Texas Minority Shareholders – Along for the Ride
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Over the years various theories developed in Texas and other jursidictions that a minority shareholder could try to employ to challenge other shareholders’ conduct. This included the “freeze-out” and “oppression” theories and the claim for an “equitable buyout.”
The buyout claim basically went like this – the conduct of other sharholders was so oppresive that the court should order those shareholders to buyout the minority shareholder. This is serious relief. Basically the court is asked to ignore the tenants of the shareholders’ agreement and step in to correct a wrong. The claim sprung from a case in Houston, was never found in a statute, and was rarely used. Within the last few months the Texas Supreme Court rejected the claim entirely. First, the Court regined in the elements necessary to prove oppression holding that such a claim exists only when:
- the majority shareholders abuse their authority over the corporation with the intent to harm the interests of one or more the shareholders;
- in a manner that does not comport with the honest exercise of their busiess judgment; and
- by doing so creates a serious risk of harm to the corporation.
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