Shareholder oppression occurs when the majority shareholders in a

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...

take action that unfairly prejudices the minority. It most commonly occurs in non-publicly traded companies, because the lack of a public market for shares leaves minority shareholders particularly vulnerable, since minority shareholders cannot escape mistreatment by selling their stock and exiting the corporation. The majority shareholders may harm the economic interests of the minority by refusing to declare

dividend A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-inv ...

s or attempting a

squeezeout A squeeze-out or squeezeout, sometimes synonymous with '' freeze-out'', is the compulsory sale of the shares of minority shareholders of a joint-stock company for which they receive a fair cash compensation. This technique allows one or more share ...

. The majority may physically lock the minority out of the corporate premises and even deny the minority the right to inspect corporate records and books, making it necessary for the minority to sue every time it wants to look at them. An important concept in law pertaining to shareholder oppression is the " reasonable expectations" of the minority shareholder. The " fair dealing" standard is also sometimes used by courts. The potential for shareholder oppression arguably increased when corporate law was changed to eliminate the

common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...

right of minority shareholders to veto fundamental corporate changes such as

merger Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...

s. It has been said that the business judgment rule and notions of majority rule have allowed shareholder majorities to use the minority's investment without paying for it. It has also been said, however, that it is difficult to determine how to deal with the rights of the minority shareholder without destroying the corporation, while still respecting the rights of the majority shareholder. The courts sometimes make

oppression remedies In corporate law in Commonwealth countries, an oppression remedy is a statutory right available to oppressed shareholders. It empowers the shareholders to bring an action against the corporation in which they own shares when the conduct of the c ...

available. An oppressed minority shareholder can ask the court to dissolve the corporation or to hold the corporation's leaders accountable for their fiduciary responsibilities. Another remedy sometimes used is court-ordered purchase of shares. As of 1997, the

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been ...

still had not harmonized laws for dealing with shareholder oppression. In the United Kingdom, the Companies Act 2006 governs remedies for minority shareholder oppression. In Australia, section 232 of the Corporations Act sets out the grounds for the making of an order. Contractual protections, such as buyout provisions in a shareholder agreement, have been cited as a potential alternative to statutory protections of minority shareholders. Occasionally, the oppressive conduct may even justify involuntary dissolution of the corporation in order to protect the minority shareholders.

References

{{reflist Corporate governance Oppression