Minority Shareholder Rights in a Closely Held Company
Minority shareholders in closely held companies have some inherent rights – rights they should keep track of and enforce whenever and wherever they can. Doing so is one way to forestall potential problems – the kind of problems that can destroy your equity and years of work.
These rights are yours as a minority shareholder. When they are denied to you by the majority shareholders you may have a cause of action to compel them to act. Not doing so may well lead to future, serious, problems.
Protections for minority shareholders are critical, as the majority owners otherwise have full control in a closely held corporation.
Closely Held Company Minority Shareholder Rights
Here are some of the key rights minority shareholders typically have in a closely held corporation:
Access to financial statements and business records - Minority shareholders have a right to inspect the company's books and records. This includes getting copies of financial statements.
Share in dividends and profits - Minority shareholders have a right to share proportionately in any dividends distributed from the company's profits.
Participate in major corporate decisions - Minority shareholders have a right to vote on major company actions like mergers, dissolution, sale of substantial assets, etc.
Prevent dissolution without consent - Minority shareholders can block voluntary dissolution of the company by withholding consent to dissolve.
Call shareholder meetings - Minority shareholders have a right to call special meetings of the shareholders.
Elect directors - Cumulative voting rights give minority shareholders some ability to elect board representatives.
Exercise shareholder veto powers - Minority shareholders can vote against certain fundamental changes in the company.
File a derivative lawsuit - Minority can sue on behalf of the company against directors, officers or majority shareholders.
Petition for judicial dissolution - Minority can request a court order to dissolve the company in cases of illegal, fraudulent or abusive conduct.
Buy out their shares - Minority has a right to sell their shares back to the company upon resignation/retirement.
Receive liquidation distributions - Minority has a right to receive a proportionate share of assets if the company is liquidated.
Inspect the corporate charter and bylaws - Minority shareholders can review these governing documents.
Receive formal notice of shareholder meetings - Minority shareholders are entitled to advance notice of shareholder meetings.
Cumulative voting for directors - Allows minority shareholders to concentrate votes for board seats.
Block amendments to the corporate charter - Minority shareholders can vote against charter amendments.
Challenge illegal/oppressive conduct - Minority can sue majority for breaches of fiduciary duty or oppression.
Request buyback of shares - Minority may have right to force the company to purchase their shares.
Seek appointment of a custodian or provisional director - To prevent fraud or abuse by the majority.
Inspect shareholder lists - Minority can access the corporation's shareholder list and communications.
Approve increases in number of authorized shares - Minority may have right to vote on creating new shares.
Right of first refusal on share transfers - Minority may get first right to purchase shares sold by majority owners.
Redeem shares upon death of minority holder - Corporation may be obligated to buy back shares at fair value.
Consent to adding new members - Minority may have say in approval of new minority shareholders.
Receive audited financial statements - Minority can require independent audit of the company's financials.
Petition for voluntary dissolution - Minority may seek court-supervised winding down of the corporation.
The specific shareholder rights depend on the corporation's governing documents and the laws of the state in which it is incorporated.
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 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.
