In Texas, most corporations are classified as “closely held” companies. This means they only have a few shareholders and the shares available are not traded publicly. In a small company situation like this, many shareholders play a working role in the company and are directly involved in management decisions.
In this situation, there is normally no set number of shares that can be held by any one shareholder. However, if there is one shareholder who owns 50% or more of the shares, it doesn’t mean that those who own fewer shares are denied rights.
Shareholder oppression is not uncommon in the business world, but this sort of behavior is not tolerated under Texas law. If you feel as a shareholder that you have been oppressed in any way, the law is on your side in Texas.Shareholder oppression is classified as one of the following by Texas courts:
- Poor treatment of a shareholder
- Lack of probity or put more simply honesty when dealing with the company’s affairs so that some shareholders are disadvantaged.
If you as a shareholder have been treated badly in relation to the following incidences, then you have the legal right to challenge the person who has inflicted this injustice on you.
- Deliberately refusing to pay dividends that are your entitlement.
- A majority shareholder assigning his or herself a personal loan.
- Expenses that are related to personal matters being taken from corporate money.
- Not taking obvious corporate breaks.
- Unequal distribution of dividends to any majority shareholder.
- Not assessing the value of a minority shareholders shares.
- Not paying the correct amount in dividends.
- Paying inappropriately high salaries to any majority shareholder.
- Attempting to take over a minority shareholder’s stock.
Texas law holds majority shareholders accountable and requires that they must exercise a duty of care to the other shareholders.What Can you Do if you Have Been Treated Unfairly as a Minority Shareholder?
The first thing you should do is meet with our business law team. We will make a plan to help protect your interests.
To begin, we may to make an application to a court so that a receiver can be appointed. The company may be run by the receiver, who must be independent and fair to all parties.
A shareholder can, however, avoid potential disputes by entering in a shareholder or buy-sell agreement. This buy-sell agreement is related to the selling of shares and lays down how the sale of shares will take place and the value placed on them at the time. Coverage by a buy-sell agreement means that disputes are minimized.
If you are a shareholder and you have been improperly treated by a majority shareholder, or you wish to ensure you have the protection that Texas Law has determined, then you should contact our business law team immediately.