Shareholder Oppression & Fraud by Deception
Fraud by deception in a closely held company is serious and demands an immediate response by the directors and minority shareholders. It cannot be allowed to stand, it is an assault on the company’s financial standing, reputation, and survival. It is essential that a claim is pursued as quickly as possible.
The Key Elements of Fraud & Misrepresentation
Fraud by deception in a closely held company refers to majority owners or managers deliberately deceiving or misleading minority shareholders, typically for personal gain or to avoid losses. Examples include:
Overstating revenue and assets in financial statements to appear more profitable.
Underreporting liabilities and expenses to inflate net income.
Fabricating customers, invoices, transactions, or documentation to indicate phony sales.
Misrepresenting the terms, risks, or valuation of a proposed related-party transaction with the majority owner.
Falsifying management projections about company growth, profits, or future prospects.
Omitting or concealing significant information from minority shareholders, like pending lawsuits.
Misstating personal use of corporate assets as legitimate business expenses.
Disguising related-party transactions as arm's length transactions.
Misappropriating company assets for personal use through deception and false documentation.
Making unauthorized excessive compensation appear properly approved.
This type of fraud is often accomplished through falsified books, records, emails, financial statements, contracts, minutes, and other documents designed to deceive. It violates fraud statutes and fiduciary duties.
What these all have in common are: Intentional deceit, reckless disregard for the truth, and gross negligence. Each of them potentially opens a closely held company's directors, officers, or majority shareholders to liability for fraud and misrepresentation.
Hopkins Centrich, Your Shareholder Oppression Law Firm For Fraud and Misrepresentation Claims
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, as well as having 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 clients, 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 must. 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.
Fraud by Deception Considerations
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 a pattern of fraud and misrepresentation.
Here are some key considerations regarding minority shareholder rights and fraud or misrepresentation in a closely held corporation:
Fiduciary duty - Majority shareholders, directors and officers owe a fiduciary duty to the minority shareholders and the corporation. This includes a duty to provide truthful, accurate information.
Fraudulent statements - Intentionally providing false or misleading information about the company's finances, operations or projections could constitute fraud.
Reliance - Minority shareholders may have a claim if they relied on fraudulent statements and suffered harm as a result.
Misstated financials - Issuing false financial statements misrepresenting the company's assets, liabilities, revenues, or expenses could be grounds for a lawsuit.
Obligation to disclose - Majority shareholders have an affirmative duty to disclose all material facts, not just avoid making false statements.
Share value - Misstatements that falsely inflate share value could induce minority shareholders to sell their shares too cheaply.
Self-dealing - Failure to disclose self-interested transactions with the company could be constructive fraud.
Derivative lawsuit - If fraud harms the corporation as a whole, a derivative claim may be brought on behalf of the company.
Damages - The minority shareholders may recover damages for losses suffered due to reliance on fraudulent or negligent misrepresentations.
Rescission - Shareholders may have grounds to rescind or undo any contracts entered into based on false statements.
What to Do If You Think Your Majority Owners Have Committed Fraud or Misrepresentation
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 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.
