Minority Shareholder Oppression

Most Michigan businesses start off with much optimism and good will among the owners. Everyone is on the same page and shares a vision for making the business a wild success.

However, as with many things, once the honeymoon phase of the venture ends, the owners may wind up not having as much in common as they thought. In fact, business owners often wind up strongly disagreeing with each other regarding a number of business issues ranging from basic operations to critical strategic planning matters.

Often, minority shareholders (i.e., those holding less than 51% of the corporation) fail to insist on having the corporate formation documents contain an adequate level of protection for them should differences arise with the majority shareholders regarding how the corporation should be managed. Often, the shareholder with the most shares ultimately winds up with control of the corporation and successfully squeezes out minority shareholders.

Squeeze outs can take many forms, such as being locked out from the corporation’s premises, employment termination, expulsion from board positions, discontinuation of dividends, and partial or complete denial of access to corporate information.

Michigan law provides remedies to minority shareholders who are being squeezed out of their companies, or who are being subjected to some kind of unfair oppression by majority shareholders.

Shareholders who believe they are being treated unfairly may bring what is known as a Section 489 action in their local county circuit court. A Section 489 action is based on the Michigan statute found at Michigan Compiled Laws (MCL) 450.1489.

Under this statute, minority shareholders have remedies for “willfully unfair and oppressive” conduct. Potential defendants in a Section 489 action may be not only corporate directors, but also ‘‘those in control of the corporation”. Those in control of the corporation are usually, but not necessarily, the majority shareholders.

Relief available under Section 489 includes injunctive relief, forced purchase of the minority shareholder’s stock at fair value, liquidation and dissolution of the company, and monetary damages. Section 489 has been the subject of much litigation and occasional legislative action.

Those who believe they are the victims of minority shareholder oppression should carefully choose a Michigan business litigation attorney to assist them with resolving their matter.

Please feel free to contact Michigan minority shareholder oppression attorney Michael J. Hamblin for more information on how he can help you with your legal needs.