Minority shareholders in a small, closely-held corporation are in a precarious position. They have no control over management of the corporation and, for example, can’t force dividends to be paid or force a corporate liquidation. Clearly, corporate directors (including those acting as directors) owe a fiduciary duty to the corporation with respect to their actions as directors, and those fiduciary duties apply in the context of directors’ ability manage the closely-held business within their discretion. At the same time, corporate directors that control the closely-held corporation can generally use their business judgment to operate the business as they deem appropriate, but director conduct that is not consistent with the honest, good faith, exercise of business judgment and discretion could be deemed to be “oppressive” to minority shareholders.
Over the past year, two state-level Supreme Court decisions highlight the different views that courts take concerning controlling shareholder conduct that is claimed to be “oppressive” to the minority shareholder(s). Clearly, the decisions point out that a well-drafted buy-sell agreement can go far in protecting the rights of minority shareholders in closely-held corporations.