Business Cases in the News:

Minority Shareholder Oppression

     In our blogs we have on occasion discussed cases of minority shareholder oppression. Recently, in writing a brief to be filed in the Wayne County Circuit Court, on the issue of the proper valuation standard, Guy Vining ran across the following quote from the William Mitchell Law Review in 1996:

     “Close corporations typically are formed by friends, relatives, or other business associates who choose to combine their capital, skills, labor and experience in a new business. Shareholders in a close corporation generally plan to be employed by the corporation and to have an active role in management. As a result, shareholders usually expect to receive a salary, bonus and additional benefits consistent with their roles as employees, officers, and directors.

      While those corporations begin as friendly ventures, the balance of power in the close corporation often lends itself to oppression of those shareholders who do not control the corporation and usually own only a small percentage of shares — the minority shareholders. Minority shareholders may be subjected to a “freeze out,” (sometimes known as a “squeeze out”) by the majority shareholders. Typical “freeze out” techniques include terminating the minority shareholder’s employment with the corporation or terminating dividends and the minority shareholder’s returns on his or her investment.

      Although minority shareholders in any corporation are in a difficult position due to their lack of control, minority shareholders in closely held corporations have uniquely difficult positions because their shares are not readily marketable. In other words, when minority shareholders in a large, publicly-traded corporation become dissatisfied with corporate operations, they can “vote with their feet” — sell their shares and discontinue their involvement with the corporation. Minority shareholders in the closely held corporation, on the other hand, often cannot easily sell their shares.

      The lack of a market for close corporation shares owned by a minority shareholder means that a non-controlling investor may be locked into a business that is providing little return on investment, or at least is failing to fulfill the owner’s non-monetary expectation. Left without a meaningful return on his or her investment, the minority shareholder may have little choice but to sell for less than a fair price, usually to the majority shareholders.”

The above is a succinct summary of the problems encountered by minority shareholders in such small corporations. As the author notes many times, what starts as a friendly venture turns very ugly when the money starts rolling in.

Guy Vining of the Vining Law Group, PLC, would be happy to perform a no charge analysis of your case if you find yourself in such a situation. You may be entitled to significant relief from shareholder oppression under MCL 450.1489. Under this statute a judge is empowered to examine the circumstances and afford relief, such as advising the Defendants to buy your interest out at “fair value,” consistent with equity.

Guy Vining has practiced business law throughout the state of Michigan. His office is located in the downriver city of Taylor where he primarily serves the Metro-Detroit area. He serves the Metro-Detroit and Downriver communities, including Rockwood,  Gibraltar, Brownstown, Woodhaven, Grosse Ile, Trenton, Riverview, Romulus, Wyandotte, Ecorse, Lincoln Park, Alan Park, Dearborn, and Dearborn Heights.