In Ritchie v. Rupe, the minority shareholder was a widow who inherited her husband’s shares in a family business controlled by what she viewed as hostile majority shareholders. After the parties unsuccessfully sought to redeem her shares through negotiation, the minority shareholder brought a lawsuit alleging oppression, i.e., the majority shareholders’ refusal to meet with prospective purchasers when she tried to sell her shares to third parties.
In a move that surprised lawyers and business community alike, the Texas Supreme Court completely changed the lay of the land in shareholder oppression suits by significantly limiting the scope of the doctrine. Specifically, the court imposed a much more stringent standard for oppression, so that minority owners would now have to show abuse of authority with the intent to harm the interests of one or more of the shareholders that creates a serious risk of harm to the corporation. Moreover, a minority shareholder who successfully proves oppression would no longer be entitled to a court-ordered buyout; instead, the sole remedy for oppression would be the appointment of a receiver.
As the court points out, however, all is not lost. Minority owners may still pursue various common law claims to address misconduct by majority owners, including, for example, accounting, breach of fiduciary duty, breach of contract, derivative actions on behalf of the company, and fraudulent inducement claims, to name just a few.
To be sure, the court was not indifferent to the difficulties faced by minority owners. The court strongly suggested, however, that they “resolve such difficulties by entering into shareholder agreements that contain buy-sell, first refusal, or redemption provisions that reflect their mutual expectations and agreements.” We agree. In the post-Rupe world, the importance of advance planning and well-thought-out “business pre-nups” will only increase.
About the Author
So-Eun Lee – So-Eun Lee is an associate attorney in the New York office of The R. Shawn McBride Law Office, P.L.L.C. She concentrates her practice on business law. So-Eun can be contacted at: (347) 921-0173 or firstname.lastname@example.org. Her profile is available on www.mcbrideattorneys.com.
R. Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C. which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: (214) 418-0258; email@example.com, or www.mcbrideattorneys.com.
 Id. at 20.
 Id. at 21.
 Id. at 36—47.
 Id. at 21.