In cases of severe shareholder oppression, dissolution of the corporation may be necessary to protect minority shareholder rights. Minority shareholders meeting specific criteria (Corp. Code, § 1800, subd. (a)(2), (3)), may file a verified complaint for involuntary dissolution based one or more of the reasons listed in the statute. (Corp. Code, § 1800, subd. (b)(1)-(6).) “The dissolution of a corporation is an equitable action in which jurisdiction is granted by statute, and a court of equity is to take jurisdiction of the cause, once a requisite showing is made, and then exercise its discretion in granting or refusing equitable relief.” (7B Am.Jur. Pl. & Pr. Forms Corporations § 439, italics added.)
“An action for an involuntary dissolution of a corporation is in the nature of a special proceeding in that the proceedings and relief sought are created by statute.” (Weisman v. Odell (1970) 3 Cal.App.3d 494, 496-497.) While a shareholder or creditor of a corporation may intervene, an involuntary dissolution proceeding is against the corporation. (Corp. Code, § 1800, subd. (c).)
Generally speaking, the court may order involuntary dissolution when it finds any of the following:
- There is internal dissension and two or more factions of shareholders in the corporation are so deadlocked that its business can no longer be conducted with advantage to its shareholders or the shareholders have failed at two consecutive annual meetings at which all voting power was exercised, to elect successors to directors whose terms have expired or would have expired upon election of their successors.
- Those in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders or its property is being misapplied or wasted by its directors or officers.
- In the case of any corporation with 35 or fewer shareholders (determined as provided in Section 605), liquidation is reasonably necessary for the protection of the rights or interests of the complaining shareholder or shareholders.
(Corp. Code, § 1800, subds. (b)(3)–(5).)
To petition for dissolution, a shareholder (or several shareholders) must hold more than one-third of the outstanding shares, excluding shares of the alleged wrongdoers. (Corp. Code, § 1800, subd. (a)(2).) Additionally, shareholders who hold one-half or more of the seats on the board of directors may also petition for dissolution, even if their total ownership is less than one-third. (Corp. Code, § 1800, subd. (a)(1).)
If you are a minority owner and you believe the majority are treating you unfairly, contact an experienced attorney to help you protect and defend your investment.