Abuse of Minority Owners

written by OSblueprint
9 · 12 · 22

Minority ownership in a privately held business may create opportunities for “squeeze out” techniques or financial abuse by majority owners. To investigate that conduct, we use the following analysis outline:

Documents to review:

Articles of Incorporation and By-laws, or Articles of Organization for a limited liability company Is this a statutory Close Corporation? (See remedies and dissolution) Ownership agreement/shareholder agreements Employment agreement with majority owner Other contracts defining the relationship of the parties and contributions to capital Leases and contracts with controlled corporations and significant vendors Financial statements for last 5 years and/or tax returns Shareholders Minutes and Notices of Meetings for the last 5 years. Directors Minutes if available Correspondence from the minority owner showing unsuccessful attempts to obtain information

Squeeze-Out techniques and issues to consider:

  1. No dividends
  2. Elimination from Board of Directors or Board of Managers
  3. Exclusion from company employment
  4. Siphoning off earnings by high compensation to majority owner or relatives
  5. Sale of corporate assets to other insiders
  6. Withholding information
  7. Leases and loans favorable to majority owner
  8. Other enterprises controlled by majority owner that perform services for company
  9. Appropriation of assets, contracts, or credit for personal use
  10. Usurping business opportunities that belong to the company
  11. Issuance of additional stock or ownership interests to dilute minority interest
  12. Self-dealing in general


  1. Dissolution
    -based upon illegality, fraud, misapplication of assets or waste, or “oppression”
    -if a statutory “Close Corporation,” Missouri allows the majority shareholder the alternative of buying out the minority shareholder for “fair value.”
  2. Receivership to liquidate and wind up the business
  3. Appointment of a Custodian to take over management of the business
  4. Court appointed provisional director to help resolve disputes
  5. Setting aside fraudulent or abusive transactions
  6. Injunctive relief to prevent future similar conduct
  7. Suit for damages for:
    a. Breach of contract
    b. Breach of fiduciary duty
    c. Damages for excessive salaries or self-dealing
    d. Punitive damages against majority shareholder (to reduce the benefit he will derive by recovery by the corporation in which he owns the majority interest anyway.

Types of actions – first distinguish between corporate rights (a claim that should be brought by the corporation against the individual owner), and personal rights (claims directly from one owner against another). The former requires a derivative suit.

  1. Derivative suit on behalf of shareholders or minority owners
    a. Must be preceded by demand on the controlling directors or managers to take action to remedy the issues
    b. Types of claims covered (numbers refer to same number in “squeeze out” list above)
  2. Siphoning off earnings by high compensation to majority shareholder or relatives
  3. Sale of company assets to other insiders
  4. Leases and loans favorable to majority owner
  5. Other enterprises controlled by majority owner that perform services for company
  6. Appropriation of assets, contracts, or credit for personal use
  7. Usurping company opportunities
  8. Self-dealing in general

c. Downside
Damages are recovered for the benefit of the corporation, and hence – ironically- for the partial benefit of the majority shareholder

  1. Direct suit by minority shareholder, for individual claims
  2. No dividends
  3. Elimination from Board of Directors
  4. Exclusion from company employment
  5. Withholding information
  6. Issuance of additional stock to dilute minority interest These forms of claims are expensive and require significant attorneys time and costs.

Use of this Web Site and review of this Article does not create an attorney- client relationship. The law and its application by the courts is constantly evolving and changing. As with all memoranda in these archives, the discussion of the law is for general informational purposes, is in general summary form, is not to be taken as a definitive guide, and should not be relied upon to determine all fact situations. Each set of facts must be examined separately with the current case and statutory law analyzed and applied accordingly.




On a person’s death, all property in the decedent’s sole name is protected by Missouri law which defines all the heirs and the respective distributions. To carry out that protection, the law requires use of the Probate Court. If the total value of the property exceeds...

read more
Tax free exchanges of “property”

Tax free exchanges of “property”

"SECTION 1031 EXCHANGES" The Internal Revenue Code allows you to defer gain on real estate and other property used for investment purposes by exchanging that property for other "like kind" property, thereby building your portfolio while deferring any tax. You can...

read more
Second mortgage and junior lien protection

Second mortgage and junior lien protection

Missouri’s Requests For Notice of Sale (foreclosures) In general, the holder of a previously recorded Deed of Trust is not required to give notice to anyone else who has a Deed of Trust against the same real estate unless a form of Request for Notice of Sale has been...

read more
Foreclosure trustee’s checklist

Foreclosure trustee’s checklist

Preliminary Matters LENDER FUNCTIONS[ ] 1. Alert attorney to proceed and provide him with copies of: a. the original promissory note and all modificationsb. the deed of trust and any amendments as recorded;c. names and addresses of any guarantorsd. current loan...

read more


Phone Number

(314) 651-1601


Service Area

Serving the Metropolitan St. Louis County, Missouri area and surrounding counties.

Law Offices of Leonard Komen, P.C. All Rights Reserved.

Call Now Button