Snapshot: This article discusses some of the options available to minority shareholders in private companies where the company acts unfairly, prejudicial and oppressive against their interests.
In Ontario, minority shareholders in private companies are given a number of rights and remedies to better protect their investments under the Ontario Business Corporations Act.
The legislation requires, among other things, annual shareholder meetings, the right to an agenda and the particulars of what is to be discussed at meetings and the right to examine the company’s basic accounting books.
However, the most important right of a minority shareholders is the right to bring an action against the company for oppressive, unfair and prejudicial conduct.
Examples of oppressive and unfair conduct against a minority shareholder have included:
- Diverting business opportunities away from the company. For example, in the classic case of Scottish Co-operative Wholesale Society Ltd. v. Meyer,  A.C. 324 (H.L.) the company irregularly “diverted corporate business to a new department within its own organization thereby forcing down the value of the company shares.”;
- Paying excessive remuneration to a controller or associate. For example, the majority may agree to pay the CEO far in excess of what is reasonable in the circumstances;
- Improperly issuing shares. Usually a unanimous shareholder agreement or the company’s articles of incorporation will set out how new shares shall be issued. Where shares are issued without complying with the articles of incorporation a court may make a finding of oppression;
- improper exclusion from participation in management or improperly appointing or removing directors denial of access to information;
- misuse of company funds; and
- oppressive conduct at board meetings.
Depending on the nature of the oppressive conduct, judges have a wide range of remedies they can apply to rectify the minority shareholder rights, including compelling the sale of shares or even winding up the company.
For a recent decision in which the court found that:
- The majority partners have usurped Provis’ corporate opportunities and thus unfairly disregarded the interests of Vincent and Rudd (and the Ottawa doctors);
- The majority partners have unilaterally and unfairly diluted the ownership interest of Vincent (through RESI) and Rudd in RSL;
- The majority partners have taken Vincent’s share of profits in PICI as management salaries; and
- The majority partners have failed to disclose financial information to Vincent and Rudd and the Ottawa doctors.