Unlike a partner in a partnership, a minority shareholder has no right to dissolve a corporation merely by withdrawing her interest. Absent judicial intervention, corporate dissolution occurs only at the consent of all shareholders. Although a disgruntled shareholder in a public corporation can always withdraw her investment by selling her shares in the market, such an exit strategy is rarely available to a minority shareholder in a private company. Nonetheless, oppressed minority shareholders are not without a remedy in California. Subsecs. (b)(4) and (b)(5) of Corporations Code section 1800, which is California’s involuntary dissolution statute, offer protection to minority shareholders in certain situations from the prejudicial acts of those in control.
Involuntary Dissolution of a California Corporation: The Nuclear Option for Mistreatment of Minority Shareholders
The impact in California of forum selection clauses contained in a corporation’s bylaws or in its articles of incorporation has been the subject of an earlier article at this blog. The law in California concerning such forum selection clauses has continued to evolve and change, particularly in light of developments in Delaware.
In its broadest sense, the business judgment rule is a policy of respect by the courts for the business judgment of corporate directors in exercising their discretion in making corporate decisions.
I use the term “shareholder oppression” to refer to the denial of any realistic benefit to a shareholder for their investment in the company. So, how do the people in control of a privately held company oppress minority shareholders? I will discuss that in this article.
Shareholders Rights to Corporate Annual Financial Reports Under California Corporations Code §1501(a)
Corporations have a statutory and fiduciary duty to provide shareholders with an annual report containing an up-to-date balance sheet, income statement, and a statement of cash flows accompanied by any independent auditors’ reports, within 120 days of the end of the previous fiscal year.
Shareholders have limited rights to inspect the records of California corporations. While statutory laws governing the types of records shareholders may examine are complex and may appear unwieldy, an experienced attorney may assist the shareholder to take full advantage of broader common law shareholder rights of inspection
Federal Court in California Nixes Forum Selection Clause in Delaware Corporation’s Bylaws that Would Require Shareholders Outside Delaware to Bring Suit Against the Corporation in Delaware.
In recent years, several Delaware corporations have either adopted or proposed exclusive forum selection bylaw provisions. These provisions generally require that stockholder suits relating to the internal affairs of a corporation be brought exclusively in the company’s state of incorporation, Delaware. However, a minority shareholder in California might prefer to bring suit here
California Law May Determine Critical Corporate Governance Issues Even Though It’s a Delaware, Nevada or Texas Corporation
WARNING: A potential investor should not assume merely because she buys stock in a corporation based in the Golden State, that California’s corporations laws will protect the shareholder from losses if the founders or other insiders defraud the company!
Discover what shareholder oppression remedies are available for shareholders in California.
Shareholder Election of Directors, Cumulative Voting Rules and Annual Shareholder Meeting Requirements for California Corporations
Discover how minority shareholders are protected by California statues that govern the election of directors.