Monthly Archives: February 2016

Whether it be a private, closely held corporation of few shareholders, a partnership, or a limited liability company, those in control are with actual or perceived power may try to take advantage of their position.  Common themes develop that are repeated.  We should all learn from history as after all, history repeats itself.

Below is a common list of techniques used by owners to oppress other owners of the company to their advantage.

1.    Management control through voting.
2.    Unequal compensation.
3.    Withholding dividends for other profit distribution.
4.    Taking advantage of a superior financial position to loan money to the company on advantageous terms or dilute interests by additional capital/equity contributions.
5.    Termination of employment and compensation and benefits that go along with the employment.
6.    Elimination of a shareholder from any effective say in management by actions, informal or formal voting, suppressing management contribution or eliminating the shareholder from formal management as a director, officer or management.
7.    Paying profits to certain owners in the form of high compensation while not paying profits and higher compensation to other shareholders.
8.    Withholding information about the management decisions or finances of the company.
9.    Making contracts, leases, or loans, favorable to controlling shareholders.
10.    Paying personal expenses with corporate funds.
11.    Siphoning off profits by having other companies or family members provide services at rates not favorable to the company.
12.    Taking personal advantage of a company opportunity.
13.    Entering into favorable and lucrative employment contracts to the exclusion of “at work” shareholders.

In my experience, there is usually a combination of these squeeze out techniques that leads to oppression of shareholders or business owners when one person is in a position to take advantage of the situation.  When a person has control of money or assets that is being held for the common good or other owners of the business, the law recognizes that person is a fiduciary and establishes a fiduciary relationship.  While decision making in a company can be protected by the Business Judgment Rule, an exception to the rule is when the controlling person acts in their self interest or otherwise breaches the duty of loyalty.  Application of the Business Judgment Rule exists where the fiduciary acted in good faith, in the best interests of the entity and in most cases as a reasonable person in that situation would act.

These common squeeze out techniques lead to breaches of fiduciary duty that likely cannot be saved by the Business Judgment Rule protections.