Minority shareholders in closely held companies (i.e. companies owned by a relatively small number of shareholders) who believe they are being unfairly oppressed face significant, but not insurmountable, obstacles. In a fairly recent case, the Texas Supreme Court severely limited remedies available to such shareholders. The court did, however, recognize a statutory and derivative cause of action (i.e., a lawsuit brought on behalf of the corporation) for shareholder oppression: namely, the appointment of a rehabilitative receiver. If majority shareholders “abuse their authority over the corporation with the intent to harm the interests of one or more of the shareholders, in a manner that does not comport with the honest exercise of their business judgment, and by doing so create a serious risk of harm to the corporation. . . .”, such a remedy is available to minority shareholders.
The Court also acknowledged statutory and direct causes of action for denial of access to corporate books and records as well as multiple common law causes of action that may be brought on behalf of closely held corporations:
- an accounting
- breach of fiduciary duty
- breach of contract
- fraud and constructive fraud
- fraudulent transfer
- unjust enrichment
- quantum meruit (i.e., reasonable value of serviced rendered)
- withholding or refusing to declare (or failure to declare higher) dividends
- unlawful termination of employment in extreme circumstances
- misapplication of corporate funds and assets
- diversion (usurpation) of corporate opportunities
- manipulation of corporate share values.
If you are a minority shareholder and believe you are being treated unfairly by the majority, please call us to discuss your options.