Shareholder Oppression

Texas law recognizes the doctrine of shareholder oppression, which is designed to redress burdensome, harsh or wrongful conduct engaged in by a majority shareholder to the detriment of a minority shareholder. The attorneys at Law Offices of Nancy A. Norman, P.C. have extensive experience addressing shareholder oppression claims.

Shareholder oppression encompasses conduct by a majority shareholder that substantially defeats the minority shareholder’s expectations that were both reasonable under the circumstances and central to the minority shareholder’s decision to join the venture.

Some example of “general reasonable expectations” held by all shareholders simply by virtue of stock ownership (unless limited by agreement) and that may be central to a shareholder’s decision to invest in a corporation include the following:

  • the right to proportionate participation in earnings,
  • the right to any stock appreciation,
  • the right (with proper purpose) to inspect corporate records,
  • the right to vote if the stock has voting rights, and

The doctrine of shareholder oppression offers an avenue to protect a minority shareholder from the improper conduct of those in “control.” Some examples of conduct that may give rise to a claim for shareholder oppression include the following:

  • Freezing out of a minority shareholder
  • Refusing to declare dividends or profit distributions and instead paying bonuses or other compensation to corporate officers
  • Diluting a minority shareholder’s interest by issuing more stock
  • Wasting of corporate assets by a controlling shareholder
  • Payment of excessive compensation to a majority shareholder

Redress for oppressive acts may include, but are not limited to, a buyout of the minority shareholder’s interest in the venture. Essentially, the court orders the corporation or majority shareholder to purchase the aggrieved shareholder’s shares at “fair value.” Texas also provides shareholders the right to petition for receivership, liquidation or less harsh remedies where there has been oppressive conduct by those in control of the corporation.

Texas is now at an important crossroads regarding the doctrine of shareholder oppression and the breadth of its scope, as there are several significant cases pending before the Texas Supreme Court. The attorneys at Law Offices of Nancy A. Norman, P.C. are well equipped to handle the changing legal landscape of shareholder oppression claims.