A Complete Guide to Oppression of Minority Shareholders
If you happen to be a shareholder in a corporation, you need to be aware of shareholder oppression and its remedies. A majority of companies established across the United States are structured as corporations and their shares are held by various shareholders. Some of these companies are publicly owned companies, while others are privately owned. Minority shareholders in public companies are safe, but those of privately-owned companies may feel oppressed in some situations. Minority shareholders in a publicly-traded company have a lot of options in case they feel their rights are compromised, or they are simply oppressed. They can opt to vote out a board member or simply sell the stocks if nothing seems to go in their favor.
Things are quite different when it comes to privately-held companies, where minority shareholders (holding less than 50% of company shares) are more vulnerable to oppression. It should be noted that there are plenty of legal options available for minority shareholders if they sense oppression against them in a privately-held company. However, this is only possible when minority shareholders know the oppression is occurring against them. We have put together all the details you need to know regarding the oppression of minority shareholders. Further details are given below:
What is Oppression of Minority Shareholders?
Oppression, itself is a negative word, in business terms, minority shareholder oppression means the practice of exercising power in an unjust manner without the agreement or consent of minority shareholders. Majority shareholders can use a variety of methods to practice oppression of minority shareholders, these methods include squeeze-outs, shareholder agreement violations, and breach of fiduciary duty. In all the aforementioned, there are chances of oppression of minority shareholders.
Minority Shareholder Oppression New York
In New York, according to legal authorities' minority shareholder oppression occurs when the reasonable expectations of a minority shareholder are defeated by any conduct with the consent of majority shareholders. These reasonable expectations of minority shareholders can be anything like the right to express their opinion in corporate management, a fair share of earnings, and employment in the corporation. The court can assess and determine whether any conduct of the majority has substantially defeated the expectations of a minority shareholder, and what the majority shareholders should have known before the minority shareholder joined the enterprise.
Remedies for an Oppressed Minority Shareholder:
New York Law provides minority shareholders with plenty of options if they feel any oppression or mismanagement, which may result in their loss. A minority shareholder has the right of filing an application to the tribunal for relief in case of oppression.
Minority Shareholders Remedies Against Oppression and Mismanagement
The oppressed shareholders hold the right of requesting inspection of certain documents and other components of the operations of a business. If there is no result of doing this, oppressed shareholders may opt to bring a derivative suit against majority shareholders. However, before filing a derivative suit, the oppressed minority shareholder should raise concerns to the board and request for action for the remedy of the alleged harm. Moreover, remedies for an oppressed shareholder also include filing complaints to the tribunal.
Prevention of Oppression and Mismanagement:
The applicant can file the application to the tribunal in case of the conduct of a company affecting its interests, its members, or any specified class of members. The tribunal may find anything unfair or prejudicial to the interests of the company or its members.
In such a situation, the tribunal holds the right of issuing orders like:
Regulations regarding the conduct of the company in the future
Order members of the company to purchase the shares of a particular member who was involved in unjust conduct.
Restrictions regarding transfer and allotment of shares
Termination of the director of the company or any modification in the agreement that is found to be prejudicial against the interests of the company or any member of the company.
Shareholder Derivative Suit:
The oppressed shareholders have the right to effectively act on the behalf of the corporation. For this action to happen, the plaintiff must at the time of the cause of action or received from someone else by operation of law from someone who held the shares at that time.
The complaint should include the efforts of the shareholder that were used to obtain appropriate relief from the corporation. Otherwise, the complaint should state justified reasons why such efforts were not made on the behalf of the complainant. The approval of the court is required before a suit is discontinued or settled. Affected shareholders should be notified at the discretion of the court.
In case the complainant shareholder succeeds in the action or receives anything as a result of the suit, the plaintiff can be awarded reasonable expenses and attorney’s fees. The court can also direct the shareholder account to the corporation for the remainder of the proceeds. New York Law has a general rule that because shareholder derivative suit is brought on behalf of the corporation. Therefore, any recovery obtained as a result of a shareholder derivative suit will belong to the corporation. Hence, it is necessary to make sure that you hire the services of experienced business litigation attorneys that are capable of helping you out and bringing you a recovery capable of fulfilling your loss.
Need advice about New York Shareholder Derivative Litigation Attorneys?
Call Kleyman Law Group (Brooklyn, NY Commercial & Business Litigation Attorneys) Today!
If you sense any kind of oppression in a privately-held company against you, and you are not sure of how to deal with it, then it is time to hire business litigation attorneys. A boutique law firm like Kleyman Law Group New York can help you in such a situation. Our team of experienced business litigation attorneys will understand your problem and if your situation resembles shareholder oppression then we will provide you with plenty of options that can come in handy for you.
In addition to the oppression of minority shareholders in privately-held companies, we also deal in other business litigation matters as well. If you want any advice regarding legal matters of your business, simply contact us, and we will provide you with a piece of advice that will be helpful for you in taking your business further.