Shareholder Rights

Protecting the Rights of Minority Shareholders

Shareholder oppression happens when majority owners breach their fiduciary duties and use their power to deny equal treatment to minority shareholders, i.e. those who own less than 50% of the business.

In Jones v. H.F. Ahmanson & Co., (1969) 1 Cal.3d 93, the California Supreme Court described the fiduciary duties of controlling shareholders:

[M]ajority shareholders, either singly or acting in concert to accomplish a joint purpose, have a fiduciary responsibility to the minority and to the corporation to use their ability to control the corporation in a fair, just, and equitable manner. Majority shareholders may not use their power to control corporate activities to benefit themselves alone or in a manner detrimental to the minority. Any use to which they put the corporation or their power to control the corporation must benefit all shareholders proportionately and must not conflict with the proper conduct of the corporation’s business. … The rule that has developed in California is a comprehensive rule of “inherent fairness from the viewpoint of the corporation and those interested therein.” The rule applies alike to officers, directors, and controlling shareholders in the exercise of powers that are theirs by virtue of their position and to transactions wherein controlling shareholders seek to gain an advantage in the sale or transfer or use of their controlling block of shares. 

Thus, majority shareholders breach their fiduciary duty when they exercise control of the company or seek a personal advantage in a way that is unfair, unjust, or inequitable to minority owners. This is the essence of a “shareholder oppression” lawsuit in California.

When this happens, what can minority shareholders do to protect their rights?

Fortunately, California law provides minority owners with the tools to fight abusive and unfair treatment. These include (1) the right to inspect corporate records; (2) the right to sue when controlling owners, officers, or directors breach their fiduciary duties; (3) the right to petition for dissolution and liquidation of the corporation; and, in some cases, (4) the buyout of the minority’s interest at a fair value ordered by the court. Each of these remedies is explained in detail below.

  1. The Right to Inspect Records
  2. The Right to Enforce Fiduciary Duties
  3. The Right to Petition for Involuntary Dissolution
  4. The Buyout of the Minority’s Interest