Your stake in a closely-held business represents a significant investment. However, when you are shut out of key decisions or denied access to financial records by the majority owners, you might feel powerless.
This is not just frustrating, it is a breach of trust that can systematically devalue your shares. This type of conduct is called shareholder oppression.
Fortunately, you are not without options. State laws, including those in Kansas, provide specific rights and powerful remedies to protect your interests.
What is a breach of fiduciary duty?
Majority shareholders owe you and the corporation a “fiduciary duty.” This is a legal obligation to act loyally and in good faith. Shareholder oppression often begins when they break this duty, placing their own financial interests ahead of the company’s or your own.
Common examples of oppression
These actions are not always obvious. They often represent a pattern designed to “squeeze out” a minority owner and devalue their shares.
- Refusing to declare dividends while paying excessive salaries to majority owners
- Denying you access to company books and financial records
- Terminating your employment from the company without cause
- Diluting your shares of stock to reduce your ownership percentage
- Using corporate assets for personal benefit
This conduct can directly harm the value of your ownership stake.
What legal remedies are available?
Proving shareholder oppression gives courts broad power to act. Your objective is not just to stop the misconduct but to recover the value of your shares.
In severe cases, Kansas statutes, such as K.S.A. 17-6901, grant courts the power to order the involuntary dissolution of a corporation for illegal, oppressive or fraudulent acts. Courts may also appoint a receiver or custodian under K.S.A. 17-6516.
However, because this is an extreme step, courts often order a more common alternative; a forced buyout of your shares at fair value.
Protecting your stake in the business
Proving shareholder oppression requires more than just disagreeing with business decisions. Courts distinguish between poor management and a pattern of deliberately harmful conduct. You must show how this pattern violated your rights and frustrated your “reasonable expectations” as an owner.
This standard is a key factor Kansas courts evaluate. Because these disputes are complex, consider speaking with an experienced business litigation attorney to understand your options.
