What Powers and Rights Does a Minority Shareholder Have?

Majority shareholders have significant authority over how a company operates. They can make decisions regarding mergers and acquisitions, elect corporate officers, and make other important decisions. Minority shareholders, on the other hand, have relatively little power. If they hold voting shares they can cast their vote, but unless they pool with enough other minority voters to overrule the majority shareholder(s), they cannot exercise their will against the wishes of the majority stakeholder. What happens, then, when majority and minority shareholders have serious disagreements? Below, we discuss the rights and powers of minority shareholders under Illinois law. Call a seasoned Illinois business lawyer for help resolving a business dispute in the Chicago area.

What is a Minority Shareholder?

A minority shareholder is any shareholder of a corporation who does not own enough stock to control the business; in practice, that means anyone who owns less than 50% of the company.

Minority Shareholder Rights

Majority shareholders owe certain fiduciary duties to minority shareholders, and they are not permitted to oppress minority shareholders. Illinois law states that shareholder oppression occurs when majority shareholders or directors of a non-public corporation act in an illegal, oppressive, or fraudulent manner with respect to the shareholders, or if they misuse or waste company assets. Majority shareholders cannot oppress minority shareholders by, for example, depriving them of their legal rights, forcing them to sell, or enriching themselves to the detriment of minority shareholder interests. Minority shareholders may not have much sway when it comes to voting, but they do have certain minimum levels of protection under Illinois law.

Minority shareholders in close corporations (essentially corporations which restrict the ability to freely transfer shares of stock) have special protections under Illinois law. These rights include:

• The right to notice of shareholder meetings and voting rights. Shareholders with voting rights have the right to be present at shareholder meetings and to require there be at least an annual meeting. Unless the articles of incorporation provide otherwise, they have the right to vote for directors.
• The right to inspect the company’s books and records. If a shareholder is requesting access to the company’s business records for a “proper purpose” (generally meaning an honest effort to protect the interests of the corporation or shareholder), they have the right to review corporate records necessary to resolve their inquiry.
• The right to dissent and receive payment for shares in certain situations. Minority shareholders can dissent and receive fair payment for their shares in certain situations including mergers and consolidations, certain alterations to the articles of incorporation that adversely affect the shareholder, and other situations provided for in the corporate documents.
• Remedies for breach of fiduciary duties by the people controlling the company. Shareholders can sue other stakeholders for damages for violating their duties of good faith, honesty, candor, and loyalty to the corporation and shareholders. These duties include the duty to act in good faith, to act honestly, and not engage in self-dealing, among others.
• Remedies for when controlling individuals are oppressing the minority shareholders. The Illinois Business Corporation Act provides four different situations in which an oppressed shareholder may file a cause of action:
1. The directors are deadlocked in the management of the corporation and the shareholders are unable to break the deadlock;
2. The shareholders are deadlocked and have failed to elect successor directors for at least two annual meetings;
3. The individuals in control of the corporation have or are acting in a manner that is illegal, oppressive, or fraudulent; and
4. The corporation’s assets are being misapplied or wasted.

In the event one of the above scenarios is applicable, the minority shareholders have the right to seek one of a number of remedies such as the appointment or removal of directors or officers, payment of dividends, ordering an accounting, appointment of a custodian to manage the corporation temporarily, purchase of the shares of the minority shareholder, or dissolution and liquidation of the corporation.

• The right to maintain a derivative action to sue for damage to the company. If someone has harmed the company, such as another shareholder misappropriating company assets, even a minority shareholder can act to protect the corporation’s interests by filing a derivative lawsuit on behalf of the corporation. In this case, the “derivative action” is brought on behalf of the corporation instead of individually because the shareholder has no personal right of action against the party who has indirectly injured the shareholder through his or her damage to the corporation.

Call a Knowledgeable Illinois Shareholder Dispute Lawyer for Help With Business Management Concerns

If you are a minority or majority shareholder of a corporation in Illinois and you have concerns over the business operations, contact a business lawyer who can offer the individualized guidance you need to make the decisions critical to defending your rights and/or the success of your enterprise. Contact an experienced, professional business law attorney at MacDonald, Lee & Senechalle, Ltd. for a consultation, in Hoffman Estates at 847-310-0025, or in Des Plaines at 847-298-5030.