## Shareholder disputes in California Shareholder disputes most commonly arise in **closely-held corporations** — small businesses with a few owners — where minority shareholders can be "frozen out" by majority shareholders. ## Common shareholder disputes **1. Minority shareholder oppression / freeze-out:** - Majority denies minority access to information - Majority terminates minority's employment - Majority stops paying dividends to force minority to sell at low price - Majority excludes minority from board / management - Majority engages in self-dealing transactions **2. Breach of fiduciary duty.** Officers, directors, and majority shareholders owe duties to: - Loyalty (no self-dealing without authorization) - Care (informed business decisions) - Good faith - Disclosure **3. Excessive compensation.** Majority pays themselves above-market salaries to drain the company before splits. **4. Self-dealing transactions.** Selling assets to majority's other entities at below-market prices. **5. Diversion of corporate opportunity.** Taking business opportunities personally that should have gone to the company. **6. Improper distributions / dividends.** Majority pays bonuses / dividends only to themselves. **7. Books-and-records access.** Minority asking for financial information; majority refusing or providing incomplete records. **8. Buyout disputes.** When minority wants to exit but majority offers low price. **9. Voting / control disputes.** Disputes over board composition, deadlocks. **10. Dilutive issuances.** Issuing new shares at below-market prices to dilute minority. **11. Derivative claims.** Shareholder sues on behalf of company against officers / directors. **12. Direct claims.** Shareholder sues for personal injury (different from derivative). ## Direct vs derivative claims **Direct claim:** harm directly to the shareholder (not through company) - Refusal of voting rights - Wrongful termination as employee-shareholder - Personal contract breach - Recovery goes to plaintiff **Derivative claim:** harm to company that affects shareholders indirectly - Self-dealing by directors - Excessive compensation - Theft of corporate opportunities - Recovery goes to company (not plaintiff directly) - Plaintiff must satisfy procedural requirements (demand on board, demand-futility analysis) ## Common remedies **Equitable / structural:** - **Dissolution** — court-ordered liquidation - **Forced buyout** at fair value - **Receiver** — neutral third party manages - **Removal of officers / directors** - **Injunction** against specific conduct - **Specific performance** of agreements - **Reform of corporate documents** **Monetary:** - Damages - Disgorgement of unjust enrichment - Punitive damages (in egregious cases) - Attorney's fees (in some cases) ## Forced buyout / appraisal rights Most states' corporation laws give shareholders **dissenters' rights** in major transactions: - Mergers - Sales of substantially all assets - Some amendments to articles Dissenter can demand cash for shares at "fair value" determined by appraisal process. ## Oppression remedies Many states (including DE, NY, CA, MN, MI, NJ) have specific minority-oppression statutes: **Three common standards:** 1. **Fair-dealing test** — majority breached duty to deal fairly 2. **Reasonable expectations test** — minority had reasonable expectations frustrated 3. **Burdensome / oppressive conduct test** — majority's conduct was oppressive Oppression claims commonly result in court-ordered buyout at fair value. ## Books-and-records demands Most states give shareholders explicit rights to inspect books and records: - Articles, bylaws, minutes - Annual financial statements - Shareholder lists - Some operational records Demand must usually state "proper purpose" related to investment. ## Discovery in shareholder litigation Shareholder cases often involve substantial discovery into: - Tax returns of the company - Financial statements - Compensation records - Communications between officers / directors - Sales / contracts with related parties - Bank records - Expert testimony on company valuation ## Closely-held company particularities Closely-held corporations often have: - **Quasi-partnership relationships** — courts apply higher fiduciary duties ("shareholder fiduciary duty") - **Reasonable expectations** approach to minority oppression - **No public market** for shares — minority can't easily exit - **Tax advantages** of S-corp / pass-through that are sensitive to disputes - **Family dynamics** that complicate everything ## Avoiding disputes from the start **Shareholder agreements** are essential: - Buyout / buy-sell provisions - Valuation methodology - Right of first refusal - Drag-along / tag-along rights - Pre-emptive rights - Voting agreements - Deadlock-breaking mechanisms - Non-compete / non-solicit - Dispute-resolution provisions Without an agreement, default state corporate law applies — and it's often inadequate. ## Where to file Most disputes filed in **state court** (court of corporate jurisdiction): - **Delaware Court of Chancery** — for DE-incorporated companies; most sophisticated court - **State business courts** — many states have specialized business divisions - **General civil court** elsewhere ## What you should do If you're in a shareholder dispute in California: gather all corporate documents, financial records, and communications. Hire a business-litigation attorney quickly — these cases are document-intensive and time-sensitive (statute of limitations often 2-6 years; some claims can become stale faster). Most California business-litigation attorneys offer paid initial consultations. --- *This guide is general information about California law as of early 2026 and is not legal advice. Shareholder disputes are highly fact-specific. Talk to a licensed California business-litigation attorney about your specific case.*