A shareholder who has enough stock to control a corporation is considered to have a fiduciary duty to the minority shareholders and to the corporation to use their power to control the corporation in a fair, just and equitable manner. This same rule applies to shareholders who combine their shares to control the corporation. This rule means, in general, that controlling shareholders cannot use their power to control the corporation to benefit themselves alone to the detriment of minority shareholders.
It is a comprehensive rule of fairness that can be the basis of holding a controlling shareholder liable in damages to a minority shareholder who suffered a loss because the controlling shareholder abused her power to control the corporation. For example, a majority shareholder who consistently pays herself exorbitant bonuses to keep the corporation from distributing any of its profits to the minority shareholders might be found to have breached her fiduciary duty to the minority shareholders.
A potential issue of breach of fiduciary duty by the controlling shareholder is raised whenever the facts suggest that the controlling shareholder has abused his power to control the corporation. This incredibly powerful tool enables a minority shareholder to bring a suit directly against the abusing majority shareholder or shareholders seeking to recover damages for the loss sustained by the minority shareholder resulting from the abuse of the power to control the corporation.
If you have experienced a breach of fiduciary duty by a majority shareholder, and you live in the state of California, call me for a free consultation to discuss your case: San Diego area – (858) 794-4805 | San Francisco area – (415) 536-1530. Or fill out the form at the top right and we can setup an appointment.