Minority Shareholder Oppression Definition and Remedies

IRVING, TX, July 18, 2012 (Press-News.org) When a small number of individuals own a corporation, business disputes are common. Yet, what happens when one or more of those owners have all the control in the corporation? What if the controlling shareholders (majority shareholders) use that power to abuse the other shareholders?

This article discusses minority shareholder oppression in close corporations and the business litigation options available to oppressed shareholders.

Minority and Majority Shareholders
A "majority shareholder" is a shareholder who owns more than fifty percent of the shares in a business. The term can also be used to refer to a group of shareholders who, collectively, have more than half of a corporation's shares. In contrast, a minority shareholder is a shareholder who holds less than fifty percent of the corporation's shares.

Generally all shareholders have rights to nominate and vote on directors, sell and purchase shares, receive dividends and receive assets after business dissolution (among other rights). Yet the practical value of these rights may depend significantly on the shareholder's ownership percentage.

Majority shareholders control the vote, often reducing the minority shareholder's influence. In fact, minority shareholders, while they have the right to vote, are very limited in the actual voting power that they have - a minority shareholder's voting position is only strong when the minority shareholder has a swing vote.

Close Corporations and Minority Shareholders
A close corporation is a corporation with few shareholders. Generally, shareholders participate in the management of a close corporation or are employees of the organization.

Because a close corporation has relatively few shareholders, there is usually not a market for the corporation's stock. This is precisely where problems occur. If a minority shareholder is frustrated with the decisions made in a larger corporation, he or she can simply sell his or her stock to get out. In a close corporation, selling stock can be difficult, if not impossible. Thus, minority shareholders often find themselves trapped as corporate stock owners with little or no control over the business.

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