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| SHAREHOLDER RIGHTS |
What Is Shareholder Oppression?
Shareholders in large corporations usually do not have to worry about their individual rights.
Shareholder relations in publicly traded corporations are closely regulated by the SEC and the
individual exchanges. Furthermore, such shareholders usually don't have any personal contact
with the management, and the shareholder can always sell the shares on the open market. Not
so in small, closely-held corporation. Shareholders of these corporations do interact with
management and are always at risk of retaliation based on personal animosity. Shareholders
in small corporations usually cannot sell their shares. Therefore, minority shareholders in
these corporations are trapped and dependent on the good graces of those with voting control.
When majority shareholders act to take advantage of this situation and harm the interests of the
minority shareholders, such conduct is called "oppression." Oppressive conduct involves a
pattern of repeated violations of the shareholder's rights. Often this conduct is designed to
"squeeze out" a minority shareholder--force her to sell her shares, usually at an unfairly low
price. Also the controlling shareholder will sometimes "freeze out" the minority shareholder by
denying her information, economic return, or even acknowledgement of her share ownership.
Shareholders in large corporations usually do not have to worry about their individual rights.
Shareholder relations in publicly traded corporations are closely regulated by the SEC and the
individual exchanges. Furthermore, such shareholders usually don't have any personal contact
with the management, and the shareholder can always sell the shares on the open market. Not
so in small, closely-held corporation. Shareholders of these corporations do interact with
management and are always at risk of retaliation based on personal animosity. Shareholders
in small corporations usually cannot sell their shares. Therefore, minority shareholders in
these corporations are trapped and dependent on the good graces of those with voting control.
When majority shareholders act to take advantage of this situation and harm the interests of the
minority shareholders, such conduct is called "oppression." Oppressive conduct involves a
pattern of repeated violations of the shareholder's rights. Often this conduct is designed to
"squeeze out" a minority shareholder--force her to sell her shares, usually at an unfairly low
price. Also the controlling shareholder will sometimes "freeze out" the minority shareholder by
denying her information, economic return, or even acknowledgement of her share ownership.
What Rights Do Shareholders Have?
What Is a Derivative Suit?
When bad conduct of directors or controlling shareholders harms the
corporation, and is not just directed at a particular shareholder, such as
by waste, mismanagement, misappropriation, excessive compensation,
self-dealing transactions, or usurping corporate opportunities, then all the
shareholders suffer equally from the damage to the corporation, and the
right to sue for this type of wrong-doing belongs to the corporation, not to
the shareholders. However, the people who are stealing from the
corporation usually are the very same ones who are running the
corporation, and they are not going to sue themselves. Therefore, the law
provides a special procedure in which a shareholder can file a lawsuit
against the directors and controlling shareholders on behalf of the
corporation. Although the recovery technically belongs to the corporation,
there is a procedure that allows the court to pay the damages directly to
the innocent shareholders, which prevents the guilty ones from benefiting
and eliminates the problem of double taxation of the damages.
When bad conduct of directors or controlling shareholders harms the
corporation, and is not just directed at a particular shareholder, such as
by waste, mismanagement, misappropriation, excessive compensation,
self-dealing transactions, or usurping corporate opportunities, then all the
shareholders suffer equally from the damage to the corporation, and the
right to sue for this type of wrong-doing belongs to the corporation, not to
the shareholders. However, the people who are stealing from the
corporation usually are the very same ones who are running the
corporation, and they are not going to sue themselves. Therefore, the law
provides a special procedure in which a shareholder can file a lawsuit
against the directors and controlling shareholders on behalf of the
corporation. Although the recovery technically belongs to the corporation,
there is a procedure that allows the court to pay the damages directly to
the innocent shareholders, which prevents the guilty ones from benefiting
and eliminates the problem of double taxation of the damages.
What Is the Buy-Out Remedy?
When those in control of the company violate a shareholders' rights to the degree that share ownership in the company can become essentially
worthless or meaningless, then the courts can order the controlling shareholder to pay for what he has essentially already stolen. The the court
orders a buy-out, then the court will determine the price. The law requires a "fair price." Generally, the jury determines what a fair price would be
based on expert testimony from each side.
When those in control of the company violate a shareholders' rights to the degree that share ownership in the company can become essentially
worthless or meaningless, then the courts can order the controlling shareholder to pay for what he has essentially already stolen. The the court
orders a buy-out, then the court will determine the price. The law requires a "fair price." Generally, the jury determines what a fair price would be
based on expert testimony from each side.
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More information at www.ShareholderOppression.com.
By law, shareholders have the right to have their shares registered and acknowledged by the
company, to vote at annual shareholders' meetings for directors and on other matters brought
before the shareholders, to attend annual and any special meetings where shareholders may
confront directors and demand information, to have reasonable access to important information
about the corporation, including the right to an annual financial statement upon request and the
right to inspect the books and records of the corporation. Shareholders have a right to have their
share interests treated equally with all other shares of the same class--same voting rights per
share, same dividends per share. In closely held corporations, shareholders may have
additional rights depending on the particular situation and express or implied agreements
among the shareholders. Courts will protect a shareholder's "reasonable expectations." For
example, if the shareholders set up the corporation so that all the shareholders were employed
by the corporation, all profits were to be distributed solely as salary, and all shareholders
participated in management of the company, then those shareholders might have a
"reasonable expectation" of being employed so long as they owned their shares. There is no
right to dividends per se. Courts generally respect the discretion of the directors in deciding
whether to distribute profits or keep them in the business, but courts also protect the rights of
shareholders to some form of financial return on investment. If the controlling shareholders
structure the company's finances so that some shareholders benefit economically from the
corporation but others do not, then courts will recognize a violation of the shareholders' rights.
Finally, shareholders have the right to be treated with good faith and honesty by the directors
and controlling shareholders.
company, to vote at annual shareholders' meetings for directors and on other matters brought
before the shareholders, to attend annual and any special meetings where shareholders may
confront directors and demand information, to have reasonable access to important information
about the corporation, including the right to an annual financial statement upon request and the
right to inspect the books and records of the corporation. Shareholders have a right to have their
share interests treated equally with all other shares of the same class--same voting rights per
share, same dividends per share. In closely held corporations, shareholders may have
additional rights depending on the particular situation and express or implied agreements
among the shareholders. Courts will protect a shareholder's "reasonable expectations." For
example, if the shareholders set up the corporation so that all the shareholders were employed
by the corporation, all profits were to be distributed solely as salary, and all shareholders
participated in management of the company, then those shareholders might have a
"reasonable expectation" of being employed so long as they owned their shares. There is no
right to dividends per se. Courts generally respect the discretion of the directors in deciding
whether to distribute profits or keep them in the business, but courts also protect the rights of
shareholders to some form of financial return on investment. If the controlling shareholders
structure the company's finances so that some shareholders benefit economically from the
corporation but others do not, then courts will recognize a violation of the shareholders' rights.
Finally, shareholders have the right to be treated with good faith and honesty by the directors
and controlling shareholders.