The ownership of shares in a closely-held corporation gives a stockholder certain rights that must be observed by those who control the management of the company. In family-owned or other closely-held corporations, where a single person may own in excess of 50% of the shares, the majority owners sometimes treat the company as their personal asset, completely disregarding the important contributions made by the minority owners.
Texas law recognizes that the minority shareholders have certain rights that cannot be ignored by the majority owner. There are two sources for these protections: (1) the Texas Business Corporations Act; and (2) decisions of the Texas Supreme Court and the lower appellate courts that have recognized "common law" rights of the minority shareholder.
When the majority owners embark on a course of action that seeks to deprive the minority shareholders of the basic benefits of stock ownership, Texas courts have recognized that the minority shareholder can sue the majority owner for "shareholder oppression." These claims recognize that the majority owners - despite their ability to control any shareholder vote - cannot manipulate the corporation in a manner designed to deprive the minority interest owners of their reasonable expectations to share in the profits of the corporation.
Claims for minority shareholder oppression are based on the principle that controlling shareholders and directors of a corporation owe a fiduciary duty to the company and its minority shareholders. Those duties are enhanced in the context of a corporation with only a few shareholders (a "closely-held" or "close" corporation).
Other legal principles also affect a minority shareholder's rights. When a new business opportunity arises for the company - whether it's a new customer, the expansion into a new market, the development of a new product line, or the right to acquire additional assets - that opportunity belongs to the corporation (and all of its shareholders). If the majority owners decide to take this opportunity for themselves and prevent the minority owners from participating in the profits, Texas courts have condemned such actions as the "usurpation of corporate opportunities." If the minority shareholders take the appropriate actions to protect their rights, they can ensure the right to participate in all corporate opportunities.
Shareholder Rights
