Shareholder oppression occurs when majority shareholders or those in control of a corporation engage in conduct that unfairly prejudices, disregards, or harms the interests of minority shareholders. This goes beyond routine business disagreements—it involves a misuse of corporate power that disproportionately impacts minority stakeholders.
The issue is particularly common in closely held private corporations, where shares are not publicly traded, and minority shareholders typically have little ability to sell their interests or exit the business. As a result, they may find themselves trapped in a situation where their rights and investments are vulnerable. Recognizing and addressing shareholder oppression is essential for protecting minority rights and maintaining fairness in corporate governance. One-way shareholders may seek compensation for wrongdoings is through an “oppression” action.
Ontario’s oppression remedy is set out in section 241 of the Ontario Business Corporations Act (“OBCA”). In addition to the OBCA, federally incorporated companies are governed by the Canada Business Corporations Act (“CBCA”). Like section 241 of the OBCA, section 248 of the CBCA provides shareholders with flexible oppression remedies.
Under the OBCA and CBCA, courts can grant relief including ordering share buyouts, reinstating a wrongfully terminated shareholder-employee, or even mandating changes to a corporation’s structure. The key takeaway is that regardless of whether a company is provincially or federally incorporated, the law ensures that minority shareholders have meaningful legal recourse when majority control is wielded in an oppressive manner.
Common signs of oppression include but are not limited to exclusion from decision making processes in the company; withholding financial information or corporate records; denying the distribution of dividends; misuse of corporate funds; unjustified terminations, demotions, or rearrangements; or being pressured to sell shares at a less than reasonable value.
Shareholder oppression can lead to significant financial and professional harm for minority shareholders. Identifying early warning signs such as those identified above can be critical in protecting one’s interests. Shareholders that suspect they have been oppressed are encouraged to consult a lawyer to determine their options and avenues for commencing an oppression action.
At Gilbertson Davis LLP, our lawyers regularly act for shareholders in closely held corporations seeking to commence oppression claims, with Commercial and Civil Litigation, Commercial Litigation, Contract Litigation, and can aid in resolving your legal issues in a timely and cost-effective manner. Please contact Gilbertson Davis LLP to schedule a consultation with one of our lawyers.
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