Minority Shareholder Oppression Attorney

A minority shareholder may be experiencing oppression if the majority owners or those in control use their power to unfairly limit the minority’s rights, exclude them from participation, or devalue their ownership interest. Because closely held corporations often lack the protections afforded by a public market, minority shareholders can be particularly vulnerable to abusive practices.

Common signs of shareholder oppression include being excluded from management or decision-making, even when agreements or past practices suggest a right to participate. Another red flag is the withholding of dividends or distributions, particularly when the company is profitable but the majority shareholders instead take salaries, bonuses, or other benefits for themselves.

In Texas, majority shareholders cannot simply freeze out or dilute a minority shareholder’s interest without facing potential legal consequences. While the majority owners in a closely held corporation have broad control over management and decision-making, Texas law imposes fiduciary duties and statutory obligations that limit how this power can be exercised.

A freeze-out occurs when minority shareholders are excluded from management, denied dividends, or otherwise prevented from participating in the benefits of ownership. Majority shareholders may also attempt to dilute ownership by issuing new shares, reallocating company assets, or engaging in self-dealing transactions that disproportionately benefit themselves.

In Texas, shareholder oppression often arises in closely held corporations, where majority shareholders have significant control over operations and finances. Because minority shareholders usually lack the ability to sell their shares on a public market, they are especially vulnerable to unfair treatment. A few examples include:

• Exclusion from management or decision-making: Majority shareholders may remove minority owners from positions of authority or exclude them from board meetings and key corporate decisions.
• Withholding dividends or distributions: Profits are kept within the company or diverted to majority shareholders through salaries, bonuses, or perks, leaving minority owners without a fair return on their investment.
• Forcing a sale of shares at unfair prices: Majority shareholders may pressure minority owners to sell their stock for less than its fair value, sometimes by making their ownership burdensome.

No. In Texas, a minority shareholder generally cannot automatically force a buyout of their shares just because they feel they are being treated unfairly. Unlike some other states, Texas does not have a broad statutory right that allows minority shareholders to demand a buyout in cases of shareholder oppression. However, there are circumstances where a court may order a buyout or grant other remedies if the minority shareholder can prove that the majority has acted in a way that is oppressive, fraudulent, or in breach of fiduciary duties.

If you can show that the majority owners have engaged in conduct such as withholding dividends, excluding them from management, diluting ownership, or misusing company assets, courts in Texas may step in to provide relief.

In Texas, courts recognize that deadlock and mismanagement in small, closely held businesses can be particularly damaging because there are typically only a few owners, and disputes can quickly halt operations. When owners cannot agree on critical decisions (resulting in a deadlock) or when those in control mismanage company affairs, courts may intervene under the Texas Business Organizations Code (BOC) or through equitable remedies.

In Texas, whether a shareholder can be removed from the board or the company without cause depends on the governing documents and the distinction between a shareholder and a director/officer.

A shareholder is an owner of the company, and in most cases, they cannot simply be forced out of ownership without a legal or contractual basis. Texas law does not permit majority owners to arbitrarily reduce someone’s share ownership. The only ways a shareholder can usually be removed as an owner are:

• Through a buy-sell agreement or other contractual provision requiring a sale under certain conditions (such as death, retirement, or termination of employment).
• By agreement of the parties, such as a voluntary buyout.
• In rare cases, a court-ordered buyout or dissolution may occur if oppression, fraud, or breach of fiduciary duty is proven.

Fiduciary duties play a central role in minority shareholder oppression cases, especially in closely held corporations where power is concentrated in the hands of a few majority owners. Fiduciary duties generally require those in control, such as majority shareholders, directors, and officers, to act in good faith, with loyalty, fairness, and due care toward the corporation and, in certain contexts, its minority shareholders.

Yes, a minority shareholder in Texas can sue for breach of fiduciary duty, but the ability to do so depends on the relationship between the parties and the specific facts of the case.

In Texas, directors and officers of a corporation owe fiduciary duties of loyalty and care to the corporation itself. This means that, in most situations, a minority shareholder’s claim for breach of fiduciary duty must be brought as a derivative suit on behalf of the corporation, rather than as an individual claim. For example, if the majority shareholders who also serve as directors misuse company funds or engage in self-dealing, the injury is considered harm to the corporation, even if minority shareholders are indirectly affected.

However, in certain cases, Texas courts have recognized that majority shareholders in closely held corporations may owe fiduciary duties directly to minority shareholders. This is particularly true when the majority uses its control to oppress, freeze out, or financially exploit minority owners. In such situations, a minority shareholder may be able to bring a direct claim for breach of fiduciary duty and seek remedies, including damages, injunctive relief, or even a fair-value buyout.

Yes. However, it is challenging to dissolve a Texas corporation solely due to shareholder oppression. Unlike some states, Texas does not provide a straightforward statutory right for minority shareholders to request dissolution based on oppression. However, Texas courts do have equitable powers and statutory tools under the Texas Business Organizations Code (BOC) that may allow dissolution or other remedies in extreme cases.

Minority shareholders in Texas corporations often face risks because they lack control over management decisions and may struggle to exit their investment. Take these actions to protect yourself:

• Negotiate a strong shareholder agreement
• Secure information rights
• Include protections against oppression
• Use employment or management contracts when appropriate
• Plan for dispute resolution
• Consult a minority shareholder oppression attorney early on