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Oppression of Minority Shareholders: What are Shareholder Rights?

Oppression of Minority Shareholders:

What are Shareholder Rights?


    As discussed in previous posts, a minority shareholder can bring an action against the directors and/or others that are in control of a corporation for illegal, fraudulent or oppressive conduct, MCL 450.1489.  Willfully oppressive conduct is defined by the statute as a continuing course of conduct or a significant action, or series of actions, that substantially interferes with the interest of the shareholder “as a shareholder.”

 

The question then arises as to what the interests of a shareholder are. In other words, what are the rights incidental a shareholder’s interests? Generally, speaking a shareholder’s rights in a close corporation consists of: the right to inspect the books and records and for a reasonable accounting; the right to vote and participate in management of the corporation; and, the right to receive a share of the profits of the business. These rights are based upon statutes and the common law of Michigan.

 

More recently, by amendment of the Shareholder Oppression Statute, MCL 450.1489, the Legislature has added employment security in certain circumstances. It has been amended to add the following language: “Willfully unfair and oppressive conduct may include the termination of employment or limitations on employment benefits to the extent that the actions interfere with distributions or other shareholder interest disproportionately as to the affected shareholder.”

 

These are the types of rights which if violated in a significant way or on a continuous basis may form a minority shareholder oppression case pursuant to MCL 450. 1489. In blog postings to follow we will examine some of the cases when oppressive acts have been found and not found under the shareholder oppression statute.

 

In the meantime, it is interesting to note that Michigan has a long history prior to the Shareholder Oppression Statute protecting minority shareholders. One of the interesting cases is Dodge Brothers v. Ford Motor, Co., 204 Mich 459 (1919). In that case the minority shareholders requested and received a court order requiring Henry Ford (majority holder) to declare and pay a significant dividend to the minority shareholders. The Michigan Supreme Court noted that Ford’s refusal appeared to be arbitrary because the company had consistent profits and was at the time cash rich. Apparently, Mr. Ford’s reluctance may have had something to do with keeping his competitors from receiving money that they would use to compete against him. In any event, in equity, because the purpose of an investment is to make money, the Michigan Courts for over 90 years now, have ordered dividends paid in an appropriate case.

[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.]

 

Oppression of Minority Shareholders: Statute of Limitations

BUSINESS LITIGATION CASES

OPPRESSION OF MINORITY SHAREHOLDERS

Statute of Limitations

A minority shareholder, pursuant to MCL 450.1489, may seek relief from majority oppression. The general statute of limitations is a period of 6 years for general oppressive conduct. The reason apparently is because the minority shareholder has the burden of establishing “a continuing course of conduct or a significant action or series of actions that substantially interferes with the interests of the shareholders, as a shareholder.” Therefore, the statues allow a long “look back” at majority misconduct with respect to equitable relief available. In Estes v. Idea Engineering, 250 Mich App 270 (2002) the Court of Appeals found that the 6 years provides an appropriate amount of time to produce proof of a pattern of misconduct and to seek relief.

The equitable relief available is broad and includes, among other things: dissolution and liquidation of the corporation, injunctions and Court ordered buy-outs.

An important distinction is made under the statute, however, with respect to relief consisting of monetary damages. Specifically, claims for money damages must be brought within 3 years of accrual or within 2 years after the aggrieved shareholder discovers or should have reasonably discovered the damages, which ever occurs first. Therefore, a minority shareholder should seek legal counsel at the first signs of oppression to protect his rights. A delay in prosecuting a case might result in a denial of money damages even though significant equitable remedy is available.

[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.]