Minority shareholders are the parties that hold less than 50 percent equity in a company and because of this, do not have voting rights within the company. This does not mean that they have no power within the company. Minority shareholders have the right to inspect and make copies of their companies’ stock ledgers and other business records, the right to file derivative claims on behalf of their corporations, and the right to exist as minority shareholders without oppression from controlling shareholders. Controlling parties have a fiduciary duty to minority shareholders, who can file direct claims against the controlling parties when these duties are breached.
As an Appleton business owner or a shareholder in any capacity, it is important to be familiar with minority shareholders’ rights as well as those of controlling shareholders. Familiarize yourself with these and other aspects of business law so you are adequately prepared to handle shareholder disputes and other issues if they arise.
The right strategy for resolving your minority shareholder dispute depends on the nature of the dispute. There are three main types of minority shareholder dispute: dissenting shareholder actions, minority shareholder oppression, and issues related to transactions in the company’s stock.
Dissenting shareholder actions are cases where shareholders disagree with certain corporation actions that are against their interests. These actions can include mergers or sales of the company’s assets. In cases like this, dissenting shareholders must perfect their appraisal rights, the right to have their stocks’ values determined by legal proceedings or independent valuation, in order to have the dispute remedied with a buy-out of their shares by the company.
When a minority shareholder feels they have been oppressed by the company, meaning that the majority shareholders take action that somehow exploits the minority shareholders, the oppressed minority shareholders may file for judicial dissolution of the company. Generally, a buy-out of the minority shareholders’ interest in the company at fair value is the remedy used in cases of minority shareholder oppression. Shareholders may also petition for judicial dissolution of their companies in cases of alleged fraud and other illegal or unethical acts. This includes the misuse of corporate assets.
Other shareholder disputes, such as disagreements regarding new partners, may be resolved in a similar manner. To determine appropriate buy-out amounts for wronged shareholders, the court must determine the shares’ fair value. Disputes can be resolved through arbitration or mediation or they can be resolved in court. In many cases, the default way for a shareholder dispute to be resolved is included in the contract between the shareholder and the company. Typically, resolving disputes out of court is a quicker, less expensive process than litigation for all parties involved.
Working out minority shareholder disputes in Wisconsin can be complicated. For legal guidance and representation in your interactions with your company’s shareholders, work with an experienced business attorney. Contact our team of business attorneys at Hammett, Bellin & Oswald, LLC today to schedule your initial consultation with a member of our team.