Michigan Minority Shareholder Oppression Attorney

Despite not having a controlling interest in the corporation, minority shareholders in Michigan corporations have a number of rights that should be exercised and must not be infringed upon by majority shareholders. It is imperative that as a minority shareholder, you review your shareholder agreement and the company’s formation documents.

Under Michigan’s Business Corporation Act, shareholders have certain statutory rights including but not limited to:

• The right to inspect the books
• The right to vote and participate in meetings
• The right to receive distributions
• The right to elect directors

These rights, however, can sometimes be modified through shareholder agreements. To protect shareholders in corporations not listed on a national securities exchange or regularly traded in a market,  i.e., closely held corporations, the Michigan legislature enacted MCL 450.1589.

This statute allows shareholders to bring an action against directors or those in control of the corporation who have engaged in conduct that is “illegal, fraudulent, or willfully unfair and oppressive to the corporation or the shareholder.

What Is Minority Shareholder Oppression?

Shareholder oppression can be any act that substantially interferes with the interest of the shareholder as a shareholder. Under the shareholder oppression statute, a shareholder cannot recover for harm suffered in their capacity as an employee or as a board member.

They must show that the acts of majority shareholders or those in control of the corporation interfered with their interest as a shareholder.

Examples of minority shareholder oppression include:

• Failing to pay dividends in the absence of a legitimate business purpose, sometimes referred to as “dividend starvation”
• Restricting access to financial records
• Denying a shareholder’s right to vote or to attend shareholder meetings
• Termination of employment or limitation of employment benefits
• Removal from the board of directors
• Any act that prevents a minority shareholder from exercising shareholder rights
• Misappropriation or misuse of company funds

A party with a controlling interest in a corporation owes a fiduciary duty to all shareholders. Breach of that fiduciary duty can result in liability. Furthermore, any conduct done by a majority shareholder, director, or party in control of the corporation that is “illegal, fraudulent, or willfully unfair and oppressive” to a shareholder is unlawful.

How Is Willfully Unfair and Oppressive Conduct Defined?

Under MCL 450.1489 (3), willfully unfair and oppressive conduct is defined as “a continuing course of conduct or a significant action or series of actions that substantially interferes with the interests of the shareholder as a shareholder.”

In a recent decision, the Michigan appellate court found that a plaintiff must show that the defendant acted with the intent to interfere with a shareholder’s interest when engaging in willfully unfair and oppressive conduct. The court also found that the business judgment rule does not prohibit a court from evaluating whether business decisions were made in bad faith or in an attempt to suppress the rights of a shareholder.

For more information, visit our article on the recent Michigan Appellate Court Decision regarding shareholder oppression and the business judgment ruleMichigan Court of Appeals Decision Franks v. Franks.

What Are the Remedies for Shareholder Oppression?

Michigan circuit courts are given broad discretion in determining an equitable remedy in a shareholder oppression claim.

MCL 450.1589 enumerates several potential grants for relief, including but not limited to an order:

• Dissolving or liquidating the assets or business of the corporation
• Canceling or altering the articles of incorporation or bylaws
• Canceling, altering, or issuing an injunction against a resolution or act
• Directing or prohibiting an act by the corporation, shareholders, directors, officers, or other parties.
• Requiring the fair value purchase of the shares of a shareholder
• Awarding damages to the corporation or a shareholder

What Is the Fair Value Price?

When determining the fair value purchase of the shares of a shareholder, a court may consider several factors, including the investment value of the stock and the corporation’s earning capacity.

Because of the nature of closely held corporations, the court in Franks v. Franks found that a determination based purely on fair market value (the amount of money that a ready and willing buyer would pay for the asset on open-market) or discounting for marketability would be inappropriate.

What Kind of Relief Am I Entitled to as a Minority Shareholder?

If the directors of a corporation, a majority shareholder, or a party with a controlling interest in the corporation, substantially interfere with your rights as a shareholder, you might be entitled to equitable or monetary relief. As discussed in the shareholder oppression statute, a “circuit court may make an order or grant relief as it considers appropriate” without limitation.

The court may order the corporation to take certain actions or prevent them from doing so through an injunction. Furthermore, the court may issue the corporation to purchase shares at a fair value price from aggrieved shareholders or award monetary damages.

If you believe that your shareholder rights have been violated, you need to contact an experienced shareholder oppression attorney immediately. There may be statutory limitations regarding your right to bring a claim for damages or equitable relief.