Don’t Let minority shares harm your business!
I want to share some important insights from a recent conversation with a client facing a tough situation with minority shareholder oppression.
In this case, the client was dealing with an ex-employee, Jack, who still held 10% of the company's shares. The majority shareholders planned to issue more shares to themselves, which would dilute Jack’s stake to nearly nothing. This situation brought up two key points.
Watch the video to make sure you don’t get caught out.
If you have any questions or need expert advice on shareholder agreements or dealing with minority shareholder oppression, feel free to contact us. We're here to help you get the best outcome.
VIDEO TRANSCRIPT
Ross Millen:
Hi, welcome to another, I hope, interesting discussion about some commercial legal topics.
I had a client come in the other few weeks ago and they said, "Oh, look, Jack used to work for us. He doesn't work for us anymore. He still owns 10% of the shares in the company that we gave him, and we really want to get him out of the business, so what we're going to do is we're going to issue some extra shares to ourselves and we'll reduce his shareholding down to 0.5 eighths of three quarters of nothing."
Now, two problems with this. The first is if you'd come to us and had a shareholders agreement right from the start, we could have said that when Jack or a person like that, an employee with shares, ceases to be employed, then they have to transfer their shares or have them bought back by the company, so that could have solved the problem.
But what I want to talk about today is oppression of a minority shareholder, because a plan like that to reduce Jack's shareholdings down to virtually nothing could be oppression, probably is oppression, and then Jack would have a claim to go to the court and demand an order from the court that he be bought out at a proper price. When you control the majority shares in a company, you have to be sure that you are managing the company in the best interest of all shareholders. And so, anything like issuing extra shares to yourself to diminish a minority, entering into any arrangements that are with your other companies or using the company's assets for private purposes is what's called oppression. And if you are in the minority and these things are happening, then you've got a claim that you can bring against the majority.
What we say is this is an area to be very cautious where you've got a majority shareholder or a group and minority shareholders or a group, make sure that if you're the majority, you are exercising your rights for the benefit of all shareholders.
Now, if you've got any queries about this, if you're in a majority position or you're a minority being oppressed, contact us. We'll be able to give you the right commercial advice to get the best outcome. Thanks for listening.
