Shareholder & Equity Owner Rights
South Carolina law provides the right of minority shareholders to have their interests purchased for fair value when certain conditions occur over which the minority shareholder would have no control, but that would alter the nature of the entity. Dissenter rights are important as they protect minority owners from being forced into a venture that is not “what they signed up for” when they invested or acquired their interest.
Rights to Information
Business equity owners often complain that they “don’t know what is going on” in the business or that certain other owners have instructed the company’s accountant to not show them the books. South Carolina law provides business equity owners with rights to certain information about the company, including financial information.
Majority Oppression of the Minority Owners
South Carolina’s judicial dissolution statute for corporations may provide relief to minority shareholders, who are being frozen out of their opportunity to participate in the business or are being denied any financial benefit of their ownership. This statute provides important remedies to certain owners, who are trapped in an investment with no effective opportunity to participate in the business.
Minority shareholders may seek relief through the judicial dissolution statute when the majority shareholders engage in illegal, fraudulent, oppressive, or unfairly-prejudicial conduct. Courts will look to such actions by the majority as excluding the shareholder from participation as a director or officer, taking actions that are inconsistent with the company’s articles, or being excluded from communications about the company. Oppression cases often also involve the refusal of the majority to pay dividends, as well as claims that the majority shareholders have taken unfairly-high salaries or distributions for themselves or that the majority has wrongfully diluted a shareholder’s percentage of ownership.
Just because a shareholder has no effective say in the business does not mean that the majority has acted in an oppressive manner. If exclusion of the minority shareholder is for a valid reason, courts often will not second guess the business judgment of the majority shareholders. Nor will a court dissolve a corporation simply because the business has not been managed in the manner that the minority reasonably expected.
If a court determines that the minority shareholders rights have been violated, it may order either the dissolution of the corporation or for the majority shareholders to buy out the minority shareholders at a fair value.
Members in limited liability companies have similar protections. The South Carolina courts have construed the Limited Liability Company Ac to provide broad discretion to courts in fashioning remedies for aggrieved members.