Investors all over the world own shares in corporations. There are two basic types of shareholders: majority shareholders and minority shareholders. Both types of shareholders have a vested interest in the company’s financial performance, but it is generally only the majority shareholders that have the decision-making power over the company’s daily operations and future.

Usually, the interests of both the majority shareholders and the minority shareholders line up quite well, but not always.

Why do minority shareholders wield less power than majority shareholders?

The simple answer is that minority shareholders usually hold less than 49% of the company’s total shares, collectively. Therefore, even if the minority shareholders were to unite all of their voting shares, they could never outvote the majority shareholder.

What rights do minority shareholders have?

Even though minority shareholders hold less than 50% of the company’s shares, they do have certain legal rights. These legal rights include:

• Access to attending shareholder meeting.
• Access to overall company financial information.
• Access to speak with the company’s directors.
• Access to the majority shareholders.
• The right to ask questions and receive responses from the company directors.

What happens when the minority shareholders believe their interests are not being given fair consideration?

While minority shareholders are limited in their control over the company(s) they are invested in, the law still does provide protection for situations in which the minority shareholders are being oppressed. However, the minority shareholders must meet the following legal threshold to be considered as having a valid claim for oppression.

“The Corporations Act 2001 (Cth) (the Act) section 2323 defines the term “minority oppression” as conduct involving a mere failure to agree between majority and minority shareholders. However, in and of itself, this alone is not usually enough to demonstrate general oppression (i.e. prolonged unjust treatment or exercise of authority).”

What actions constitute oppression of minority shareholders?

There are a variety of actions majority shareholders can take, often in combination with one another, that can rise to the level of oppressing the minority shareholders. Some of these actions include:

• Denying minority shareholders access to company information including financial information or information about decisions affecting the future direction of the company, in general.
• Making financial decisions that are not in the best interest of the company and its shareholders.
• Misappropriating company funds thereby causing shares to drop in value.
• Entering illegal or invalid contracts on behalf of the company.
• Engaging in illegal or unethical acts that jeopardise the company’s financial health and or reputation in the industry, thereby reducing the company’s value, overall.
• Preventing the sale of shares by minority shareholders or devaluing their shares, overall.
• Making decisions that are inherently unfair or prejudicial to minority shareholders.
• Unfairly discriminating against some minority shareholders.

This is not an exhaustive list of actions that can be raised as creating oppression over minority shareholders, but some of these individually and in combination with each other, could support a claim that minority shareholders are being oppressed.

What legal actions and remedies are available to minority shareholder if they believe they have a legally viable claim for oppression?

The minority shareholder is not without the ability to take legal action and request remedies if they believe they are being oppressed by the majority shareholders and/or the Directors. Some of these legal actions and remedies include:

• Bringing a legal action under the Corporations Act 2001 section 232 and asking the court for relief.
• An action can be brought to show that the Directors have breached their duty to the company and the shareholders. This is called a Derivative Action and it is support under section 236 of the Corporations Act.
• Personal actions can be brought under section 180 of the Corporations Act to show that the required care and diligence that a Director is responsible for acting pursuant to, was inadequate and/or inappropriate.
• In some instances, if the shareholders have been damaged, they can use section 461 of the Corporations Act to force the company to buy back their shares.

While the majority shareholders engaging in actions of oppressing or damaging the rights of minority shareholders is not one that is frequently incurred, it can happen. And, if it does happen, it is important for the minority shareholders to work together to seek appropriate relief.