Shareholder disputes involving a minority interest are unfortunately quite common. Majority interests mistakenly believe they can bully others and dictate decisions and disbursements. Officers of the company, board members and majority shareholders often use harsh tactics to “control” minority interests who are concerned about the decisions of management, the improper or inappropriate distribution or allocation of funds, and the lack of transparency and access to company books, records and internal communications. This can result in shareholder disputes or the need to file a proactive lawsuit.
Fortunately, California law is quite aggressive in its protections of minority shareholders in a corporation. In fact, California law specifically favors the minority shareholder in many ways unless the corporate documents specifically contain verbiage to the contrary. Here in California, majority shareholders have a fiduciary obligation to minority shareholders to uphold the highest levels of good faith and loyalty, as well as a duty to protect the interests of the minority.
What tactics to majority interests use to intimidate or block progress in shareholder disputes involving a minority interest? Common “freeze out” tactics include but are not limited to:
- Limiting access to or withholding information regarding corporate operations
- Excessive or inappropriate payments or salaries for majority shareholders
- Withholding dividends
- Entering agreements, contracts or leases that favor the majority interests at the expense of the minority interests
- Failing to hold regular corporate meetings and excluding minority interests from genuine participation in corporate decisions
- Retaliation or harsh action against minority interests, or termination of employment
If you are involved in shareholder disputes involving a minority interest or are contemplating a derivative lawsuit or other action against majority interests we invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.