BUSINESS LITIGATION CASES

OPPRESSION OF MINORITY SHAREHOLDERS

Special Needs of Minority Shareholders

Minority shareholders are often the abused backbone of close corporations. That is to say it was their “sweat equity,” ideas or capital contributions which allowed the corporation to be conceived. Once the corporation becomes successful it is all too easy for the majority shareholders to forget that they were significantly helped along the way by others. The majority then, out of greed or just callous disregard for the rights of others neglects or freeze out and squeeze out the minority shareholders.

The Michigan Business Corporation Act (MCL 450.1103) provides that, among other things, that its purpose and policy is to foster businesses and small business. Specifically, the statute declares that the entire act “…shall be liberally construed and applied to promote its underlying purposes which include (c) [g]ive special recognition to the legitimate needs of close corporations.”

In recognition of the Legislature purposes to foster business and growth Michigan has, as earlier related in other segments, enacted the Oppressive Acts statute, MCL 450.1489, which provides a cause of action for minority shareholders who are being frozen or squeezed out. Moreover, the courts are commencing to more liberally enforce the rights of minority shareholders. After all, if there is no profit in it and if a minority shareholder may be abused, why invest at all? And, one can see that the absence investment equals to stagnation.

Accordingly, the Michigan Courts are now of the view that the shareholders – in close corporations – are more akin to partners and must be afforded a high duty of care. For instance, in Estes v. Idea Engineering, 250 Mich App 270 (2002) the Michigan Court of Appeals stated, “… because the shareholders participate in management of the corporation, the relationship owing those in control of a closely held corporation requires a higher standard of fiduciary responsibility, a standard more a kind to partnership law.”

[Guy Vining, an attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the local communities and the tri-county area. If you or a family member of friend would like a no-obligation no cost consultation, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]