In a small corporation, the majority rules, and a minority shareholder may find the majority’s reign unbearable. In fact, the majority may take steps to ensure the minority shareholder never receives a penny from his or her investment. Fortunately, Ohio law does provide protection from the majority.

“Generally, majority shareholders have a fiduciary duty to minority shareholders.” Crosby v. Beam, 548 N.E.2d 217, 47 Ohio St.3d 105 (Ohio 1989). Regarding small corporations, courts consider this fiduciary duty heightened, and courts will treat small corporations like partnerships. Id.

Thus, majority shareholders in small corporations cannot act in manner that oppresses a minority shareholder and keeps the minority shareholder from having equal opportunity in the corporation. Id. For example, courts have held that it is unlawful for majority shareholders to remove a minority shareholder from payroll of a close corporation when the corporation does not pay dividends. Id. Majority shareholders may also breach their duty when they give themselves raises and exclude the minority shareholder. Such actions are often referred to as corporate “freeze out.” Case law has developed to protect minority holders from freeze out because shares of small corporations are rarely marketable. Therefore, oppressed shareholders may find themselves trapped in a small corporation with no place to go.

If you are a member of a small corporation, and you feel that you are oppressed with no way out, you should seek out an attorney that can advise you regarding your potential claims.

By: Matt Miller-Novak of Godbey Law

Source: The Gavel