Forced Sale of Stock

When disagreements arise between the shareholders of a corporation, those shareholders who hold a controlling interest in the corporation may try to force the minority owners to sell their stock. Because the majority owners ultimately control the declaration of dividends, the payment of compensation to officers and directors, and the use of the company’s assets, they can use these powers to exert pressure on the minority shareholders to sell. If the majority owners abuse these powers, the minority shareholders can take legal action to prevent these types of oppressive conduct.

In other situations, a shareholder may have personal reasons that dictate the sale of their stock in a privately-held company. When an external event is forcing the sale of stock, the other shareholders (who are the most logical buyers) may try to take advantage of the situation to buy the stock at a depressed price, one that is far below the fair value of the stock. The seller needs to know his rights with respect to the sale of stock. If the bylaws and/or shareholders’ agreements place no restrictions on the sale of stock, the seller may be able to identify other potential buyers that the other owners might find objectionable, thus creating an incentive for the other shareholders to increase their offering price. In other circumstances where the seller holds only a small stake, the other owners may try to take advantage of the seller by depriving the seller of the financial information that would allow the seller to determine the fair market value of the shares. In that case, the seller can usually force complete access to the books and records of the corporation through a mechanism known as a writ of mandamus.

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If you are being forced to sell your stock in a privately-held corporation, it is important to understand all of your rights as a shareholder. Call the attorneys at Powers Taylor.