As we have witnessed on the world’s stage, those who have power sometimes oppress the rights of those who do not possess power of equal measure. Forms of oppression can also occur in the corporate arena, specifically between majority and minority shareholders in closely held corporations. A “closely held corporation” has relatively few shareholders, and their shares are not listed on an exchange nor actively traded by securities brokers. Minority shareholder oppression can happen when majority shareholders’ conduct improperly impairs the rights of the minority (non-control group) shareholders.
Shareholder Oppression
Shareholder oppression occurs when the majority shareholders in a corporation unfairly prejudice the minority shareholders. Shareholder oppression often takes place in non-publicly traded companies. Fortunately, shareholders of closely held corporations have legal protections in Colorado law. Corporate officers and directors have a duty to act in the corporation’s best interests and in the interests of all the shareholders. Those in control:
- Must conduct themselves with the highest degree of loyalty and trust.
- Must exercise good faith.
- Cannot use their power to cause harm to other shareholders.
- Cannot exclude the rights of the minority shareholders.
- Cannot benefit at the minority shareholder’s expense.
Examples of Minority Shareholder Oppression
A minority shareholder faces oppression when they are denied their rights or when the majority shareholders are acting against the best interests of the minority. Examples of minority shareholder oppression include:
- Refusing or limiting access to the corporation’s books and records.
- Excluding the shareholder from meaningful information about the company.
- Failing to pay dividends to all shareholders.
- Forcing the sale of stock.
- Unfairly increasing compensation to majority shareholders.
- Terminating employment unfairly.
- Withholding information.
- Excluding minority shareholders from discussions and decisions.
- Blocking minority shareholders from the premises.
Colorado Law Protects Minority Shareholders
Without legal protection, a minority shareholder’s investment and expectations would be subject to the whims of majority shareholders. Colorado law protects all shareholders and takes care to safeguard the interests of minority shareholders. Shareholder rights include, but are not limited to:
- The corporation will provide shareholders with accurate information.
- Shareholders will be informed about the sale of substantial corporate assets.
- The corporation will act to promote the purpose of the corporation.
- The corporation will not take actions that benefit a group of shareholders at the expense of another group of shareholders.
- Shareholders will be informed of material information (negative and positive) when entering a transaction with the corporation.
You May Be Entitled to Recover Damages
If you are a minority shareholder of a corporation and have suffered damages by others within the corporation or by the corporation itself, reach out to our business and commercial litigation lawyers at Burg Simpson for help now.
Our business and commercial litigation attorneys at Burg Simpson have extensive experience in protecting shareholder rights. Our trial attorneys have helped enforce the rights of shareholders facing unjust corporate acts and have obtained recovery of damages for shareholders who have already incurred damages.