When you own shares in a company, those shares typically come with the right to have a say in the direction of the business. However, not everyone with a seat at the table has an equal voice in those decisions. Majority shareholders owning over 50% of the voting shares of a company can chart a course that minority shareholders disagree with.
Even still, minority shareholders have rights that the majority shareholders cannot ignore. When the minority’s rights and wishes for a company come into conflict with those of the majority shareholders, acts of corporate oppression like squeeze-outs can occur. Here is what you need to know about shareholder disputes in New York.
Rights of Minority Shareholders
Just because a minority shareholder may not be able to dictate the direction of the company unilaterally does not mean they do not have rights. Like any other shareholder, minority shareholders have the right to:
- Participate and vote on major decisions of the company
- Elect members to the board of directors
- Receive dividends
- Inspect the company’s records
- Receive timely and accurate statements on the company’s financial health and other matters
Additionally, like other shareholders, minority shareholders have an interest in the business succeeding and being profitable. When they feel the board of directors is not pursuing this interest, they can bring a lawsuit alleging a breach of fiduciary duty.
When a Breach of Fiduciary Duty Happens
The board of directors is responsible for making the major policy decisions that affect the direction of the company. These decisions are always made with the best interests of the company and its shareholders in mind.
But shareholder disputes can arise if some of the company’s shareholders believe that the business’s needs and interests are not being put first. For example, suppose that a majority shareholder on the board of a real estate investment firm also dabbles in flipping properties on the side.
This majority member learns of an investment opportunity and decides to take it for themselves rather than bringing the opportunity to the board for full and fair consideration. Because the majority member did not put the firm’s interests first, they may have breached their fiduciary duty to the firm.
Squeeze-Outs of Minority Members
One method that minority shareholders may use to silence dissent or quell shareholder disputes from minority shareholders is a squeeze-out. Essentially, the majority members leverage their influence and majority power to force the minority members into selling their shares altogether. The process generally happens through these steps:
- The minority member is fired from their position with the company
- The minority member is then denied any dividends or severance package
- Without a source of income, financial pressure builds on the minority member
- The minority member, left without options, sells their shares to the majority
- Without shares, the minority member no longer has any say in the decisions of the business nor any rights to the business
Although squeeze-outs may sound like unfair practices, most are technically not illegal. Minority shareholders who have been squeezed out have little legal recourse in many instances.
A New York Commercial Litigation Lawyers Help Is Critical
If you are a minority shareholder being squeezed out or questioning the direction of the company in New York, keep in mind that either of these situations can lead to shareholder disputes and should be carefully considered before any action is taken.
At Levy Goldenberg LLP, our experienced commercial litigation team can help you navigate the path forward and chart a course of action that aligns with your values and interests.
Whether through filing a lawsuit against the majority shareholders or seeking resolution by alternative dispute resolution, you can trust Levy Goldenberg LLP to provide sound advice and skilled advocacy. Contact us to schedule a consultation today.