What Is Shareholder Oppression?

Shareholder oppression is an abuse of power by majority shareholders in a corporation who harm the minority shareholders with decisions and policy changes the minority cannot take action on because of their weaker position. This most commonly occurs in closely held corporations where the shares are held privately and not made available for public sale, as the distribution of ownership can create a high risk of shareholder oppression. Legal remedies can be sought in court if shareholders believe the majority are not behaving fairly.

A variety of activities may fall under the umbrella of shareholder oppression. Those with the majority can control votes on policy, board membership, and other topics. The minority shareholders will not be able to influence the election because they don't have enough clout, and the vote could set up a situation unfavorable to them. Majority shareholders may also block dividend distributions and other activities.

Sometimes, shareholder oppression includes physically blocking access to the company. All shareholders have a right to access financial records, and the majority shareholders could prevent the minority from doing so. They may also force minority shareholders to go through them to access information they should be able to get directly from the company. This creates an unfair balance of power and may also allow the majority to control information access.

In closely held corporations where the number of shareholders is small and it is not possible to sell shares on the open market, shareholder oppression can be an issue. Shareholders may be family members, business partners, and friends, rather than anonymous figures who all share in a company's stock. This can make it more difficult to address situations where those with more power abuse it; a family member locking someone out of the office, for example, is a situation with more emotional complexity than a simple business maneuver. Activities like barring access to information are also much easier when a company is small and within the control of a limited number of people.

Minority shareholders can file suit and get a judgment to address the shareholder oppression. One option is mandatory dissolution of the company or a breakup of the board, on the argument that board members are not meeting their obligations to protect all shareholders. The court can also mandate a sale and distribution of shares to make the situation more equitable. Remedies available in this situation vary in different regions.