Shareholder Oppression and Corporate Abuse of Power
When you are a shareholder in a closely held business, you expect to be treated fairly by the majority owners. You understand that they have the authority to act as they see fit as long as it is in the best interests of the business. You do not expect them to abuse that authority. Unfortunately, it happens.
Corporate abuse of authority refers to the controlling shareholders, directors, officers, or executives of a corporation acting in ways that exceed, misuse, or exploit their power and decision-making authority within the company.
It can happen accidentally – usually because of a lack of understanding of those powers - or with the intent. In either scenario, the shareholder has rights and needs to move quickly to enforce them. Call Hopkins Centrich PLLC as soon as possible, in matters such as these, time Is not your ally.
Definitions of Corporate Abuse of Power
Corporate abuse of power manifests in many forms:
Self-dealing - When corporate insiders use their position to engage in transactions that benefit themselves rather than the company. For example, selling company assets to themselves at below market value.
Usurping corporate opportunities - When insiders personally take business opportunities that rightfully belong to the company.
Conflict of interest - When corporate insiders have personal or financial interests that conflict with the best interests of the company.
Freeze out techniques - Tactics used by controlling shareholders to squeeze out minority shareholders, such as restricting access to company information/funds.
Breaches of fiduciary duty - Insiders have duties of care, loyalty, and good faith to the company, which are breached by abusive actions.
Shareholder oppression - The controlling shareholders act in an unjust or harmful manner toward minority shareholders.
Corporate waste - When insiders irresponsibly deplete corporate assets for improper purposes.
Looting - The siphoning away of corporate funds or assets for the controller's personal gain.
Fraud - Deceiving shareholders or the public about the company's finances, operations, etc.
Abuse of authority involves using a position of control within the company to improperly advance interests at the expense of the corporation and shareholders. Minority shareholders can pursue legal action for such misconduct.
Hopkins Centrich, Your Shareholder Oppression Law Firm
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, managed mergers, acquisitions, and sales.
Hopkins Centrich knows Texas business law. We are uniquely positioned to help shareholders when they have ample 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 you, more time to understand the issues, and more time to negotiate and prepare for trial.
We get that no one wants to contact a law firm unless they feel they absolutely have to. 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.
What Makes an Action an Abuse of Power?
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 accidentally acting in a way that is not authorized or an intentional wrong perpetrated by a majority owner that adversely impacts your ownership rights and equity.
Here are the key elements that generally must be proven to establish a claim of corporate abuse of power in a closely held company:
Control - The majority shareholders, directors and/or officers exercised majority control over the corporation.
Fiduciary Duty Owed - Those in control owed a fiduciary duty to the minority shareholders and the corporation.
Breach of Duty - The controlling parties breached their fiduciary duties through unfairly prejudicial, oppressive, or fraudulent actions.
Causation - The breach of duty directly caused injury to the minority shareholders or the corporation.
Damages - The minority shareholders or corporation suffered quantifiable monetary damages due to the breach.
Shareholder Oppression - The controlling parties engaged in burdensome, harsh, or wrongful conduct that prevented the minority from getting a fair return on their investment.
Self-Dealing - The majority engaged in transactions that benefited themselves at the minority's expense.
Corporate Waste - Assets were lost or squandered by the controlling parties' mismanagement or misconduct.
Lack of Corporate Formalities - Failure to follow legal formalities like documenting director meetings, holding shareholder meetings, issuing financial reports, etc.
Here are some additional elements that may need to be established in a corporate abuse of power claim:
Diversion of Business Opportunities - The controlling parties improperly diverted lucrative business opportunities away from the corporation for their own personal benefit.
Conflicts of Interest - The majority owners engaged in transactions or activities involving clear conflicts between their own interests and the corporation's interests.
Misapplication of Corporate Funds - Company funds were wrongfully used by the majority owners for improper or personal purposes.
Fraudulent Transfers - The controlling parties fraudulently transferred assets out of the corporation to avoid claims by creditors or minority shareholders.
Selective Enforcement of Corporate Policies - Policies were enforced against the minority but not the majority owners.
Wrongful Distributions - The majority owners excessively distributed company earnings to themselves rather than fairly amongst all shareholders.
Misrepresentation - The controlling parties knowingly made false statements to the minority about the company's finances, operations, etc.
Freeze Out Techniques - The minority was deliberately squeezed out or forced to relinquish shares through coercive means.
Failure to Hold Shareholder Meetings - No shareholder meetings were held to allow the minority owners to vote.
Amending Governing Documents - Corporate bylaws or articles were improperly amended to reduce minority shareholder rights.
The specific facts and company dynamics will determine which elements need to be proven for an abuse of power claim. Generally, the minority shareholders need to prove these elements to prevail in a claim against the directors, officers, or controlling shareholders for abuse of power and establish grounds for getting damages or other relief from the court.
What to Do If You Think Your Minority Rights are Being Violated
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 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 do, 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.
