Shareholder oppression occurs when majority shareholders abuse their power to harm minority shareholders, often in closely held companies. Legal remedies can be sought in court, including mandatory dissolution or sale of shares to create a more equitable situation.
Shareholder oppression is an abuse of power by majority shareholders in a company that harms minority shareholders with policy decisions and changes that the minority cannot act on due to their weaker position. This occurs most commonly in closely held companies where the shares are held privately and not made available for public sale, as the distribution of ownership can create a high risk of shareholder oppression. Legal remedies can be sought in court if the shareholders feel that the majority are not acting fairly.
A variety of businesses can fall under the umbrella of shareholder oppression. Those with the majority can control votes on politics, board membership, and other topics. Minority shareholders will not be able to influence the election because they do not have enough power and the vote could create a situation against them. Majority shareholders can also block dividend distributions and other assets.
Sometimes, shareholder oppression includes physically blocking access to the company. All shareholders have the right to access financial records and majority shareholders may prevent minority from doing so. They can also force minority shareholders to go through them to access information they should be able to get directly from the company. This creates an unfair balance of power and may even allow the majority to control access to information.
In tightly controlled companies where the number of shareholders is small and it is not possible to sell shares on the open market, shareholder oppression can be a problem. Shareholders can be family members, business partners and friends, rather than anonymous figures who share all the shares in a company. This can make it more difficult to deal with situations where those with more power abuse it; a family member locking someone out of the office, for example, is a situation with greater emotional complexity than a simple business ploy. Even tasks like blocking access to information are much easier when a business is small and under the control of a limited number of people.
Minority shareholders can file suit and get a judgment to address shareholder oppression. One option is mandatory dissolution of the company or dissolution of the board of directors, with the argument that board members are not meeting their obligations to protect all shareholders. The court can also order the sale and distribution of shares to make the situation more equitable. The remedies available in this situation vary in different regions.
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