3 Reasons Minority Shareholders Sue Majority Shareholders

As fellow shareholders in a corporation, minority and majority shareholders are hypothetically “on the same team” with respect to their ultimate interests being aligned, at least with respect to share value. But, of course, as with any type of institution made up of individual voices and wills, disputes can erupt over any number of issues relating to power, control, direction, and a host of other concerns related to a corporation’s fortunes.

 

Tension between shareholders can be especially acute where there is a majority shareholder who, by definition, owns more than 50% of the shares of the corporation and, in most cases, has the ability to control the vote for officers and other large decisions affecting the corporation. When there is perceived abuse of minority shareholder rights, one or more minority shareholders may decide to bring a lawsuit to enforce those rights. Here are three common reasons this occurs.

Refusal to Allow Access to Corporate Books and Records

Minority shareholders do have the right to review corporate books and records relating to accounting, corporate meetings, and other significant issues affecting the corporation. If a majority shareholder takes actions which prevent other shareholders from accessing the records in order to understand the corporation’s finances and other innerworkings, they may sue to gain access.

Breach of Fiduciary Duties

Similar to the officers and directors of a corporation, majority shareholders have fiduciary duties to the other shareholders in the corporation, namely the duty to put the interests of the corporation above their own in how they conduct business affecting the corporation.

 

Generally, this means they must act in good faith and exercise the same type of duty of care in acting as a majority shareholder on behalf of the corporation, taking action which benefits all shareholders proportionally, not just themselves. For example, if the majority shareholder votes to approve a sale of the company’s assets, there should be evidence that the price is fair, and that there is not an outside benefit motivating the sale which is not shared with other shareholders.

 

Similarly, there is also a duty not to compete with the corporation or to usurp business opportunities that should have gone to the corporation. Thus, a situation in which a majority shareholder acts to avoid engaging in a business opportunity which then goes to another business owned by the majority shareholder could invite a breach of fiduciary claim by the minority shareholders.

Refusal to Allow Access to the List of Shareholders

Knowing who the other shareholders in a corporation can be key to working together to leverage control in a corporation, and it is the right of certain qualified shareholders to demand access to a list of the shareholders of the corporation, including contact information. Refusal to provide access can result in legal action.

Experienced Representation in Your Shareholder Litigation Matter

The business litigation attorneys at Wagenseller Law Firm in downtown Los Angeles have extensive experience in representing businesses, corporations, directors, officers, and shareholders in shareholder disputes. We have worked with businesses and individuals throughout Southern California across a wide range of industries, including financial service entities, manufacturers, importers, retail stores, restaurants, entertainment entities, law firms, and more. Contact us today to discuss your breach of fiduciary duty matter.