorney Come into Play?
When the presence of oppression is established, the typical first course of action is to bring the problem to the Board of Directors’ knowledge. This should give them the chance to fix the problem internally.
In the event this option doesn’t work, you can file a derivative action. This is where a commercial litigation attorney comes into play. Legal proceedings for cases like this can be quite complex, so having an experienced San Francisco area business litigation attorney will help to strengthen your case significantly.
Corporate Litigation Attorney Protects Minority Shareholder in San Francisco
With over 45 years of experience in business litigation processes, attorney David H. Schwartz has the knowledge, skill, and competence to effectively advocate for you as a minority shareholder. Mr. Schwartz’s extensive know-how in the field of commercial litigation guarantees high-caliber representation through any type of business dispute.
For minority shareholder legal protection in San Francisco and neighboring areas like Alameda County and San Mateo County, get in touch with attorney David Schwartz to schedule a consultation. Mr. Schwartz is no stranger to cases like yours, and he works hard to safeguard minority shareholder rights whenever they are in jeopardy.