Are you a minority shareholder and feel like you may be getting screwed over by your majority partners?
Minority shareholders can feel like they are in an inferior position when it comes to how their money is spent and how the company is run. Or they might sense that they are not getting the distributions that they are entitled to receive. They generally do not have any managerial rights and therefore at somewhat of a disadvantage. Not only do they a smaller share of the company which means their voting rights are also minimized with regard to the major corporate decisions. But also they generally have no say in the day to day operations. If they believe the company is not being operated properly, or even illegally, what can they do about it?
Michigan Law Protects Members
Michigan law protects minority shareholders in a number of ways. First, minority shareholders or members are always entitled to the a true and full statement or information on the company’s financial condition. This information could mean a lot of different things including tax returns, bank statements, financial statements like P&L and balance sheets. These requests could also include Metrc records. Within reason, a member can request this information regularly. That is their right to understand how their investment is being managed.
To Whom Does a Member Go To Get The Financial Information?
Sometimes, the best person to whom this request is made is the company’s accountant or bookkeeper. Other times, the best from whom to make the request is the company’s lawyer or the managing members directly. If they fail to deliver these documents, that is shareholder oppression which is a cause of action that can be litigated in court.
When Can a Member Take Other Members or The Company To Court?
Upon review of the books and records, if a minority member has evidence and a good faith belief that the managers are not acting in good faith in the best interests of the company (fiduciary duty), or believe that the minority shareholders are being oppressed, this can be a cause of action in court. Failure of a managing member to deliver distributions pursuant to the operating agreement can constitute separate causes of action for breach of contract, breach of fiduciary duty and fraud
A member can bring a court action to establish the they acts of the managers are illegal, fraudulent or constitute willfully unfair an oppressive conduct toward the company or its members. A court can order liquidation or dissolution of the assets of the company, The court can order an award of damages to the member or to the company
Failure of a managing member to deliver distributions pursuant to the operating agreement can constitute separate causes of action for breach of contract, breach of fiduciary duty and fraud
What Is The Statue of Limitations?
There is a two or three year statute of limitations, depending upon the situation, and it begins at the time of the breach, not necessarily at the time there is a financial loss. It can be tolled if there is fraudulent concealment of the breach of contract.
Organize a Voting Block
Perhaps a group of minority shareholders can get together and become a majority block which, if voting together, can remove the managers or coordinate a hostile takeover. This happens all the time. Whether that is an available option can depend upon the terms of the operating agreement.
Members and minority shareholders have rights. They should never just accept what they are being told if they want more answers. They are entitled to them so that they can protect their investment and prevent minority shareholder oppression.