Status of Minority Shareholder Oppression in Texas

Status of Minority Shareholder Oppression in Texas

In an ideal world, everyone gets a fair deal. In the real world, however, the powerless are often given a raw deal by the powerful. Texas minority shareholder oppression is a perfect example of this. Shareholder oppression occurs when the minority shareholders in a corporation are unfairly treated by the majority shareholders. It occurs more commonly in close corporations because they can’t sell their shares on the public market. This severely limits their options and makes them vulnerable to predation.

How majority shareholders can make life difficult for minority shareholders

Every shareholder is driven by self-interest. Whenever there is a clash of interests, the majority shareholders may take deliberate actions to undermine the economic interests of the minority shareholders, such as refusing to declare dividends or forcing them out of the company. If tensions escalate, majority shareholders may resort to tactics such as barring the minority shareholders from entering the corporate premises or denying them the right to inspect corporate records.

Minority shareholders have never had it easy. Their plight became worse, however, when the corporate law was amended to eliminate the common-law right that allowed them to veto major corporate changes, such as mergers. Some people claim the business-judgment rule, along with the concept of majority rule, has enabled callous majority shareholders to prey on the investments of minority shareholders.

Ritchie vs Rupe: The landmark decision that overturned minority shareholder doctrine

When minority shareholders find themselves at the receiving end of injustice, their last resort is to take the matter to the court. Previously, Texans owning less than 50 percent of a privately held corporation (minority shareholders) used to be able to sue majority owners who try to dilute their shares, lower the value of their investment, push them out of the business, or other oppressive actions. Some were successful.

But that changed in 2014. In the landmark Ritchie v. Rupe lawsuit, which was brought by a Texas corporation’s minority shareholder who wanted out but was offered a deal she just couldn’t accept, the Texas Supreme Court ruled the common law cause of action for shareholder oppression is not recognized in Texas. This ruling completely overturned the existing shareholder oppression doctrine and has made it harder for minority shareholders to sue majority shareholders for minority shareholder oppression in Texas.

The rights minority shareholders have to protect their interests

So, what rights do minority shareholders have and how can they protect their interests? In various shareholder oppression lawsuits, such as Moroney vs Moroney, Texas courts have ruled that the rights of the shareholders will be protected according to the exigencies of the situation.

So, all is not lost for Texans who hold minority shares in companies. They still have several rights, such as the right to information about the corporation, a proportional share in corporate profits, a voice in corporate affairs, the right to transfer stocks, the duty of recognition of share ownership, the duty to account, and the duty to impartiality.

This means minority shareholders can still take on the majority shareholders, à la David vs Goliath, if they have a skilled shareholder dispute attorney representing them. Attorneys at the Texas-based law firm of Bennett, Weston, LaJone & Turner, P.C., represent business clients throughout Texas in a broad range of shareholder disputes that include breach of fiduciary duty, dividend issues, self-dealing, corporate misconduct, acquisitions and divestitures, and minority owner oppression.

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