Here in California, minority shareholders have rights under California Corporate Code 1600 and 1601.   The Watkins Firm has more than four decades of experience protecting the rights of minority shareholders and investors here  in San Diego and throughout California.  What are the your rights as an investor or shareholder here in California?

Generally speaking, a shareholder’s position with a minimum of 5% of the aggregated voting shares has the absolute right under California law to inspect and/or copy the record of shareholder’s names and addresses, as well as their holdings in the corporation within five business days and during normal business hours after providing a written demand. In addition, these minority shareholders have the right to inspect the corporation’s books, records, minutes and accounting records as well (so long as the information is directly and reasonably related to the protection of their interests as a shareholder).

Investors and Minority Shareholders have Rights in California That Cannot Be Modified by Corporate Documents

Investors and minority shareholders have rights protected by California law.  These rights cannot be modified or limited by the corporations bylaws or shareholders’ agreement.  The skilled shareholder dispute attorneys of the Watkins Firm have 40+ years of experience protecting shareholder rights. We will work to ensure you are able to assert those rights and gain appropriate access to the information necessary to protect and secure your investment.

One unfortunately common tactic against minority shareholders is to approve a merger with another corporation that reduces the value or power of minority shareholders.  The good news is minority shareholders who are not in favor of the proposed merger may apply for an involuntary dissolution of the corporation under California Corporate Code 1800(b)(3) and 1800 (b)(5).  However, this may result in less of a return than the fair market value of the shares in question.

Be wary of what is known as a “short-form merger” here in San Diego and across California.  When majority shareholders are in control of 90 percent of the shares in a company they may vote to contribute their shares to the new “parent” corporation who assumes a 90 percent ownership of your corporation.  You may have 30 days or less to either accept the offer they have made for your shares or bring a lawsuit to challenge the merger and protect your financial interests.

However, if any deal offered by majority interests is not fair or favorable, you have the right under law to force an appraisal of the value of your shares, and ultimately force the corporation to pay you the full fair market value of those shares prior to completion of the merger.  This protects you from suffering damages and loss of value or voting power as the result of a merger, while protecting your rights as an an investor or shareholder under California law.

Pro-Tip: “Let me give you an example. There’s 10 shareholders in a company and they’re not getting along and they’re fighting. So the majority says, okay, it’s not working. We’re going to sell the company for one 10th of what it’s worth. And then without you knowing about it, the minority shareholders find out two years later that four of the six majority members took jobs in employment with that new company, you’ve just been squeezed out of all your access by votes and by agreements and by people breaching their fiduciary duty.

Another common tactic is a “freeze out”, and it happens a lot. You got management thinking they have the right to do this and that, and you have this angry shareholder over here. And finally, they just say, don’t give them any more documents. Don’t let, them come to any more meetings and don’t pay them any dividends and just ignore them. Change the locks, fire them, terminate their employment… they do all these things and say, go ahead, Sue me.”

If the shareholder comes to us, and if we don’t get cooperation, we’ll file a lawsuit immediately. Or if we do get cooperation, we’ll look at it and we’ll try to work out the differences between the parties. Sometimes that’s all it takes is, is somebody in the middle (your Watkins Firm attorney) to explain things to our shareholder client or the corporate client, and to go back and forth and, and educate both sides on what’s wrong. Having an attorney on your side is going to balance some of that playing field. We we get to file lawsuits in a public court that could be reported upon. So if you’re trying to buy a company and all of a sudden there’s a shareholder lawsuit that’s been filed against that company and it won’t be resolved for three years, that’s going to be important to the management of the targeted acquisition company. And any decent and intelligent executive is going to take it seriously, get their lawyers on it and try to resolve it as soon as possible.” – Dan Watkins, Founding Partner

40+ Years of Experience Protecting the Rights of Minority Shareholders and Investors

What is the best strategy to protect your investment and interests? The Watkins Firm has 40+ years of experience serving the business, science and tech, real estate and medical / healthcare communities here in San Diego and across California. Investors and minority shareholders have rights here in California and we help our clients to protect their interests and assert those rights in order to protect their financial position and investment.

Protecting the rights of minority shareholders can be quite legally complex, and it is important to take timely action. We invite you to review our podcast Episode 14 – Shareholders’ Rights and Disputes as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.