Minority Shareholder Oppression - Minority Shareholder Rights in OhioA minority shareholder is an individual (or a company) that has less than a 50% stake in a company. Minority stake shareholders can be oppressed and have their legal rights violated in a number of different ways.
In a small corporation or LLC in Ohio (sometimes called a "close corporation"), the majority stake shareholders can oppress minority shareholders by, for example, refusing to declare dividends or distributions, grant exorbitant salaries and bonuses to majority owners, pay high rent for property leased from the majority shareholders, or terminating employment for minority shareholders.
Ohio law provides a number of different protections for minority shareholders and a few different remedies for what can be done in case of minority shareholder oppression. Minority shareholders in a close corporation or other company with a small number of owners are afforded protections under Ohio law because unlike an owner of a large publicly traded company, a minority shareholder for a close corporation has no ready market to sell their shares. Without the additional protections that Ohio law provides, then if a minority stake shareholder was getting oppressed by the majority, they would basically be stuck with their shares unable to do anything about it because of the lack of voting power to make any changes.
Fiduciary Duty to Minority ShareholdersBecause of the possibility that minority shareholders can be taken advantage of by majority shareholders, Ohio law imposes a fiduciary duty between majority and minority shareholders in a close corporation. The fiduciary duty owed to minority stake shareholders in a close corporation essentially means that the majority owners cannot take advantage of and must look after the minority shareholder's interests in the company. When the majority or controlling shareholders breach their fiduciary duty to minority shareholders by using their majority control of the corporation to their own advantage (and to the exclusion of the minority stake owners), without providing the minority shareholders with an equal opportunity to benefit, without any legitimate business purpose, then the minority shareholders can file a lawsuit for breach of fiduciary duty. (Crosby v. Beam, 47 Ohio St.3d 105, 548 N.E.2d 217 (Ohio 1989)). A majority shareholder breaches a fiduciary duty when that shareholder manipulates his or her control over the close corporation in order to unfairly acquire personal benefits owing to or not otherwise available to minority shareholder of the company. See Crosby v. Beam.
One common abuse of power involves the payment of excessive compensation to majority shareholders or corporate officers. Bell v. Bell, 6th Cir. No. 96-3655, 1997 WL 764483 (Dec. 3, 1997). "Given the extensive opportunities for abuse under a close corporation structure, ensuring that majority shareholders of close corporations advance the corporation's and not their personal, interests is critical." Id. Accordingly, majority shareholders of close coprorations owe minority shareholders a heightened fiduciary duty of good-faith and loyalty. If a minority shareholder is getting oppressed by the majority ownership of a company, then they can seek relief in court.
A court will grant appropriate relief where the majority or dominant group of shareholders act in their own interest so as to oppress the minority or commit fraud upon their rights. See Crosby v. Beam. "When a controlling shareholder exercises that control to derive a personal benefit not available to those shareholders out of power, the controlling shareholder has breached his heightened fiduciary duty." First Nat'l Bank of Omaha v. Ibeam Solutions, LLC, 2016 Ohio 1182 (Ohio App. 2016).
When a minority shareholder of a close corporation brings suit against controlling shareholder for breach of his or her fiduciary duties, a presumptoin arises that the fidcuiary, by virtue of his or her superior position, bears the burden of proof with respect to the fairness of his or her actions. Consistent with this presumption, the fiduciary must demonstrate that his or her actions were fair, reasonable, and based on a full disclosure of relevant information.