Often, shareholders in private companies enjoy personal relationships as friends or family members in addition to their business relationship. Sometimes, they enter into shareholder agreements to define things like their respective management and voting powers, the apportionment of losses and profits, the payment of dividends, and their rights to buy or sell their shares from or to each other, the corporation, or an outside party. Occasionally, things don’t work out as planned: shareholders die, businesses struggle, relationships change, and disputes arise. When there is no shareholders’ agreement, minority shareholders who lack both contractual rights and voting power may have no control over how those disputes are resolved. Minority shareholders in closely held corporations have no statutory right to exit the venture and receive a return of capital like partners in a partnership do, and usually have no ability to sell their shares like shareholders in a publicly held corporation do; thus, if they fail to contract for shareholder rights, they will be uniquely subject to potential abuse by a majority or controlling shareholder or group. Unhappy with the situation and unable to change it, they are often unable to extract themselves from the business relationship, at least without financial loss.
Those in control of a closely held corporation may use various “squeeze-out” or “freeze-out” tactics to deprive minority shareholders of benefits, to misappropriate those benefits for themselves, or to induce minority shareholders to relinquish their ownership for less than it is otherwise worth. The types of conduct most commonly associated with such tactics include:
- Denial of access to corporate books and records
- Withholding payment of, or declining to declare, dividends
- Termination of a minority shareholder’s employment
- Misapplication of corporate funds and diversion of corporate opportunities for personal purposes
- Manipulation of stock values.
Various common-law causes of action exist to address misconduct by corporate directors and officers. Texas minority shareholders have also asserted causes of action for:
- An accounting
- Breach of fiduciary duty
- Breach of contract
- Fraud and constructive fraud
- Fraudulent transfer
- Unjust enrichment
- Quantum meruit
We can help.
If a majority owner has violated his fiduciary duty, or if you have been accused of violating your own fiduciary duty, the lawyers Powers Taylor can help. We invite you to contact us to discuss the matter as soon as possible.