Minority Shareholder Rights-Stop Look & Listen


Majority shareholders have fiduciary duty to corporation and minority shareholders to use control power in fair, just, and equitable manner. Jones v. H.F. Ahmanson & Co. (1969) 1 Cal. 3d 93, 108, 110, 81 Cal. Rptr. 592, 460 P.2d 464Jones v. H.F. Ahmanson & Co. (1969) 1 Cal. 3d 93, 108, 110, 81 Cal. Rptr. 592, 460 P.2d 464.

The following are a few cases that demonstrate your rights as a shareholder in California.

Determination of Fair Value

Ronald’s v. 4-C’s Electronic Packaging, Inc. (1985) 168 Cal. App. 3d 290, 214 Cal. Rptr. 225 was an involuntary dissolution proceeding by minority shareholders of a closely held corporation. The majority shareholder had sought to buy out plaintiffs, and three appraisers were appointed to value the minority shares. Two of the appraisers used the price-earnings method; the third appraiser used the asset method. A special master confirmed the valuation arrived at by consideration of only the price-earnings method and after applying a discount factor reflecting defendant’s controlling interest. The court of appeal reversed. In reversing the court reviewed cases and scholarly articles on the various valuation methods for minority interests in closely held corporations that are not publicly traded. The court reiterated the rule of law that consideration of only the price earnings method in valuing a minority interest in a closely held corporation under Corp. Code § 2000(a) is error. Although the price-earnings method is a proper method, its use as the only method is improper. Minority interests are not to be devalued to reflect the fact that they are minority or noncontrolling interests (168 Cal. App. 3d 290, 297–301).

Breach of Fiduciary Duty

Shareholders owning 12 percent of shares are jointly liable as aiders and abettors of directors who breached their fiduciary duty by authorizing repurchase of those shares to quell takeover attempt; imposition of constructive trust on shareholders’ profits on sale of shares to corporation is proper remedy, therefore, preliminary injunction restraining disposal of profits during pendency of suit is also proper. Heckmann v. Ahmanson (1985) 168 Cal. App. 3d 119, 127, 135–136, 214 Cal. Rptr. 177; Heckmann v. Ahmanson (1985) 168 Cal. App. 3d 119, 127, 135–136, 214 Cal. Rptr. 177.

Allegation by minority shareholder that allocation of tax savings to parent corporation accrued by parent and subsidiary corporation filing consolidated tax return under provisions of Internal Revenue Code properly raised question as to whether or not allocation was inherently fair and equitable to plaintiff and was entered in good faith under California rule that majority shareholders have fiduciary duties toward minority shareholders as well as to corporation. Smith v. Tele-Communication, Inc. (1982) 134 Cal. App. 3d 338, 343–346, 184 Cal. Rptr. 571.

Majority shareholder has duty to investigate buyer’s intentions before selling control, so as to avert looting. De- Baun v. First W. Bank & Trust Co. (1975) 46 Cal. App. 3d 686, 696–700, 120 Cal. Rptr. 354.

Majority shareholders have fiduciary duty to minority shareholders, when no public market for the shares exists, not to use control power to make market for their own shares only. Jones v. H.F. Ahmanson & Co. (1969) 1 Cal. 3d 93, 115, 81 Cal. Rptr. 592, 460 P.2d 464.

Majority shareholder has fiduciary duty to minority share-holders not to use control power to dissolve corporation for purpose of defrauding or squeezing out minority. In re Security Fin. Co. (1957) 49 Cal. 2d 370, 378, 317 P.2d 1.

Each case is unique with respect to your goals of the dissolution action which will in turn control how we handle your case. Please call our offices for a confidential consultation.

(The above information does not constitute legal advice nor does the information provided create an attorney-client relationship).


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