Company shareholders should focus on the health and success of the business and treat one another fairly.
Unfortunately, that is not always the case. Minority shareholders often get taken advantage of or mistreated due to their lack of influence and control over the business.
Minority shareholder oppression can negatively affect the shareholders and the company’s integrity. If you are a minority shareholder, understanding your rights and how to protect them is essential.
A shareholder is a person, company, or entity that owns a share in a company’s stock. A shareholder who owns over 50% of a company’s shares is a majority shareholder. They hold significant influence over the business operations and the company’s strategic direction.
Minority shareholders hold less than 50% of a company’s stock. Due to their smaller holdings, minority shareholders have lesslack control or influence over the business operations and decision-making.
All shareholders are generally afforded certain rights by law and by written agreement. Majority shareholders are granted broad discretion in how they conduct the business.
Depending on the organization’s structure, they can name a board of directors, hire and fire employees, and determine when and how to distribute profits.
Minority shareholders often have fewer rights and privileges. They mainly have the right to:
- Attend shareholder meetings and vote on day-to-day operations;
- Participate in electing directors;
- Review and inspect the company’s financial statements, meeting minutes, and company records; and
- Participate in the adoption or modification of bylaws.
Written shareholder agreements can expand minority shareholder rights.
Oppression of minority shareholders is common even though shareholders must act in good faith toward one another and with loyalty to the company. Minority shareholder oppression occurs when majority shareholders deny their rights or act in a way that prejudices them.
Majority shareholder actions against the minority can be arbitrary, overbearing, or illegal. Many disputes and unfair treatment develop due to greed, disagreements about the company’s direction, and power.
Unfortunately, minority shareholder oppression happens often. To be considered oppressive and actionable, the majority’s actions must be inherently unfair and harmful to the interests of the minority shareholder. Some examples of minority shareholder oppression include:
- Denying access—majority stakeholders may oppressively try to restrict or deny minority shareholders from accessing company books and records, attending meetings, or entering company property;
- Dividend discrimination—when majority shareholders receive preferential treatment for dividend payouts and minority shareholders receive lower or no dividends;
- Share dilution—when a company issues more shares, it can decrease the value of existing shares and reduce the percentage of the company that minority shareholders own, as well as reduce their voting power;
- Paying excessive salaries to majority shareholders—majority shareholders paying themselves high salaries or transferring company income to themselves can oppress the minority shareholders;
- Forcing stock sales—majority shareholders can force the minority to sell their shares back at unfair prices; and
- Misappropriation of funds—using company funds to pay for majority shareholder personal expenses.
The majority may also try to exclude minority shareholders from decision-making. Consult a business lawyer if you are unsure whether the majority’s actions are oppressive. They can review the facts of your situation and determine whether you are experiencing minority shareholder oppression.
In Florida, if a minority shareholder is oppressed, they can use their rights of record inspection to determine whether the majority has performed improper actions.
They can also review any shareholder agreements or bylaws to identify any provisions that might provide minority shareholder protection. Alternative dispute resolution processes are also available to resolve shareholder disputes.
If a minority shareholder believes their rights were violated, they can initiate a lawsuit against the majority or the corporation’s directors or officers. They can also file a derivative action, a lawsuit filed in the corporation’s name and alleging misconduct by its officers, directors, or majority.
A variety of remedies are available for the oppressed shareholder, including:
- Dissolution of the corporation and liquidation of its assets;
- Monetary damages;
- Court-ordered buyout of minority shares;
- Placing the company into receivership;
- Injunctive relief to stop oppressive acts;
- Rescission or declaration that improper corporate actions or transactions are invalid.
Florida courts have broad authority to create equitable remedies to protect minority shareholders.
If you are a minority shareholder of a company and want to understand your rights or are experiencing unfair treatment, BrewerLong is the firm for you. Our team has been helping Florida shareholders and corporate clients protect their interests since 2008.
As a small firm, we pride ourselves on providing transparent communication, commitment to our corporate clients, and giving honest legal advice. Our attorneys have breadth and depth of experience to help you navigate the complexities of shareholder agreements and disputes.
We will advise you on protecting your rights and avoiding litigation. If litigation arises, we can serve as your zealous advocate. Contact BrewerLong today to learn how to protect your minority shareholder rights.
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