Shareholders Agreements

Shareholder Agreements

The marginalisation of one shareholder or group of shareholders is called ‘shareholder oppression’. The shareholder oppression claims heard in Australian courts are in situations where a minority shareholder (or shareholders) are being unfairly treated by a larger (and usually a majority) shareholder. The oppressive conduct provisions of the Corporations Act are
commonly used in conjunction with a claim of breach of director’s duty or in bringing an application to wind up the company entirely. Situations in which shareholder oppression occurs may be avoided by using a minority shareholder agreement, particularly in situations where the minority shareholders are making a significant financial contribution to the company.

1 Shareholder oppression
Shareholder oppression occurs when majority shareholders in a corporation take action thatunfairly prejudices the minority. It most commonly occurs in small unlisted companies, because the lack of a public market for shares leaves minority shareholders particularly vulnerable. In a small, private company minority shareholders cannot escape mistreatment by selling their stock and exiting the corporation. The majority shareholders may harm the economic interests of the minority by refusing to declare dividends or locking the minority out of the corporate premises and even deny the minority the right to inspect corporate records and books, making it necessary for the minority to sue every time it wants to look at them.
An oppressed minority shareholder can ask the court to dissolve the corporation or to hold the
corporation’s leaders accountable for their fiduciary responsibilities. Contractual protections, suchas a minority shareholder agreement, are a potential alternative to statutory protections.

FULL COMMENTARY IS WITH PURCHASE OF SHAREHOLDERS AGREEMENT

This information is not nor represent legal advice by Precedents Online or its Authors.