Minority Shareholder

As a minority shareholder, the provincial or federal statute that governs your company provides some basic rights to shareholders. These rights include: the right to vote, the right to attend meetings, and the right to have access to certain information. The articles and by-laws of the company can contain additional rights and obligations for shareholders of that particular company. Finally, any shareholders agreement will contain further rights and obligations among the shareholders.

Voting is the primary mechanism through which shareholders control the makeup of the Board of Directors. The Board of Directors is responsible for the management of the company and must act honestly, in good faith, and with a view to the best interests of the corporation. Accordingly, the right to vote is the means through which a shareholder exercises influence over a company. Voting takes place at either special or general meetings. Shareholders have a right to be present at these meetings and cannot be arbitrarily excluded from them. Shareholders have a right to certain information regarding the business and affairs of the company. This information allows the shareholders to make informed decisions pertaining to the manner in which the company should be governed.

As a minority shareholder, you may become concerned over the direction the business is headed but have no ability to change that direction yourself. If you are a minority shareholder of a public company, then you can simply sell your shares if you become disenfranchised with the direction the business is headed. The solution is not so easy when you are a minority shareholder of a privately held company.

Dissent

Under the Ontario Business Corporations Act, RSO 1990, c B.16, shareholders who disagree with certain fundamental changes, such as an amalgamation or a sale of substantially all of the corporation’s assets, have the right to dissent.

Shareholders must provide written notice of their intention to dissent to the resolution making the fundamental change. If the shareholders provide that notice, they may be entitled to demand that the corporation purchase their shares at fair value. If the corporation passes the resolution, it must make an offer to pay fair value for the dissenting shareholders’ shares.

If the corporation fails to make an offer, or if the dissenting shareholders do not accept the offer, either the corporation or the dissenting shareholders may apply to the court to fix a fair value.

Oppression Remedy

Absent a shareholders’ agreement, minority shareholders’ rights are protected under the Ontario Business Corporations Act, which provides relief where the company or its directors are acting, or threatening to act, in a manner that is oppressive, unfairly prejudicial, or that unfairly disregards a shareholder’s interests.

Under these circumstances, you can apply to the court seeking an order to remedy the oppressive or unfair conduct.

The types of orders available in cases of oppressive or unfair conduct are quite broad and include:

• restraining the oppressive or unfair conduct;
• directing the company, or another shareholder, to purchase some or all of the shares of the oppressed shareholder;
• varying or setting aside a transaction or contract involving the corporation; and
• directing the company to compensate the aggrieved person, and
• winding up the company.

The key to obtaining any of this relief is establishing that the minority shareholder’s reasonable expectations were violated in a way that was oppressive, unfairly prejudicial, or unfairly disregarded the shareholder’s interests.

Some examples of the types of conduct that can be considered oppressive or unfairly prejudicial are:

• excluding a shareholder from management of the company where the shareholder had a reasonable expectation of participating in the company’s affairs;
• the payment of personal expenses to those in control; and
• a failure or refusal to provide financial information to shareholders.

In order to determine whether your situation is oppressive or unfairly prejudicial you will need to consult with a commercial litigator. If there is no oppression or unfair conduct, you may be stuck with your minority shareholder position and without the leverage needed to make a change unless you can find a buyer for your shares or you have a shareholders agreement with an exit clause.

Even when there is no oppression or unfair conduct, the Ontario Business Corporations Act permits the court to wind up a company if the court determines it is “just and equitable” to do so. A commercial litigator can review your circumstances and determine whether court ordered relief may be available.

For further information about oppression remedies, please consult the Oppression Remedies section of this website.

Please note that minority shareholders in a family business are sometimes treated differently. If you are a shareholder in a family business, then you should read the Family Business section of this website.