Owning a Small Chunk of the Pie
So you’re going into business (or you’ve gone into business) and like most small businesses you have a great deal of your personal wealth tied up in the success of your endeavor. Many entrepreneurs go into business with a great idea and a way to get the business up and running, but they often overlook details that are not related to their product or service or that don’t need to be taken care of in order to get the business started.
A good business plan will help serve as a road map for entrepreneurs when they face growing pains or when they decide it’s time to close up shop (i.e. an exit strategy). But what happens when two or more owners of a small business don’t agree on something? Or what happens when one person has more control than the other owner and acts in a manner that is good for his or her own personal benefit but to the detriment of the other owner or even the organization as a whole?!
When one owner that has more control acts in manner of self-interest to the detriment of the other owner or the entire organization, the concept of minority oppression comes into play. Minority oppression in a closely-held corporation is a topic that I have done some research on during my time at Xavier University while working on my MBA. I have found some interesting articles from law reviews and professional journals on the topic and have compiled them into a short (8 page + cover page) report on the topic. The body of law is primarily built around the Model Business Corporation Act (MBCA) passed by Congress, with various states passing their own laws that take the MBCA even farther. Depending on what state the closely-held corporation is domiciled in will determine the exact remedies to minority shareholder oppression and consequences for director/manager malfeasance.
One area where the statute is not exactly clear, especially from state to state, is in defining exactly what constitutes “oppressive behavior” or “oppression” in general. The various state legislatures have left it up to the courts to decide this on a case-by-case basis. Thus, it is still in the best interest of each organization to settle these matters between the owners without becoming litigious. Being litigious serves no one well except the attorneys that get to represent each side.
The following link is to my entire report that was compiled in November 2006. The file is in Microsoft Word, please right-click on the link and select save as to download this to your desktop for better viewing. In the future I will try to upload more of these documents in Adobe format for easier downloading and viewing. I apologize for any inconvenience. If you have trouble downloading or viewing this document, please email me at allthingsfinancial@yahoo.com
Here is the full report with explanation of the law, recourse or remedy, and citations and references for further reading or research that you might want to do:
Minority Shareholder’s Rights in a Closely Held Corporation
In the event you ever face such a situation, whether you are being accused of director malfeasance or oppression against another owner or feel that you have been oppressed yourself, it is HIGHLY recommended that you seek legal counsel. This blog entry in no way is to be considered an offering of legal advice. Your own unique situation should be carefully reviewed and considered by a licensed, practicing attorney in your respective state. This is merely a review of the topic from an academic, historical research viewpoint.
As always, your feedback is welcome…