Oppressive Conduct to Dissolve a Close Corporation
What is "oppressive conduct" to allow a shareholder to have a corporation judicially dissolved? The Eastern Section Court of Appeals recently answered that question for closely held corporations in Cochran v. L.V.R. & R.C., Inc. The court recognized that minority shareholders in a closely held corporation can be effectively held hostage by the majority. Majority shareholders have a fiduciary duty to the minority. The majority can "freeze out" a minority shareholder by holding back any payments or value for being a shareholder, and then refusing to buy the stock back for anything resembling a reasonable price. The Court of Appeals adopted a number of definitions of "oppressive conduct" from other jurisdictions, but it boils down to "the objectively reasonable expectations of the complaining shareholder and the actions of the defendants measured in terms of their fiduciary duties and in light of the totality of the circumstances."
Interestingly, one of the shareholders in this case held only 10% of the corporate stock - less than a quarter of the plaintiff's own shares. Still, the plaintiff alleged he combined his shares with the other shareholder - his mother - to give them a controlling interest of 55%. Key point: "oppressive conduct" and the fiduciary duty of a shareholder in a closed corporation do not require one person to be able to outweigh the interests of all the rest. A group of shareholders acting together to "freeze out" another's interest and deprive them of the value of their stock is sufficient.