Officers and directors of a corporation have a duty to act in the best interest of the corporation and ALL of its shareholders. This duty includes an obligation to not oppress the rights of minority shareholders. Minority shareholder oppression arises when the majority’s conduct substantially defeats a shareholder’s expectations that were central to his decision to join the venture. These duties are heightened in a closely held corporation (a corporation owned exclusively by a closed, small group of individuals). In a closely held corporation, the duty of those in control is akin to the parties to a partnership – those in control owe the highest degree of loyalty and trust and are required to exercise good faith, and may not use their power to harm the other shareholders. This also means that those in control cannot benefit at the expense—or to the exclusion of—the rights of minority owners.
The shareholder expectations protected by Colorado law include, but are not limited to:
- Shareholders will receive a fair price for their shares;
- The corporation will provide shareholders with accurate information;
- Shareholders will be informed about the sale of substantial corporate assets;
- The corporation will act to promote the purpose of the corporation;
- The corporation will not take actions that benefit a group of shareholders at the expense of another group of shareholders;
- Shareholders will be told about material information (negative and positive) when entering into a transaction with the corporation.
Absent these protections, a minority shareholder’s investment and expectations would be subject to the whim and benefit of those in control of the corporation. The law protects all shareholder rights and, in particular, requires heightened protection for minority shareholders.
If you are a shareholder or minority owner of a corporation who was damaged by the actions of others within the corporation, or by the corporation itself, you may be entitled to money damages. The Commercial Litigation Group at Burg Simpson has extensive experience in protecting shareholder rights. We have helped enforce the rights of shareholders faced with approaching unjust corporate acts and also sought recovery of damages for shareholders who have already incurred damages. Please contact us for a free consultation if you would like to discuss protection of your shareholder rights.