If you own 100 shares in a corporation that has 1,000 shares outstanding, the value of your investment could be dramatically affected if the corporation issues an additional 1,000 shares to other shareholders. When your 10% ownership drops to 5% after the issuance of stock, your interest has been "diluted."
Although Texas law provides only limited protections against the dilution of a minority shareholder's interest in the corporation, the sale of additional stock to the majority shareholders may be part of a scheme of minority shareholder oppression. Important considerations in such cases include: (a) whether the corporation received a fair price for the stock; (b) whether the issuance of the stock followed a failed attempt to buy back the stock of the minority shareholders; and (c) whether there was a viable business reason for the issuance of the stock.
What you Need to Know
