Minority Shareholders Navigating a Buyout: Know The Landscape
Posted on Jan 12, 2017 by BY TURNER PADGET LITIGATION TEAM
Minority ownership of a closely held company can be a lucrative but risky proposition. A minority shareholder’s marginal voting position can unfairly empower other shareholders, especially if they vote together.
To illustrate this point, consider a family business owned by three siblings working for the company. Without laws protecting each individual shareholder, one sibling would be powerless to stop the others from cutting her out of a profitable deal or firing her and refusing to pay dividends, thereby depriving her of any ownership benefit. The two siblings could also vote on a risky business change – like selling all of the company’s assets in a blue chip market to finance the production of a fad product – without opposition from the minority owner.
South Carolina has attempted to balance the power enjoyed by majority shareholders through laws that permit an alienated owner to force the company to buy out her shares. These laws are applicable to situations like those discussed above, when a minority shareholder is being treated grossly unfair (often called “minority oppression”) and also when a minority shareholder dissents on a vote that would fundamentally change the way the business operates or is owned, as in a merger (often called “dissenter’s rights”).continue reading