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What is Shareholder Oppression and How Does it Work?

by Olufisayo
Shareholder Oppression

Shareholder oppression can be a challenging situation for a minority shareholder to deal with as well as legally prove. Shareholder oppression happens when the majority shareholders or controlling shareholders in a company use their power in a way that unfairly harms minority shareholders or undermines initial reasonable expectations set when the agreement was formed.

It is more likely for minority shareholders to be oppressed in a closely held (private) business since shareholders cannot easily sell their shares if they believe that they are being treated unfairly and the company’s business information is not publicly available. Though it can happen in a publicly-traded company, it is not as common.

Shareholder oppression occurs in a variety of ways such a the majority stakeholder(s) refusing to declare dividends in lieu of their own interest, excluding minority shareholder from the decision-making process (financial and/or managerial), as well as majority shareholders making deals that only benefit themselves to the detriment of those with a minority stake. Though shareholder oppression can be difficult to prove, it is not impossible. Click here for more information. Learn more about shareholder oppression below.

Proving Shareholder Oppression

Proving shareholder oppression without the help of a business attorney can be an uphill battle. While it is possible (in theory), it is not recommended. To prove that a majority shareholder(s) is oppressing a minority shareholder, a few things must be proven such as:

  • Proof of shareholder status.
  • Proof that the minority shareholder(s) has been unfairly treated (burdensome, harsh, or wrongful conduct).
  • Evidence that the majority shareholder(s) has acted in a way that substantially defeats the minority’s expectations formed at the time of the agreement.

The term “oppressive conduct” has been used to cover a wide variety of circumstances that can arise as a result of unfair behavior perpetrated by majority stakeholders. Courts will take into account the facts of specific situations to determine whether or not oppressive behavior has occurred.

What can be done about it?

In general, if a minority stakeholder believes that they are being subjected to oppressive conditions via the actions (or inactions) of the majority, the first step can be to have a discussion about it with majority stakeholders (if possible). If the discussion occurs and relief is not granted or it is not possible to have a discussion with those who are imposing unfair treatment, it is advised that you consult with an experienced business attorney.

If it is not able to be resolved through a discussion with your attorney and the majority and/or an arbitration process, the last step is to formally file a shareholder oppression claim. It should be noted that minority shareholders do not actually have to suffer damages or losses to file a claim.

The Benefits of Working with a Business Attorney

If you are a minority shareholder and the majority have denied you the opportunity to be included in important business decisions, are denied access to financial reporting, not allowed to sell your shares, etc. then it is in your best interest to consult with an attorney.

In many cases, minority shareholder complaints are swept under the rug within closely help corporations. Issues are suppressed and/or pacified with sweet words but a lack of action. Working with an aggressive and experienced business attorney will help to even the playing field and greatly increase the likelihood of a successful outcome.

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