Controlling shareholders and managers of family-owned businesses often direct the use of company funds and other resources to provide employment and other benefits to non-shareholder family members. In a business that is wholly-owned by close family members, there may be little concern that other family member shareholders will complain about the use of such resources, as long as there is disclosure and perceived fairness concerning the use of company funds and access to employment opportunities. The risk of a potential claim for breach of fiduciary duty or minority shareholder oppression may increase, however, when non-family members are admitted into the ownership structure. At that point, historic and perhaps informal practices concerning family member involvement in, and benefits from, the company may not be acceptable to a new owner. The controlling family member owners must therefore be careful to follow good corporate governance practices when making decisions on the company’s behalf. Continue Reading Watch Out For Minority Shareholder Oppression Claims After Admitting Non-Family Shareholders To The Family-Owned Business
Corporate shareholders often expect to receive dividends in connection with their ownership of corporate shares. This is particularly true when owners invest capital in or provide other services to the company in exchange for their ownership interests. But do shareholders’ rights to or expectations of dividends change when shares are acquired through gift or inheritance? This issue frequently arises in family-owned businesses where shares are transferred from one generation of owners, who may have built the business through their investment of capital and labor, to the next generation, who themselves may never have worked in, or invested in, the business.
In Jones v. McDonald Farms, Inc., a Court of Appeals in Nebraska recently was presented with a claim by Diane Jones against her two brothers, seeking a decree of judicial dissolution of the company based on the brothers’ alleged “corporate oppression” through their failure to pay dividends to Diane in proportion to her share ownership. Charles and Betty McDonald had incorporated McDonald Farms, Inc. in 1976. Their two sons, Donald and Randall, began farming with Charles in the mid-1970s and they became officers of the company in 1989, while continuing to perform all farming duties. From 1976 through 2010, Charles and Betty were majority shareholders and Donald and Randall were minority shareholders. In 2010, Betty died and her shares were devised equally to her four children, including Donald, Randall, Diane and another sister, Rosemary. In 2012, Charles gifted his stock equally to Donald and Randall. Charles died in 2014. As a result of these transfers, Donald and Randall each held 42.875% of the company’s stock, while Diane and Rosemary each owned 7.125% of the stock.