Minority Shareholders Have Rights Too
Minority shareholders should not assume that their interests will always be secondary to the will of majority shareholders. Certainly, in general, majority shareholders carry the bigger stick; however, minority shareholders have a few big sticks of their own. Two such examples are the “oppression remedy” and “derivative actions.” Simply put, the oppression remedy allows stakeholders to address wrongs committed by the corporation, and a derivative action allows stakeholders to remedy wrongs done to the corporation. Remember — minority shareholders have rights too, so be sure to exercise them.
The oppression remedy is one of the most powerful tools available to minority shareholders. In essence, it is a ‘fairness’ based remedy which is meant to protect stakeholders, including minority shareholders, from corporate conduct (including from majority shareholders and directors) that is oppressive, unfairly prejudicial, or unfairly disregards the interests of the stakeholder.
Among other things, oppressive conduct can include a lack of good faith by majority shareholders or directors, discrimination against a minority shareholder, and failing to disclose material information to minority shareholders. In other words, the oppression remedy is typically available when majority shareholders or the corporation are doing something that is unfair and disregards the reasonable expectations of a stakeholder, including a minority shareholder.
The oppression remedy allows a court to order anything it thinks fit to remedy unfairness, including (among a broad range of other options), a restraining order prohibiting the oppressive conduct, an order varying or setting aside a transaction or contract, an order compensating an aggrieved party, or an order requiring the corporation or any other person to buy an aggrieved party’s shares.
For example, where the board of directors of a corporation took steps to unfairly devalue the shares of a minority shareholder while preferring another shareholder (who was a director), a court used the oppression remedy to compensate the injured minority shareholder. The court found the director who benefited from the oppressive conduct to be personally liable for the improper conduct.
When a corporation has been wronged but refuses to take action, corporate stakeholders, including minority shareholders, may be able to sue on behalf of the corporation by way of a derivative action. This includes instances where the wrongs are committed by majority shareholders, directors, or the management of the corporation.
For example, a senior executive may have improperly taken money or property from the corporation, yet the corporation (under the direction of the board installed by the majority shareholder) refuses to sue for recovery. Subject to certain exceptions, by way of a derivative action, minority shareholders have the ability to sue for recovery on behalf of the corporation.
Know Your Options
If you are a minority shareholder, and you feel that you are being treated unfairly by majority shareholders, the corporation, or its board and senior management, there are tools to assist in remedying the unfairness. The oppression remedy and derivative actions are just two examples, and they can put a big stick in the hands of minority shareholders.