One of the most common breach of fiduciary duty claims by minority stakeholders in a company is the “oppressed shareholder claim”.
Essentially, one argues that their reasonable expectations have been substantially and utterly defeated by the other stakeholders and as such, they are entitled to some relief from the Court.
The claim arises from the concept that owners may not act for the aggrandizement or undue advantage of themselves to the exclusion or detriment of other stakeholders.[1] It “is the fiduciary duty owed by … majority shareholder[s] in a closely held corporation to a minority shareholder, not to engage in oppressive actions toward minority shareholders.”
Given the broad “reasonable expectations” test, there is no all-encompassing list of acts that can be deemed oppressive, nor will the same acts be considered oppressive in every circumstance. However, the most common and recurring forms of oppression include the following. If you can check off at least three items on this list, then you may have a viable oppressed shareholder claim:
_______ Your business partner(s) has failed to or refused to declare dividends even though the Company is profitable;
_______ Your business partner(s) has terminated your employment and discontinued your compensation;
_______ Your business partner(s) has removed you from management of the Company;
_______ Your business partner(s) has paid himself/themselves excessive compensation – especially in place of distributions or dividends;
_______ Your business partner(s) has denied you access to the Company’s books and records;
_______ Your business partner(s) has diverted Company opportunities to other companies under unfair terms;
_______ Your business partner(s) has been diverting Company opportunities to himself/themselves or to companies they own
_______ Your business partner(s) has refused to hold meetings;
_______ Your business partner(s) has refused to give you sufficient notice of Company meetings;
_______ Your business partner(s) has cut you out of the hiring and firing process for Company employees;
_______ Your business partner(s) has changed the Company policy concerning distributions of Company income
_______ Your business partner(s) are using the Company bank account for their own personal, non-business-related expenses;
_______ Your business partner(s) has not given you your share of Company profits;
_______ Your business partners has attempted to void your shares or falsify corporate documents to cut you out of the business;
_______ Your business partners has taken the public position that you are no longer part of the business;
_______ Your business partners refuses to follow the terms of the Company’s operating agreement or shareholder agreement;
_______ Your business partner(s) has told clients, customers, or employees that you are no longer part of the business when in fact that is not the case;
_______ Your business partner(s) has cut off your access to the Company’s accountants, lawyers, employees etc.
_______ Your business partner(s) has cut off your access to the Company’s bank accounts;
As you can imagine the analysis is fact sensitive and can be particularly messy especially where the parties’ expectations are not sufficiently laid out in well drafted business governance agreements. Usually, someone bringing this type of claim is thinking: (1) how do I get rid of my business partner or (2) how do I force a buy-out, or (3) how do I regain some measure of control? Business-divorce, business breakups, partnership disputes etc. are very complex matters. Before making a decision you should absolutely discuss the facts of your claim with a qualified attorney. This article is for educational purposes. Contact us for a free initial consultation.
[1] See Harger, 204 F.Supp.2d at 707 (citing Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557, 559, 483 N.Y.S.2d 667, 473 N.E.2d 19 [1984]).
