BlogBusiness LitigationBusiness-DivorceBusiness Divorce: Duty Not to Oppress Minority Shareholders

July 26, 2020by Jeffrey Davis0

One of the most common breach of fiduciary duty claims by minority stakeholders in a  company is the “oppressed stakeholder” claim.

Essentially, one argues that their reasonable rights and expectations have been substantially and utterly defeated by the other stakeholders and as such, they are entitled to some relief from the Court.

The claim arises from the concept that owners may not act for the aggrandizement or undue advantage of themselves to the exclusion or detriment of other stakeholders.[1] It “is the fiduciary duty owed by … majority shareholder[s] in a closely held corporation to a minority shareholder, not to engage in oppressive actions toward minority shareholders.” 

Given the broad “reasonable expectations” test, there is no all-encompassing list of acts that can be deemed oppressive, nor will the same acts be considered oppressive in every circumstance. However, the most common and recurring forms of oppression include:

  1. The failure to declare dividends;
  2. Termination of a minority shareholder’s employment;
  3. Removal of a minority shareholder from management;
  4. Excessive compensation to the majority shareholders in lieu of distributions or dividends.
  5. Diversion of opportunities to other corporations and mergers under unfair terms;
  6. A change of policy concerning the distribution of corporate income, designed to offer no return on the oppressed shareholder’s investment in an attempted “squeeze-out.”;
  7. A shareholder who reasonably expected that ownership in the corporation would entitle him or her to … a share of corporate earnings, …, or some other form of security, would be oppressed in a very real sense when others in the corporation seek to defeat those expectations and there exists no effective means of salvaging the investment.
  8. Efforts of majority shareholders to void a minority shareholder’s shares, falsify corporate documents, and prevent minority shareholder access to corporate records;
  9. The actions of a majority shareholder group in eliminating the petitioner and associated persons from participation in the active operation of a corporation in which they had previously participated, and in which have included they had every reasonable expectation of being able to continue to participate.

As you can imagine the analysis is fact sensitive and can be particularly messy especially where the parties’ expectations are not sufficiently laid out in well drafted business governance agreements.

Usually, someone bringing this type of claim is thinking two things: (1) how do I get rid of my business partner or (2) how do I force a buy-out. Business-divorce, business breakups, partnership disputes etc. are very complex matters. Before making a decision you should absolutely discuss the facts of your claim with a qualified attorney. This article is for educational purposes. Contact us for a free initial consultation.


[1] See Harger, 204 F.Supp.2d at 707 (citing Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557, 559, 483 N.Y.S.2d 667, 473 N.E.2d 19 [1984]).  

Leave a Reply

Your email address will not be published. Required fields are marked *

© 2021 Davis & Byrnes

All rights reserved. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters, and email. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until we establish an attorney-client relationship. This site constitutes ATTORNEY ADVERTISING. Past results are no guarantee of future success.

Our Offices

New York City Office:

152 Madison Ave, 14th Fl
New York, NY,10016
Phone: (646) 448-5279

Westchester Office:

600 Mamaroneck Ave, 4th Fl
Harrison, NY 10528
Phone: (914) 293-6352

Get Updates