This section of the website deals with Texas business law relating to closely-held businesses, primarily corporations. You will find discussions of practical legal issues confronting Texas business owners and business attorneys. In particular, we address the state of current Texas law after Ritchie v. Rupe and the directions in which we expect the law to develop.
The section on closely-held businesses contains general resources for business owners and attorneys on the formation and governance of closely-held businesses. Articles include a discussion of the selection of different business structures, forming a corporation in Texas, and related topics.
This section deals with minority shareholder rights and legal remedies under Texas business law arising from oppressive conduct.
Texas Minority Shareholder Rights In Flux!
In June 2014, the Texas Supreme Court's Ritchie v. Rupe decision struck down the Shareholder Oppression Doctrine in Texas and nullified 30 years of case law establishing legal protections for the rights of minority shareholders. Now, more than ever, business owners and Texas lawyers must know the rights and duties of stockholders, officers, and directors in closely-held corporations in the new and evolving law of shareholder oppression.
We review the nature and legal structure of corporations and why oppression is a problem for minority shareholders in closely-held corporations. We take a look at how Texas law developed to protect minority shareholder rights under the Shareholder Oppression Doctrine, and the Ritchie v. Rupe decision that struck down that legal doctrine. We examine the implications of Ritchie v. Rupe – what are the gaps left in Texas shareholder oppression law and how will the courts go about filling in the gaps?
After Ritchie v. Rupe, the best protection for minority shareholders is a strong and fair shareholders’ agreement and good governing documents.
Even after Ritchie v. Rupe, minority shareholders have well-established rights that the law will protect: rights to information, voice and voting, a share of the profits, and to sell and transfer your stock. Corporations owe duties to preserve their shareholder's property rights and of fairness, impartiality, and disclosure to every shareholder.
We look at the minority shareholders’ cause of action for breach of trust, dividends claims, stock conversion, dilution, and breach of fiduciary duties that will serve to fill in many of the gaps in the law left by Ritchie v. Rupe.
Ritchie v. Rupe did not diminish the duties that officers and directors owe to the corporation, and indirectly to the shareholders. If anything, the decision may have enhanced those duties. We look at the ultra vires cause of action and derivative claims claims for usurpation of corporate opportunities and excessive compensation.
With the demise of the shareholder oppression doctrine, the fraud cause of action becomes much more significant in resisting squeeze-outs.
Much of the wrongful conduct that courts addressed through the shareholder oppression doctrine can now only be resisted through the derivative action. A derivative suit allows the minority shareholder to bring claims on behalf of the company when officers and directors breach their fiduciary duties. Going forward, according to the Supreme Court in Ritchie, Texas business law will protect “the legitimate interests of a minority shareholder by protecting the well-being of the corporation.” Derivative claims have their own procedural peculiarities and special rules for small, closely-held corporations.
This section deals with practical and ethical issues confronting attorneys who represent closely-held companies. Lawyers representing companies involved in shareholder or partnership disputes are often in a delicate ethical situation. We examine the ethical dilemmas facing corporate attorneys, traps to avoid, and duties to their clients.
|About the author: Houston Business Lawyer Eric Fryar is a published author and recognized expert in the field of shareholder oppression and the rights of small business owners. Eric has devoted his practice almost exclusively to the protection of shareholder rights over the last 25 years. Learn more|
This post represents our opinion regarding the relevant shareholder oppression and minority ownership rights law. However, not everyone agrees with us, and the law is changing quickly in this area. This page may not be up to date. Be sure to consult with qualified counsel before relying on any information of this page. See Terms and Conditions.