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Send Us a MessageHow Can Shareholders Protect Themselves From Unfair Treatment
Imagine investing your time, money, and energy into a business, only to find your voice silenced, your rights ignored, and your expectations shattered by those in control. For many minority shareholders, this is a painful reality — one where decisions are made behind closed doors, profits are unfairly distributed, or their rightful place in the company is disregarded. In Canada, the oppression remedy is a powerful legal tool to fight back against unfair treatment.
The oppression remedy is a legal mechanism under corporate law designed to protect minority shareholders from unfair or oppressive conduct by those in control of a company, typically majority shareholders or directors. In Canada, this remedy is codified in Section 241 of the Canada Business Corporations Act (CBCA) and in similar provisions in provincial corporate statutes.
Don’t let your voice go unheard. If you’re facing unfair treatment as a shareholder, contact our experienced corporate lawyers today to explore your options under the oppression remedy.
Shareholder oppression refers to unfair, prejudicial, or harmful actions taken by those in control of a corporation, typically majority shareholders, directors, or officers, that negatively impact minority shareholders or other corporate stakeholders. It occurs when the controlling parties use their power to benefit themselves at the expense of others, and unfairly disregards the rights, interests, or reasonable expectation of minority shareholders.
This often relates to conduct that disproportionately harms minority shareholders. This can include denying access to profits or dividends, abusive or exploitative behavior, such as misusing company assets, self-dealing, or implementing policies that marginalize minority shareholders, or ignoring the legal or equitable rights of stakeholders, including violating shareholder agreements or excluding minority shareholders from decision-making.
A company does not need to be a public corporation for a shareholder to pursue an oppression remedy, either. The oppression remedy applies to both publicly traded and private (closely held) corporations under Canadian corporate law, as outlined in the Canada Business Corporations Act (CBCA).
In fact, shareholder disputes leading to oppression claims are more common in private companies due to their unique characteristics. Minority shareholders in private companies may face difficulties selling their shares if they are dissatisfied, leaving them more vulnerable to oppressive behavior, and private companies often have fewer shareholders (often with close personal or familial relationships) who hold significant control, which increases the risk of decisions that unfairly prejudice minority shareholders.
If you are a victim of shareholder oppression, you might want to consider pursuing an oppression remedy claim. To do this, you must follow several steps.
First, you must confirm your standing and assess the actions of the majority shareholder, directors, or the company. To make a claim, you must have a legal interest in the company to make an oppression claim. This includes shareholders (minority or majority), directors or officers, creditors, or others whose interests are directly affected.
Assess whether the actions of the majority shareholders, directors, or the company are unfairly prejudicial, oppressive, or disregard your interests, and collect evidence. Common examples include withholding dividends, mismanagement, exclusion from decision-making, or self-dealing by those in control.
Documentation that demonstrates oppressive or unfair actions can include meeting minutes or records of decisions, financial statements or evidence of mismanagement, or correspondence or agreements showing violated expectations.
Once you have your evidence, work with a corporate lawyer to file an application in the court where the company is incorporated. Your application should clearly outline the oppressive conduct, provide evidence supporting your claim, and request specific remedies to address the situation.
When a court finds that a shareholder has been subject to oppression, it has broad discretion to grant oppression remedies that address the unfair treatment and restore fairness. These remedies are designed to protect the rights and reasonable expectations of the oppressed party in the shareholder dispute while ensuring the continued functioning of the corporation. Common remedies for an oppression remedy claim include:
Avoiding shareholder conflicts requires proactive planning and clear frameworks for decision-making from the start of any business relationship. A comprehensive shareholder agreement serves as the foundation for conflict prevention. This agreement should outline roles, responsibilities, voting processes, dividend policies, share transfer rules, and shareholder dispute resolution mechanisms, as well as be regularly reviewed and updated to reflect the company’s evolving needs and priorities. Clear boundaries ensure everyone understands their duties and avoids overlap or power struggles.
Shareholders should also focus on aligning their long-term goals to ensure everyone is on the same page about growth strategies, profit distribution, and exit plans. Disagreements often stem from differing visions or conflicting interests, so revisiting these goals regularly can help avoid conflict. While at the same time, establishing clear exit strategies in advance reduces uncertainty when a shareholder wants to leave, especially through pre-defined rules for share valuation and transfers.
Derivative action claims and the oppression remedy are two distinct legal tools under corporate law, each designed to address shareholder disputes or protect stakeholder interests. While they may appear similar, their purposes, beneficiaries, and applications differ significantly.
A derivative action claim focuses on the corporation’s rights rather than the individual shareholder’s interests. This type of claim allows a shareholder to sue on behalf of the corporation when directors, officers, or third parties have caused harm to the company. In contrast, the oppression remedy focuses on the rights and interests of individual shareholders or stakeholders. It is designed to address conduct that is oppressive, unfairly prejudicial, or disregards the reasonable expectations of minority shareholders.
For example, derivative actions might address situations where a director misuses corporate funds for personal gain, corporate assets are sold below market value to insiders, or a third party breaches a contract with the corporation and the board fails to act. Any compensation or remedy resulting from a derivative action benefits the corporation, not the individual shareholder. Additionally, initiating a derivative action requires court approval to ensure the claim aligns with the corporation’s best interests, making this process procedurally complex.
Unlike derivative actions, the oppression remedy does not require court approval to proceed. Its outcomes are tailored to the aggrieved party, often including personal compensation, share buyouts at fair market value, or amendments to corporate governance. This might include situations where majority shareholders exclude minority shareholders from governance, withhold dividends unfairly, dilute shares to decrease ownership stakes or misuse corporate resources for personal benefit.
The primary distinction between these two mechanisms lies in their beneficiaries. While derivative actions seek to remedy harm to the corporation, the oppression remedy aims to restore fairness and protect the rights of individual shareholders. Courts addressing derivative actions focus on corporate harm, whereas oppression remedy claims require evidence of unfair treatment or prejudice to an individual’s rights. Generally, derivative actions are more procedurally complex, given the need for court approval, while the oppression remedy offers a more straightforward path to resolution.
Shareholder oppression claims are governed by statutory provisions, such as Section 241 of the Canada Business Corporations Act (CBCA) and provincial statutes. These laws are highly technical, and a corporate lawyer has the expertise to interpret and apply them effectively to your situation.
Not all disputes qualify as shareholder oppression. Corporate law experts can assess whether the conduct in question meets the legal standards for oppression, unfair prejudice, or disregard of your interests. They can also determine if alternative remedies, like a breach of contract claim under a shareholders’ agreement, may be more appropriate.
Whether you’re seeking fair treatment, compensation, or resolution, we’re here to help you understand your rights and pursue the best possible outcome. Get in touch with our corporate law firm today for a consultation and take the first step toward safeguarding your investment and achieving justice.
The content of this article is intended to provide a general guide to the subject matter and should not be considered legal or other professional advice. Please discuss your situation with a lawyer or other professional to get detailed information regarding your specific circumstances. Refer to our Terms of Use for more details.
The DLegal team is here to support. We will do our best to assist or connect you with those who can help.
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