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Minority Shareholder Employees Have Additional Rights

Courtesy of MinnLawyer Blog, word of a decision from Texas that serves as a reminder that minority shareholders in closely-held corporations have more rights than one might expect.

In Texas, plaintiff Balkrishna Shagrithaya claimed his partner/fellow entrepreneur, who was also the majority shareholder of the company, squeezed him out of the multi-million-dollar software company they both founded. Shagrithaya brought the action as an oppressed minority shareholder, a claim similar to those available under Minnesota law.  In particular, Shagrithaya alleged that his partner slashed his salary and attempted to push him out of the company. Shagrithaya sued to force a dividend payout, arguing he was an oppressed minority shareholder.

As in Minnesota, the Texas statute provides for “equitable” relief, meaning that the judge has a large amount of discretion to craft a remedy.   The judge took this to heart, adding $20 million to the advisory jury’s $65 million award to the plaintiff.

Under Minnesota law, shareholders in a closely held corporation owe each a duty of fair dealing.   Accordingly, these “oppressed shareholder” cases most commonly arise in two contexts:  when the majority owner tries to take unfair advantage of the minority owner, and when minority owners who are also employees claim that they are more than “at-will” employees.   Because the standards are hard to define, a majority owner dealing with a minority owner/employee must take extra care when terminating or taking other adverse action.

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