FAQ's About Shareholder Disputes in Ohio

Introduction

As a shareholder disputes attorney in Columbus, Ohio, I am going to answer some common questions people ask about shareholder’s rights in general and some more specific questions about shareholder disputes.

Minority Shareholders

What rights do minority shareholders have?

Minority shareholders have the right to access corporate records, hold management accountable to their fiduciary duties, and to vote at shareholder meetings. Minority shareholders must request corporate records in writing, and generally are responsible for the costs of copying and transmitting the records. Every shareholder is entitled to vote at shareholder meetings in proportion to the amount of shares they own in the company.

Can a minority shareholder sue a company?

A minority shareholder can sue a company in a derivative action (on behalf of the company) for conduct such as breach of fiduciary duties and removal of management or directors. A minority shareholder can also sue a company on behalf of their own interests if they dissent from a shareholder decision and are not bought out, as required from their dissention.

Can minority shareholders dissolve?

A minority shareholder of a corporation cannot dissolve the corporation, unless provided for in the corporate bylaws or unless enough minority shareholders vote together to form a majority. Minority shareholders of a partnership or an LLC can dissolve if provided for in the partnership / operating agreement, by judicial decree, or if the remaining owners do not express their intent to carry on operation of the business.

Can a minority shareholder force a buyout?

A minority shareholder can force the company to buy out the shareholder’s shares if the company makes a decision at a shareholder meeting and the minority shareholder dissents from that decision in writing. A minority shareholder can also force a buyout of their shares if the minority shareholder’s interest in their shares has fully vested and the shareholder is permitted by the bylaws to transfer their shares. In this case, the shareholder would express their intention to sell their shares and comply with any provision of the bylaws for a right of first refusal of the company to buy those shares before offering them on the open market.

Can a minority shareholder sell their shares?

A minority shareholder of a publicly traded corporation can sell their shares if the shares have vested. A minority shareholder of a private corporation or an LLC must first make sure their shares have fully vested and the corporate bylaws / operating agreement permit the sale of shares.

How do you protect yourself as a minority shareholder?

Minority shareholders of corporations can protect themselves by voting at shareholder meetings and monitoring the conduct of management and the board of directors. Minority shareholders are best protected when they align with each other to vote in their best interests at shareholder meetings.

What actions can minority shareholders take?

Minority shareholders can take legal action through derivative lawsuits and dissenting from shareholder decisions. Minority shareholders can also request access to corporate records, vote at shareholder meetings, and ensure that management does not breach their fiduciary duties.

Shareholder Disputes: Oppressive Conduct

What is oppressive conduct?

Shareholder oppression is when majority shareholders make business changes that prejudices the minority shareholders and provides a benefit to the majority shareholders. This conduct includes:

  • Diluting minority shares,
  • Denying dividends to increase management salaries,
  • Making fundamental changes to the company,
  • Excluding minority shareholders from business decisions.

What is an unfair prejudice claim?

A shareholder claim for unfair prejudice is a claim by minority shareholders against majority shareholders alleging that the majority shareholders have acted in a way that benefits themselves at the expense of minority shareholders.

What constitutes shareholder oppression?

Shareholder oppression is when majority shareholders make business changes that prejudices the minority shareholders and provides a benefit to the majority shareholders. This conduct includes:

  • Diluting minority shares,
  • Denying dividends to increase management salaries,
  • Making fundamental changes to the company,
  • Excluding minority shareholders from business decisions.

What is an unfair prejudice petition?

An unfair prejudice petition may refer to a petition made by minority shareholders to demand the majority shareholders to make a change to remedy conduct the minority sees as oppressive. An unfair prejudice petition may also refer to the petition of the minority to a court of law to order the change regarding oppressive conduct.

What constitutes minority shareholder oppression?

Shareholder oppression is when majority shareholders make business changes that prejudices the minority shareholders and provides a benefit to the majority shareholders. This conduct includes:

  • Diluting minority shares,
  • Denying dividends to increase management salaries,
  • Making fundamental changes to the company,
  • Excluding minority shareholders from business decisions.

Who can bring an oppression claim?

Any minority shareholder that believes they are being oppressed by the majority shareholders can bring an oppression claim.

Shareholder Disputes: Removing Shareholders

How do I force a shareholder to sell?

You cannot force a shareholder to sell their shares unless you have a by-sell agreement forcing the purchase of minority shares when the company is sold or merges with another company.

How do I get rid of a minority shareholder?

You cannot force out a minority shareholder of a company unless provided for in the bylaws / shareholder agreement and pursuant to a merger or acquisition.

Can a majority partner force a buyout?

Yes, if the governing documents permit the buyout of minority shareholders upon the approval of a merger or sale of the business.

Can a minority shareholder force a buyout?

A minority shareholder can force a buyout of their shares if they dissent in writing from a shareholder decision voted on at a shareholder meeting.

Can a shareholder be fired?

No, a shareholder is the holder of ownership interest in a company. An owner cannot be terminated as an owner. However, if the shareholder is also an employee by separate agreement, then yes that shareholder can be terminated from their employment position.

Can directors remove shareholders?

No, directors are employees of a company and shareholders are the owners. The directors, as employees, cannot take away the ownership interest of an owner.

How do I force out my business partner?

A business partner can be forced out of a business pursuant to the partnership agreement or if their conduct violates fiduciary duties and a court order is obtained for the removal of the business partner.

