Puget Sound Attorney for Businesses

A minority shareholder questions her rights in the company. She owns 20% of a small company, which rarely has dividends but she and the other owner, who owns the remaining 80% of the shares, have been compensated through generous salaries and benefits packages.

The majority shareholder, acting as CEO, has terminated her employment and cut her off from all salary and other benefits. She, the minority shareholder, now receives no benefit for her 15% ownership in the company. Does she have a claim? What is her remedy?

The answer depends on whether you can prove "oppression" of the minority shareholder. The "squeeze-out" tactics of majority shareholders deprive minority shareholders of management participation, employment income, and other advantages that they reasonably expect, and which are the essential benefits of their ownership interest.

When the court decides the majority shareholders oppressed the minority shareholder, the court forces a buy-out as the remedy based on the "fair value" of the company. The "fair value" is the value of the company as a going concern. The "fair value" does not apply marketability or minority discounts, which means the amount awarded may greatly exceed the price that would have been paid on the open market.

Before squeezing out a minority shareholder or if you are the minority shareholder, carefully consider the legal ramifications of a litigation. Pay now or pay me a lot more later.