Majority Shareholder Rights and Ethical Duties in a Closely Held Company
Majority 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 equity and years of work.
Closely Held Company Majority Shareholder Rights
Here are some of the key rights majority shareholders typically have in a closely held corporation:
Here are some common rights held by majority owners in a closely held company: Control - Majority owners have the right to control corporate management, strategy, and decision-making by virtue of their majority voting power.
Board representation - The majority has the right to elect and fill a proportionate number of seats on the board of directors. Officer appointments - Majority owners can appoint and remove corporate officers like the CEO, CFO, etc. Manage operations - The majority owners have the right to set operational policies and make day-to-day management decisions.
Declare distributions - Majority shareholders generally have the power to declare shareholder dividends and distributions. Amend governing documents - The majority typically has the right to amend corporate bylaws, articles of incorporation, etc. Sale of assets - A majority vote is often needed to approve the sale of substantial corporate assets. Mergers and acquisitions - Majority owners usually have the right to approve M&A deals.
Dissolution - The majority often has the right to voluntarily dissolve or liquidate the company. Inspection rights - Majority shareholders have the right to inspect corporate books, records, and shareholders lists. Shareholder meetings - Majority owners can call shareholder meetings and set the agenda. The specific shareholder rights depend on the corporation's governing documents and the laws of the state in which it is incorporated.
Majority Shareholder Ethical Considerations
With those rights come many ethical considerations that are just as important. Such as:
Duty of fairness - Majority owners have a duty to treat all minority shareholders fairly and equitably.
Duty not to self-deal - The majority owner should avoid self-dealing transactions that benefit themselves at the minority's expense.
Duty of good faith - Majority owners should act transparently and deal honestly with minority shareholders.
Duty not to misuse control - The majority position should not be abused to force or coerce the minority owners.
Duty of disclosure - Majority owners should disclose conflicts of interest and provide access to company information.
Duty not to misrepresent - The majority should provide accurate, truthful information and not mislead minority owners.
Duty to follow rules - Majority owners should adhere to company policies, bylaws, and applicable laws.
Duty of competence - The majority should manage the company competently in the best interests of all shareholders.
Duty of confidentiality - The majority has a duty to keep sensitive company information confidential.
Duty to avoid oppression - Majority decisions and conduct should not be unjustly harsh or burdensome for the minority.
Duty of accountability - The majority should explain and justify decisions impacting the corporation.
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.
