As they lack control over the company, minority shareholders are in an inherently vulnerable position. A minority shareholder must rely on the judgment and good faith of managers, board members and majority shareholders to protect their rights and interests.
Unfortunately, not all minority shareholders are treated fairly. If your rights have been violated, you may have options available under the law. Here, our Illinois shareholder protection lawyers highlight four of the most common examples of shareholders’ rights violations.
Breach of the Terms of the Shareholder Agreement
A shareholder’s rights derive not just from state or federal regulations, but also from their shareholders’ agreement. All parties have a basic responsibility to comply with the terms of the agreement. If your rights under a shareholder agreement have been violated, you can take legal action to seek a remedy in court — either in the form of injunctive relief, financial compensation, or some combination of both.
Withholding of Important Documents, Records, or Information
In Illinois, the primary right of shareholders is the right to access of otherwise confidential information. Under Section 7.75 of the Illinois Business Corporation Act, minority shareholders have the right to inspect a wide variety of different documents and records — potentially including a corporation’s financial books and the minutes of certain meetings. The law does have some limitations. A shareholder can only inspect records for a “proper purpose.” Disputes can arise over when and how a minority stakeholder gets access to sensitive records.
Refusal to Pay Out Equitable Distributions
In many cases, minority shareholders receive a share of the company’s earnings. Often paid out in the form of dividends, these distributions are the ongoing financial rewards making investing in a successful business worth it. Of course, companies generally have no duty to pay out distributions to shareholders. Whether or not they want to do so is, on the most fundamental level, a business decision. However, when companies make distributions, they must do so in an equitable manner, which respects the rights of all classes of shareholders.
Attempting an Improper ‘Squeeze-Out’ of Minority Shareholder
According to the Cornell Legal Information Institute, a shareholder squeeze-out occurs when minority holders are all but required to sell their stake in the business. Squeeze-outs are regulated by state law. In Illinois, minority shareholders must be paid fair value for their holdings in the company. A shareholder who is facing an abusive squeeze-out or a forced sale can bring a legal claim to protect their financial interests.
Contact Our Chicago, IL Shareholders’ Right Lawyers for Help
At North Suburban Legal Services LLC, our Illinois shareholders’ rights attorneys are skilled, results-focused advocates for clients. If you believe your rights as a minority shareholder are being abused, we are ready to help. To request a free, fully private initial consultation, please contact our law firm right away. With an office in Chicago, we represent shareholders throughout Northern Illinois, including in Naperville, Schaumburg, Evanston, Joliet, and Aurora.