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Protections and remedies for minority shareholders

On Behalf of | Feb 9, 2021 | Uncategorized |

Businesses often start up with the help of a group of friends or family chipping in seed money to launch a new enterprise. That initial investment, usually expressed as a percentage in stock, will grow in value along with the business. In a small business, it is important for this shareholder relationship to develop in a way that protects the initial investment as well as their rights as minority shareholders.

Sometimes, business relationships sour. When they do and disputes crop up, minority shareholders can face oppression of their rights by majority shareholders. Some oppressive actions can include:

  • attempts to squeeze minority shareholders out
  • freezing them out of their offices
  • reducing compensation or voting power
  • denying access to company records
  • terminating employment

Ensuring your rights as a minority shareholder

It is important to understand the role of the minority shareholder and ensure that protections of their rights as minority shareholders are in the shareholder’s agreement.

Some of these rights can include:

  • Voting rights to appoint a director and officer
  • Rights of access to lists of shareholder holdings and percentages
  • Pre-emptive rights to purchase new shares issued, and right of first refusal on existing stock
  • Shotgun clause to have rights to buy or sell shares
  • Piggyback rights to be included in the deal should a majority shareholder sell their shares
  • Fair valuation of shares guarantees that the method of valuing stock protects the shareholder’s stock when it comes time to sell
  • Non-compete clause

Legal relief in a squeeze-out scenario

Although there are statutory remedies for shareholder oppression cases in the Pennsylvania Business Corporation Law, there are less expensive options than a lawsuit that can provide immediate reliefe, and will protect the shareholder’s investment and percentage of ownership in the business.

It is possible to seek a preliminary injunction to cease the squeeze-out, allowing the purchase of the minority shareholder’s stock at a reasonable value when the corporation is dissolved.

With nearly 30 years of experience, the Law Offices of Stanley B. Cheiken provide personalized and aggressive legal representation in many areas of business litigation, minority disputes and injunctive relief, throughout Pennsylvania and New Jersey.