MAJORITY RULES? THE TEXAS SUPREME COURT CONSIDERS THREE CASES ON MINORITY SHAREHOLDER OPPRESSION IN CLOSELY HELD CORPORATIONS

The Texas Supreme Court is currently considering three cases that could drastically alter the legal landscape for owners of closely held Texas corporations. Each case was brought by a minority shareholder alleging that the majority shareholders had wielded their majority power so as to unfairly prejudice or “oppress” the minority. The minority shareholders all prevailed in front of Dallas juries on the theory of “shareholder oppression,” but then had mixed results in the Dallas Court of Appeals. The Texas Supreme Court is now considering all three cases and will, many hope, bring some clarity to this undefined cause of action.

Until then, business owners can only speculate whether the Texas Supreme Court will adopt the theory of shareholder oppression and if so, how it will define the rights and duties of those in control of a closely-held company. For example, can a group of shareholders who are dissatisfied with the job performance of another shareholder terminate that shareholder’s employment? What if salary was the only way the minority shareholder was receiving a return on his investment? Can a group of shareholders consistently vote their shares together so as to out-vote the minority on all important decisions? Can they exercise the buy-out rights set out in a shareholders’ agreement in a way seems “harsh and unfair”? How far must those in control go to help facilitate the minority’s sale of his stock to a third party?

Briefing is complete in the three shareholder oppression cases currently pending in the state’s high court, and so at least some of these questions may soon be resolved. Stay tuned . . .

Kelli Hinson’s full article on shareholder oppression may be found here.