December 11, 2020

Know Your Rights in a Shareholder Dispute

Know Your Rights in a Shareholder Dispute

Minority shareholders or members lack control over company affairs, which can put them in a delicate position when a dispute erupts. Fortunately, the law provides minority shareholders or members with important rights. Knowing your rights is essential to getting relief from shareholder or member oppression. Here are some of the key rights of all shareholders and members of a Michigan company:

Dividends or distributions of profits

An owner (whether a shareholder in a corporation or a member or partners in an LLC) is entitled to a pro rata share of the company’s profits. When dividends or distributions are declared, each shareholder or member is generally entitled to receive a share of the profits in proportion to his or her percentage interest in the company, or as otherwise specified in the governing documents. In some instances, those documents require distributions to be made when the company has sufficient cash on hand. A shareholder’s rights are violated when he or she does not receive pro rata distributions as required by law and in the relevant agreements. 

Access to the company’s books and records

Owners have the right to inspect the business and financial records of the company. After all, the business belongs, in part, to him or her. The law sets out certain requirements regarding the manner of the request and the timing of inspection, but the key takeaway is that corporate shareholders and LLC members must be given broad access to company records and information. If a company fails to comply with a properly made demand for inspection, an owner can recover attorney’s fees from the company for any legal action necessitated by the failure.

Voting at shareholder or member meetings

In most companies, certain decisions must be put to a vote, and meetings may be convened for this purpose. A minority shareholder or member may not be deprived of the right to be present at such a meeting and vote.

Election of directors or managers

The governing documents of a company should set out procedures for electing the individuals charged with running the company. A person who assumes such a role without a properly conducted vote violates shareholder rights.

Adoption of bylaws or operating agreement

The owners of a business have the right to adopt the documents outlining their rights and responsibilities and the rules governing the company.

Fair treatment

Most fundamentally, a shareholder or member has the right to be treated by the directors, officers, managers, or others in control in a manner that is fair and that does not wrongfully interfere with his or her interests as a shareholder or member of the company. Majority owners can get into trouble quickly when they start treating the company or its assets as their own personal property and ride roughshod over the interests of others.

Stand up for your rights as a business co-owner

Additional rights may be laid out in a company’s bylaws or operating agreement, and you should always know what rights you have under the specific documents of your company. Understanding your rights as a co-owner is key to getting what you deserve. A knowledgeable attorney can review the facts, help determine if you have a viable case, and put together an effective strategy and plan to protect your rights and interests.