Question 1

&#127963; What Are the Rights of Minority Shareholders in Closely Held Corporations?

Accepted Answer

All shareholders generally have at least the following rights: Right to vote on major decisions and election of directors; Right to participate in meetings; Right to receive dividends; and Right to inspect company records that are relevant to the shareholder’s interests. Furthermore, directors and majority shareholders owe a fiduciary duty to the corporation and its minority shareholders to act in the interests of the company. They must avoid self-dealing and act in compliance with the law and the corporation’s governing documents. Majority shareholders may breach their fiduciary duties by: Breaching contracts governing the operation of the corporation; Voting unreasonable compensation for themselves; Making loans to the company with high interest rates; Using corporate funds for the personal benefit of majority shareholders; or Making corporate decisions that personally benefit majority shareholders. If a majority shareholder violates your minority shareholder rights or breaches their fiduciary duty, you may be entitled to legal remedies.

Question 2

&#128274; How Do You Protect Your Minority Shareholder Rights in a Private Company?

Accepted Answer

When you invest in a company, it is important that you understand what you are getting into. Most often, your rights as a shareholder will be governed by a shareholder agreement. A shareholder rights lawyer can help you review the shareholder agreement and make sure that it adequately protects your interests. Pay special attention to provisions regarding: What issues you have the right to vote on; How directors and officers are elected or appointed; Restrictions on your right to participate in a competing business; Your right to purchase new shares that the company issues in the future; How and to whom your shares may be sold; How shares will be valued; Circumstances that may trigger a right for majority shareholders to buy out your shares; How many total shares there are, who owns them, and what percentage other shareholders own; and Substantive rules regarding the operation of the business. By paying close attention to the shareholder agreement and reviewing it with an attorney before investing, you can proactively protect your minority shareholder rights.

Question 3

&#128683; Can a Majority Shareholder Remove a Minority Shareholder?

Accepted Answer

There are a number of ways a majority shareholder may remove a minority shareholder, and doing so is not necessarily wrong. For example, the majority shareholder may buy out the minority shareholder’s shares, either by following the terms of the shareholder agreement or by negotiating with the shareholder. There are even steps a majority shareholder can take to legally pressure a minority shareholder to sell their shares. For example, they may remove the shareholder from the board of directors, terminate their employment, or prevent the company from doing business with them, so long as these actions do not violate the shareholder agreement. However, if the majority shareholder engages in oppressive tactics to freeze out a minority shareholder, they may be held accountable. Examples include: Refusing to pay dividends; Treating majority shareholders more favorably than minority shareholders; Preventing minority shareholders from exercising their rights to vote or participate in meetings; Breaching provisions of the shareholder agreement; Restricting access to records; and Terminating employment or limiting employment benefits in a way that disproportionately affects the shareholder’s interests as compared to other shareholders. Michigan provides remedies for the oppression of minority shareholders.

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