Flexing Your Minority Shareholder Muscle | Baton Rouge Business ...

The question is often asked by minority shareholders, "Do I have any rights relative to the majority shareholders?" The simple answer is "Yes", but the extent of these rights may vary.

The question is often asked by minority shareholders, "Do I have any rights relative to the majority shareholders?" The simple answer is "Yes", but the extent of these rights may vary.

Normally a minority shareholder is a shareholder who has less than 50% of the outstanding shares of a company with the majority shareholder(s) having over 50% of the outstanding shares. The size of the company (closely held company v. publically traded company) usually determines the voting power of the shareholders and how the minority interest is actually affected. Publically traded corporations normally have numerous shareholders who may combine their voting interest to control how the company is run, whereas closely held corporations usually have very few shareholders. Often times, closely held corporations have one or two majority shareholders who in turn control how the company is run, thereby suppressing the rights of the minority shareholder(s).

Unless otherwise stated in the articles of incorporation or bylaws of the company, the majority rule is used regarding any decision brought before shareholders, except the appointment of the board of directors. La. R.S. art. 12:75(I). Therefore, unless the articles or bylaws allow for cumulative voting or some other form of minority voting protection, a minority shareholder will be at the mercy of the majority shareholder when it comes to making decisions for the company or electing directors and officers to make decisions for the company. As one may suspect, this control can cause a serious rift between the shareholders which often leads to a falling out.

However, Louisiana law offers some remedy for minority shareholders who feel they are being treated unfairly. One of the more gutsy options for a minority shareholder is to file a petition for involuntary dissolution of the company. La. R.S. art. 12:143. A minority shareholder may have grounds for involuntary dissolution if can prove that the directors or officers of the corporation have been guilty of gross and persistent ultra vires acts and thereby breached their fiduciary duty to the company. However, this type of action carries a very serious burden of proof and courts normally do not find directors guilty of ultra vires actions. One specific case did rule in favor of a minority shareholder and force liquidation of the company whereby the minority shareholder proved that the majority shareholders, who were also serving as the directors of the company, had conducted ultra vires activities. Gooding v. Millet, 430 So.2d 742 (La. App. 5^th Cir. 1978). The court in Gooding determined that the corporate officers were guilty of gross and persistent ultra vires actions when the officers failed to issue stock certificates, failed to hold annual meetings, failed to keep adequate financial records and granted themselves salaries without a proper vote at a shareholders meeting.

Another option for a minority shareholder to flex their muscle is through a writ of mandamus. A writ of mandamus directs a corporate officer to perform their required duties. La. C.C.P. art. 3861. These required duties include the recognition of rights of the shareholders or some other obligation required according to the bylaws of the corporation. La. C.C.P. art. 3864. One of the more common mandamus actions is the shareholders' ability to inspect financial records of the corporation, a right that courts often recognize in Louisiana. Feil v. Greater Lakeside Corporation, 31 So.2d 520 (La. App. 5^th Cir. 1/26/10). A mandamus action lets the controlling shareholder(s) know that the minority shareholder is aware of their rights and is not afraid of using the legal system to enforce those rights.

The above mentioned remedies are just a couple of examples of the rights provided to minority shareholders under Louisiana law. While being a minority shareholder can be frustrating at times, it is important to remember that you do have options. If you have any questions concerning your rights as a corporate shareholder, please contact our office.

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