Shareholder oppression occurs when the majority

shareholders A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal owner ...

in a

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...

take action that unfairly

prejudices Prejudice can be an affective feeling towards a person based on their perceived group membership. The word is often used to refer to a preconceived (usually unfavourable) evaluation or classification of another person based on that person's perc ...

the minority. It most commonly occurs in non-publicly traded companies, because the lack of a public market for shares leaves minority shareholders particularly vulnerable, since minority shareholders cannot escape mistreatment by selling their stock and exiting the corporation. The majority shareholders may harm the economic interests of the minority by refusing to declare

dividend A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...

s or attempting a squeezeout. The majority may physically lock the minority out of the corporate premises and even deny the minority the right to inspect corporate records and books, making it necessary for the minority to sue every time it wants to look at them. An important concept in law pertaining to shareholder oppression is the "

reasonable expectations __NOTOC__ Reasonable may refer to: * Reason, the capacity for rational thinking * Reasonable accommodation, an adjustment made in a system to accommodate an individual's need * Reasonable and non-discriminatory licensing, a licensing requirement ...

" of the minority shareholder. The "

fair dealing Fair dealing is a limitation and exception to the exclusive rights granted by copyright law to the author of a creative work. Fair dealing is found in many of the common law jurisdictions of the Commonwealth of Nations. Fair dealing is an en ...

" standard is also sometimes used by courts. The potential for shareholder oppression arguably increased when corporate law was changed to eliminate the

common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipresen ...

right of minority shareholders to veto fundamental corporate changes such as

merger Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...

s. It has been said that the

business judgment rule The business judgment rule is a case law-derived doctrine in corporations law that courts defer to the business judgment of corporate executives. It is rooted in the principle that the "directors of a corporation... are clothed with hepresumptio ...

and notions of

majority rule Majority rule is a principle that means the decision-making power belongs to the group that has the most members. In politics, majority rule requires the deciding vote to have majority, that is, more than half the votes. It is the binary deci ...

have allowed shareholder majorities to use the minority's investment without paying for it. It has also been said, however, that it is difficult to determine how to deal with the rights of the minority shareholder without destroying the corporation, while still respecting the rights of the majority shareholder. The courts sometimes make oppression remedies available. An oppressed minority shareholder can ask the court to dissolve the corporation or to hold the corporation's leaders accountable for their

fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...

responsibilities. Another remedy sometimes used is court-ordered purchase of shares. As of 1997, the

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...

still had not harmonized laws for dealing with shareholder oppression. In the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...

, the

Companies Act 2006 The Companies Act 2006 (c 46) is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law. The Act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largely ...

governs remedies for minority shareholder oppression. In Australia, section 232 of the Corporations Act sets out the grounds for the making of an order. Contractual protections, such as buyout provisions in a shareholder agreement, have been cited as a potential alternative to statutory protections of minority shareholders. Occasionally, the oppressive conduct may even justify involuntary dissolution of the corporation in order to protect the minority shareholders.

References

{{reflist Corporate governance

Oppression Oppression is malicious or unjust treatment or exercise of power, often under the guise of governmental authority or cultural opprobrium. Oppression may be overt or covert, depending on how it is practiced. Oppression refers to discrimination w ...