Close quarters create conflicts. Just ask anyone operating a closely held company. No matter how well individuals work together, personal interests often influence company decisions that not everyone agrees with. Unfortunately, such disagreements commonly lead to actions that, intentional or otherwise, amount to shareholder oppression. In many cases, however, these actions are preventable.
Last week we wrote about one specific kind of shareholder oppression known as a squeeze-out. With a squeeze-out, the majority effectively removes the minority's right to benefit as a shareholder, and more or less forces that shareholder to sell its interest at a reduced price back to the majority. Although similar, today we want to discuss a different form of oppression more common to the partnership context known as a "freeze-out."
As we've written before, minority shareholder oppression can take a number of different forms and vary in its severity. Some forms of oppression simply deprive minority shareholders of certain rights they should be entitled to. More complete forms of oppression, however, may effectively remove the minority shareholder from the company altogether.
Previously, we've written about some of the remedies available to shareholder oppression claimants. Among those we mentioned is the judge's ability to dissolve the company, or at least the minority's interest in the company. While these actions can effectively end the oppressive conduct, the question then becomes how will each party's shares be valued? When shareholder oppression is involved, these valuations can become extremely tricky.
Last week we touched on the kinds of actions that generally constitute shareholder oppression in Oregon. Many of those actions constitute a claim for shareholder oppression whether the actions occur in the context of traditional corporation or an LLC. But, while the actions making up the claim are often the same, the rights and remedies you are entitled to may change depending on whether your business operates as a traditional corporation or is structured as an LLC. Today, we're going to focus on shareholder oppression in the LLC context.
No successful business embraces a 'less is more' philosophy. Unfortunately, the same often holds true for the distribution of power in majority and minority shareholder relationships. Though that doesn't always create friction, sometimes majority shareholders use that power as a way to treat minority members unfairly. Oregon law protects against such actions. Over the course of the next few weeks we'll attempt to illustrate how, highlighting the general principals of shareholder oppression law, as well as some of its case-specific nuances.