What are the rights of a minority shareholder in California?  Are you involved in an investor or shareholder dispute?  How can minority shareholders and investors protect their position in a dispute with the majority?  When should you assert shareholder rights?

A discussion of the rights of a minority shareholder in California generally occurs when a minority shareholder believes they are being taken advantage of, when majority interests take action to reduce the strength of minority shareholders and/or the value of their holdings.  In the classic example, majority interests approve the sale of the company to a new corporation or a merger with an existing corporation.  Imagine your surprise when you discover the value of your holdings in the new company or merger are substantially less powerful and the value of your ownership position has been substantially reduced.

The Watkins Firm has decades of experience in shareholder rights and disputes in California and provides sound counsel in these cases.  We work to negotiate the strongest potential outcome for our clients.  When a resolution cannot be negotiated we evaluate the options of mediation or arbitration as well as business litigation with our client to determine the best possible strategy based upon your unique circumstances.

While the minority shareholder may not receive cash from a merger, the law may require the majority to provide stock in the new corporation, a more lucrative asset or debt instrument, or stock in another corporation to offset your interest.

The rights of a minority shareholder in California under our laws include the option to force an appraisal of the value of your shares, and compel the corporation itself to pay you the full market value of those shares before the merger may be completed.  Each strategy has advantages and disadvantages and it is important to understand what are dissenting shareholder rights and how can the attorneys at the Watkins Firm protect your interests.

Pro-Tip: “We like to say, if it’s off a penny, it’s off a million. So we look at the financial disclosures you’ve given, and if they don’t add up or doesn’t seem straightforward, we suggest you demand for documentation. And if they don’t give it, that’s sort of like them pleading the fifth, you know something’s wrong when they’re not willing to give their investors, their owners full access, full transparency into what’s going on with the company.

So that sense that you have that something’s just not right. That should also be a sense that maybe I should get some help.  And you should do it right away. because when shareholder fraud or shareholder breach happens, it’s usually for a purpose. That is an opportunity for management. And it’s usually happening now.

And it’s probably a lot of money. Majority interests usually won’t do it unless it’s worth something. Think about timing.  If let’s say you don’t have a shareholder agreement, or you have a weak shareholder agreement and management has broad discretion to do a lot of things, and they’re getting ready to do some questionable things, to make a big profit. And you come along and say, wait a minute, I think something’s wrong here. And you pose an objection. Well, before you file a lawsuit, this opportunity that management has is still there. So if you are the squeaky wheel right away, before they go forward with whatever they’re doing, then you may profit from that. But if you’re not, then it’ll just happen. And you’ll, instead of being sharing in the profits, you’ll be fighting to claim you had rights to get some money back.” – Dan Watkins, Founding Partner

We invite you to review our podcast Episode 14 – Shareholders’ Rights as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.  Learn how we protect the interests of a minority shareholder and work to achieve the best possible outcome in these cases.