In some respects, minority shareholders in closely held corporations are always subject to the whims of the controlling or majority shareholders. Those in charge have a duty to make decisions that benefit the business as a whole, not necessarily each individual shareholder. The majority may be accused of abusing its power, or causing the situation to become unfair or oppressive to the minority shareholders.
In Michigan, an action alleging shareholder oppression may be brought under MCL450.1489 “to establish that the acts of the directors or those in control of the corporation are illegal, fraudulent, or willfully unfair and oppressive to the corporation or to the shareholder.” Willfully unfair and oppressive conduct is further defined as “a continuing course of conduct or a significant action or series of actions that substantially interferes with the interests of the shareholder as a shareholder” (emphasis added) and may include acts such as:
- failing to pay dividends where there is a history of dividend payments
- payments of unreasonable or excessive compensation to majority stockholders,
- withholding financial or other pertinent information,
- terminating employment or reducing compensation of the minority shareholder,
- amending formation documents,
- other actions intended to “freeze-out” the minority shareholder
Whether the majority’s actions rise to the level of oppressive conduct depends on the facts and circumstances of each case. If you believe you are a victim of shareholder oppression, or if you or your business have been accused of oppressive conduct, a knowledgeable attorney can help you determine how to proceed.