Owning a small share in a business can make you feel powerless when majority shareholders misuse their control. Fortunately, Kentucky law protects minority owners with strong legal tools to fight back against improper actions. Knowing these legal options can help business owners protect their investments.
File a claim for breach of fiduciary duty
Majority shareholders owe duties of loyalty and care in closely held corporations. When they put their own interests first, minority shareholders can file a lawsuit. Common violations include:
- Paying themselves excessive salaries
- Taking business opportunities for themselves
- Withholding profits owed to shareholders
In such cases, courts can force majority owners to return misused money to the business.
Demand inspection of corporate books and records
Looking at financial records can reveal corporate misconduct. Kentucky law lets minority shareholders inspect accounting records, meeting minutes and shareholder lists. To do so, you must ask in writing at least five business days ahead. To see accounting records, you must show good faith and a proper business reason. If majority owners refuse, you can ask a court to force them to comply and pay your legal fees.
Pursue claims against shareholder oppression
Majority shareholders sometimes try to push out minority owners by cutting their salaries or blocking their voting rights. Kentucky courts view these bullying tactics as illegal. Judges can then order buyout agreements, reverse unfair decisions or stop improper company actions.
Seek judicial dissolution of the corporation
When ongoing illegal conduct threatens the business, minority owners can ask a court to dissolve the corporation. Courts may order this if majority owners commit fraud or cause management deadlocks. This option often forces them to reach a fair settlement. In some cases, majority owners choose to buy out the other’s shares rather than lose the entire business.
Exercise statutory dissenters’ rights
Kentucky law gives shareholders appraisal rights for certain major decisions. You can formally object when majority owners vote to:
- Merge with another company
- Sell or transfer major company assets outside normal business operations
- Change company rules to limit minority shareholders’ voting rights
To use dissenters’ rights, you must give written notice of your intent before the vote. You also cannot vote in favor of the action. The corporation will then be required to buy your shares at fair market value.
Protecting your rights as a minority shareholder
Minority shareholders don’t have to accept unfair treatment. Kentucky law gives business owners powerful tools to hold majority owners accountable. Knowing your legal options can help you seek a fair resolution to shareholder disputes.