Shareholder Oppression And Dilution
In a closely held company, shareholder dilution can occur when new shares are issued, resulting in a reduction in the ownership percentage and voting power of existing shareholders. This can happen accidentally or with the intent to try to ‘squeeze’ the minority shareholder out of the company (along with several other motivations). 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.
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 through 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 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 you, 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 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, you will never have to track us down for answers.
What We Do
It’s an unfortunate fact of business life that some majority owners of closely held companies do not treat their minority shareholders fairly – sometimes unintentionally, sometimes with malice. In either scenario the shareholder is undoubtedly harmed and left wondering if there are any remedies. One common way minority shareholders are harmed is when their shares are ‘diluted.’
The elements of shareholder dilution in a closely held company include:
Issuance of additional shares
The company issues new shares, either through a capital raise, employee stock options, convertible securities, or other means.
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Subscription or purchase of new shares
Potential investors or existing shareholders subscribe to or purchase the newly issued shares.
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Increase in share capital
The total number of outstanding shares increases due to the issuance of new shares.
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Proportional ownership reduction
Existing shareholders' ownership percentage in the company decreases as the new shares are distributed among the shareholders. The dilution is typically proportional to the number of new shares issued and the size of the existing shareholders' holdings.
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Voting power reduction
As the ownership percentage is diluted, the voting power of existing shareholders decreases since voting rights are commonly tied to ownership stake.
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Economic impact on existing shareholders
Shareholder dilution can impact the value of existing shareholders' investments. The increase in the total number of shares may result in a decrease in the company's earnings per share and potentially the market value of each share.
It is important to note that shareholder dilution can have both positive and negative implications. On one hand, it can provide an opportunity for new capital infusion, which can be used for business growth and expansion. On the other hand, existing shareholders' ownership and control may be diminished.
That said, here are some additional elements related to shareholder dilution in closely held companies:
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Impact on dividend payouts
Shareholder dilution can also affect the company's ability to pay dividends to shareholders. As more shares are outstanding, the total amount of dividends the company can pay may be spread across a larger number of shares, resulting in lower dividends per share.
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Rights of existing shareholders
In some cases, existing shareholders may have pre-emptive rights that allow them to maintain their percentage ownership in the company by purchasing new shares before they are offered to others. The terms of these rights can vary based on legal requirements and the company's governing documents.
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Conditions and terms of new share issuance
The issuance of new shares may include conditions or terms, such as pricing, vesting, or lock-up periods, that can impact shareholder dilution.
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Control and governance considerations
In closely held companies, shareholder dilution can have a significant impact on the management and control of the company. The dilution of voting power can affect the balance of power among existing shareholders, and new investors may seek board seats or other governance rights as part of the investment.
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Alternatives to shareholder dilution:
In some cases, companies may opt for alternatives to shareholder dilution, such as debt financing, leasing, licensing, or joint ventures, to address their financing needs without diluting existing shareholder ownership or control.
It's important for shareholders and company management to carefully consider these elements and their potential impact before making decisions related to shareholder dilution in a closely held company. Seeking legal and financial advice can help in navigating these complex issues.
What to Do If You Think Your Majority Owners Aren’t Being Fair
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 to 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.
