Minority Shareholder Rights to Dividends
When specified in operating agreements or other contracts, many closely held companies pay dividends when certain conditions are met. Those dividend payments are frequently some of the most contentious issues in the life of a business.
It goes without saying that where specified minority shareholders in closely held companies have the right to receive dividends. It is a fundamental right.
When they are denied to you by the majority shareholders you may have a cause of action to compel them to act .
Closely Held Company Minority Shareholder Rights to Dividend Payments
Here are some of the key rights minority shareholders typically have regarding dividends in a closely held corporation:
Right to share proportionately - Minority shareholders have a right to share proportionately in any dividends distributed based on their percentage of ownership.
Limit unreasonable director discretion - Minority shareholders can challenge unpaid dividends if directors improperly withheld distributions.
Review dividend policy - Minority shareholders are entitled to review the corporate dividend policy and request modifications.
Inspect financial statements - Minority shareholders can inspect financial statements to assess whether dividends are being properly declared relative to earnings.
Attend director meetings - Minority shareholders may be able to attend board of director meetings where dividend declarations are discussed and voted upon.
Amend bylaws - Minority shareholders could propose amending the corporate bylaws to include dividend rights protections.
Elect directors - Electing independent directors sympathetic to fair dividend distributions.
Shareholder oppression lawsuit - Minority shareholders may sue for oppression if the majority shareholders improperly deny payment of reasonable dividends.
Breach of fiduciary duty claim - A claim could arise if the directors breach their fiduciary duties surrounding dividend declarations.
Dividend agreement - The minority shareholders could pursue a signed dividend agreement with shareholder dividend obligations.
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.
When the Company Refuses to Pay Dividends
If a closely held corporation refuses to pay dividends, the minority shareholders have several options they could potentially pursue:
Request an explanation - Formally request that the directors explain their justification for not declaring dividends.
Inspect financial records - Review financial statements to assess whether non-payment is reasonable given the company's current profitability and cash flow.
Seek bylaw or charter amendments - The minority shareholders could propose amendments imposing dividend requirements.
Negotiate a dividend agreement - The minority could attempt to negotiate a shareholder agreement with the majority owners mandating dividend payments.
Elect different directors - The minority could vote to elect independent directors more likely to declare dividends.
Make a formal dividend demand - The minority could issue a written demand for dividend payments the directors must consider.
Allege oppression or breach of duty - If unreasonable, the minority could sue the directors for oppression, breach of fiduciary duties or similar claims.
Seek alternate relief - File for judicial dissolution or a court-ordered buyout if extreme non-payment of dividends persists.
Dividend recapitalization - The minority could propose a recapitalization imposing preferred shares with set dividend rights.
Mediation or arbitration - A third-party mediator or arbitrator may be able to facilitate a resolution regarding dividend payments.
The specific actions depend on the facts, circumstances, jurisdiction, and corporate documents. Consultation with a business attorney is advisable.
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.