Can a 51 shareholder be ousted?

A 51% shareholder cannot be ousted because they are the majority shareholder and would have to approve the decision.

How do I get out of a 50/50 business partner?

You can remove a 50/50 business partner if provided for in the partnership agreement or by filing a claim for illegal conduct, such as breach of fiduciary duties.

How do you deal with an uncooperative business partner?

If you have an uncooperative business partner, you should first look to the partnership agreement for remedies. If there is no remedy under an agreement, you should consider filing a claim to dissociate that partner for failing to perform their duties or for the impracticability of carrying on operations of the business with them as a partner.

Rights of Shareholders

What rights does a 25% shareholder have?

A 25% shareholder has the right to vote 25% of the voting shares at a shareholder meeting, to inspect corporate records, and to hold management accountable to their fiduciary duties.

What is a 50% shareholder entitled to?

A 50% shareholder has the right to vote 50% of the voting shares at a shareholder meeting, to inspect corporate records, and to hold management accountable to their fiduciary duties.

Can a 50% shareholder liquidate a company?

A 50% shareholder cannot liquidate a company alone, as this is a fundamental change to the company and would require either a majority or supermajority vote.

Can shareholders inspect books of accounts?

Yes, shareholders can inspect books of accounts by making a written request to the record keeper and paying the necessary expenses.

Are shareholders entitled to see financial statements?

Yes, shareholders are entitled to see financial statements upon written request.

Can a majority shareholder liquidate a company?

A majority shareholder can liquidate a company if they hold enough of a majority interest in the company to satisfy the company bylaws or state law as to required votes for fundamental changes to the business.

Can shareholders demand to see board minutes?

Yes, shareholders can make a written demand to see board minutes.

What rights do I have as a shareholder in a private company?

Shareholders of private companies have the same rights as shareholders of public companies unless otherwise restricted by corporate bylaws or shareholder agreement.

What rights does a 51% shareholder have?

51% shareholders have the right to cast 51% of the votes at a shareholder meeting, giving them the ability to make decisions that require a simple majority vote.

Can a majority shareholder close a company?

A majority shareholder can close a company if they have enough ownership interest to satisfy the voting requirements for a fundamental change to the company.

Are shareholders entitled to see bank statements?

No, bank statements are part of the daily operations of a business. Shareholders are however, entitled to see financial statements.

Can a shareholder give up his shares?

A shareholder can freely transfer their shares as long as the transfer does not violate a term in the corporate bylaws or the shareholder agreement.

Shareholders vs Directors

Who has more power shareholder or director?

Directors are elected by the shareholders. A director has more power over the direction and operation of a company than a minority shareholder, but less power than a person or group acting as majority shareholders.

Can a director be removed without his consent?

A director can be removed under provisions in the bylaws or by violating their duties to the company.

Can a director bring an action against another director?

A director cannot bring a derivative action against another director unless the claimant is also a shareholder.

Under what circumstances can a director be removed?

A director may be removed according to provisions in the bylaws or for breaching their duties to the company. including their statutory fiduciary duties.

Do directors owe duties to shareholders?

Yes, directors owe fiduciary duties to shareholders and the company, including the duty to not compete with the company or enter the company into transactions for the personal interest of the director.

Can shareholders sue directors for negligence?

Shareholders can sue directors for negligence as long as the directors did not act with reasonable business judgment.

Disputes

Shareholder disputes are resolved by voting at shareholder meetings. Certain categories of business decisions require either a simple majority vote or a supermajority vote. Shareholders will align with each other to vote in an attempt to affect their desired outcome.

How do you deal with shareholder disputes?

Shareholders can either form groups to vote together at shareholder meetings or they can dissent from shareholder decisions in writing and force the company to buyout their shares.

A shareholder dispute is when a shareholder disagrees with a business decision or voting decision made by the company or the other shareholders.

What can dissatisfied shareholders do?

Dissatisfied shareholders can attempt to rally other shareholders into voting alignment or they can dissent and force their shares to be bought out.

How do you handle shareholder disputes?

Shareholders often draft petitions to support their position in a dispute and send the petition to the other shareholders for signatures and support.

Shareholder Lawsuit

What can shareholders sue for?

Shareholders can sue majority shareholders for shareholder oppression and can sue directors for breaching fiduciary duties.

What is a shareholder class action lawsuit?

A shareholder class action lawsuit is a lawsuit filed on behalf of a multitude of shareholders (generally over 100) against a company or its directors.

What remedies may a member seek in respect of a breach of the company's constitution?

The remedies for breaching a company’s constitution are generally provided in the constitution but may include removal and financial compensation.

Can you sue a shareholder of a company?

You cannot sue a shareholder for a company liability unless the shareholder acted in a personal capacity, exceeding any representation or authority they have on behalf of the company.

Can shareholders be held personally liable?

Shareholders cannot be held personally liable unless they have personal involvement in improper conduct that exceeded their role as a shareholder.

About Me

I went to law school at Capital University in downtown Columbus. There, I became the first person in school history to graduate the program (a 3-year program) in just 2 years while on the Dean’s list. I started my firm straight out of law school after marrying my beautiful wife and passing the bar exam. Now, I represent businesses in litigation, draft transactional documents, provide legal advise to business owners, and represent them in transactional negotiations.

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