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Be Careful in Becoming a Minority Shareholder in a Corporation or Minority Member in a Limited Liability Company

On Behalf of | May 2, 2019 | Business Litigation

While two percentage points may seem like a very small difference in power in running a company, those two percentage points can make all the difference in the world. Under the law, there is an immense difference between being a 51 percent owner and a 49 percent owner. Unless there is a shareholder agreement or an operating agreement that protects the rights of minority interests, a minority owner has few legal rights. 

Unless the majority owner breaches a fiduciary duty, there is little the minority owner can do to prevent a majority owner from running roughshod over the minority owner’s interest. The law gives broad discretion to majority owners to make decisions in operating a company, and courts will rarely interfere with those decisions. Even dissolving a limited liability company or a corporation may be beyond reach if protections are not built into a shareholders agreement or an operating agreement.

Before finding yourself a victim to an unscrupulous majority owner, make sure you have a lawyer negotiating minority rights or better yet, never become a minority member or shareholder.

Gerald Klein, a trial attorney, has taken over 40 cases to verdict in jury trials and bench trials. Mr. Klein represents both plaintiffs and defendants in business litigation and legal malpractice cases and was named in the 2019 Super Lawyers Top 50 Orange County list and the 2019 Super Lawyers Top 100 Southern California list. In 2017, Mr. Klein was inducted to the American College of Trial Lawyers, the most prestigious invitation-only fellowship of trial lawyers in the United States, acknowledging his excellent standard of trial advocacy, ethical conduct, integrity, and professionalism.