Shareholder Oppression and Conversion of Property
When a company’s property is suddenly used for other purposes – defined as purposes other than those it was originally acquired to do – and is seemingly lost to the business, it has been ‘converted.’ Conversion is a tort, when it happens in a business it refers to the unauthorized or improper taking and use of a business entity's property by an individual for their own personal purposes or gain.
Conversion harms a company and it harms shareholders in ways that go far beyond a simple loss of property. When a conversion has occurred it is essential that a claim is pursued as quickly as possible.
The Key Elements of Conversions
Some of the key elements of conversion include:
Company property - The property involved must be owned by or legally belong to the business, such as inventory, equipment, funds, intellectual property, etc.
Unauthorized taking - The individual, often an employee or officer, takes possession of the property without permission or authority to do so.
Personal use - The property is then used or consumed by the individual for their own non-business purposes and benefit.
Deprivation - The company is deprived of the rights and benefits of owning the property. It loses the ability to possess, control, and use the property.
Lack of consent - The business does not authorize or consent to the taking and personal use of its property.
Damages - The company suffers some form of financial loss or injury as a result.
Intent - While intent may not be required, often the individual knowingly and deliberately takes the property for their own benefit.
Conversion - The civil tort of conversion occurs when one interferes with the owner's rights to property without lawful justification.
Criminal act - The wrongful taking of business property may also constitute a criminal act like theft or embezzlement.
Hopkins Centrich, Your Shareholder Oppression Law Firm For Fraud and Misrepresentation Claims
Hopkins Centrich PLLC provides cutting edge, high quality, creative legal solutions for minority shareholders in Texas closely held corporations when their rights have been abused by the majority owners. Our attorneys and staff have decades of experience in virtually every aspect of business law in The Woodlands and Texas. We have designed and incorporated businesses, managed their every legal concern, engaged in litigation on their behalf, aided with mergers and acquisitions, as well as having managed mergers, acquisitions, and sales.
Hopkins Centrich knows Texas business law. We are uniquely positioned to help shareholders when they have amble cause to believe their rights are being violated. When we work with a client, our sole focus is on them. We take advantage of everything technology has to offer in order to optimize how we work. That gives us more time to spend with clients, more time to understand the issues, more time to negotiate and prepare for trial. We get that no one wants to contact a law firm unless they feel they absolutely must. When they do, it almost always means that ‘things have reached a head.’
The attorneys and staff of Hopkins Centrich understand what you are going through. We will make the process understandable; you will know what is happening with your case every step of the way and you will never have to track us down for answers.
Business Conversions Considerations
It’s an unfortunate fact of business life that sometimes the majority owners of a closely held company do not act in the best interest of the company or shareholders. Sometimes this is manifested by a recognizable business tort, a wrong perpetrated by a majority owner that adversely impacts your ownership rights and equity – such as a conversion of the company’s business property to personal.
Here are some key considerations regarding minority shareholder rights and the conversion of property in a closely held corporation:
Improper asset transfers - Majority shareholders could improperly transfer valuable corporate assets to themselves for personal use or benefit. This constitutes conversion of corporate property.
Derivative lawsuit - A minority shareholder may file a derivative suit on behalf of the corporation to seek return of converted assets and damages.
Piercing the corporate veil - If corporate formalities are not observed, minority shareholders may be able to hold majority owners personally liable for conversion.
Corporate opportunity doctrine - Majority shareholders diverting a lucrative business opportunity from the company to themselves personally is problematic.
Burden of proof - The minority shareholder bears the burden to prove the property belonged to the corporation and was converted without authorization.
Damages - The minority can seek recovery for actual losses and lost profits resulting from the property conversion.
Equitable relief - An injunction can be obtained to prevent threatened misappropriation of corporate assets by the majority owners.
Accounting for converted assets - The can demand an accounting for corporate assets wrongfully taken by majority shareholders.
Director conflict of interest - Directors affiliated with majority owners face a conflict if asked to approve transfers that benefit the majority.
What to Do If You Think Your Majority Owners Have Converted Property
First, do not believe anything you read online, or listen to someone who tells you that the Texas Supreme Court did away with Shareholder Oppression lawsuits. The Court merely limited some of the basis for bringing a Shareholder Oppression action. There are still many avenues to relief still available, particularly where the majority shareholders have made decisions that are not In the best interests of the business. Don’t wait. If you think your shareholder rights have been trampled on don’t hesitate to call.
Don’t hope that things change, don’t let a matter fester, don’t try to solve the problem yourself through emails and letters and not-so-calm-conversations. Contact us. The earlier you so, the better, there are deadlines for every legal action. The longer you wait, the fewer your legal options.
How We Work
Hopkins Centrich is a team with a deep bench. All our attorneys have extensive litigation experience which they fully use when necessary.
Hopkins Centrich’s attorneys also have ‘big firm’ backgrounds. They formed our firm with the goal of retaining the best and most talented lawyers who would provide a greater and more personal experience for our clients.
We do this by using technology to its fullest. We utilize cutting-edge business processes and methodologies to assure that we can continue to deliver the highest quality legal services to our clients. This, in turn, allows us to respond promptly and efficiently to client needs, exceed project requirements, operate effortlessly with narrow timeframes, and develop innovative yet flexible legal solutions at competitive fees.
We are creative. We are agile. We quickly adapt to rapidly changing circumstances, including changes in the law.
Hopkins Centrich is dedicated to upholding the rights of minority shareholders. If you feel you are not being treated right and you are invested in a closely held company – money, time, labor, experience, intellectual property, etc. – please call us as soon as possible.
Our vision statement may sum it up best. We deliver highly skilled, ethical and aggressive legal representation to every client by:
- Responding promptly to our clients’ needs.
- Anticipating business and legal trends that may affect our clients.
- Managing our clients’ matters in an efficient, caring, and proactive manner.
- Communicating regularly and clearly with our clients.
