minority shareholder rights

David F. Johnson presented his paper “Business Divorce: Minority Shareholder Rights In Texas” to the State Bar of Texas’s Business Disputes Course on September 2-3, 2021. This presentation addressed shareholder oppression claims in Texas, minority shareholder rights (such as contractual rights, stock rights, disclosure rights, distribution rights, employment rights, and receivership rights), fiduciary duties in

The owners of a corporation may enter into shareholder agreements. In Richie, the Texas Supreme Court stated: “Shareholders of closely-held corporations may address and resolve such difficulties by entering into shareholder agreements that contain buy-sell, first refusal, or redemption provisions that reflect their mutual expectations and agreements.” Ritchie v. Rupe, 443 S.W.3d 856, 871 (Tex. 2014).

Regarding shareholder agreements, the Texas Business Organizations Code provides:

(a) The shareholders of a corporation may enter into an agreement that: (1) restricts the discretion or powers of the board of directors; (2) eliminates the board of directors and authorizes the business and affairs of the corporation to be managed, wholly or partly, by one or more of its shareholders or other persons; (3) establishes the individuals who shall serve as directors or officers of the corporation; (4) determines the term of office, manner of selection or removal, or terms or conditions of employment of a director, officer, or other employee of the corporation, regardless of the length of employment; (5) governs the authorization or making of distributions whether in proportion to ownership of shares, subject to Section 21.303; (6) determines the manner in which profits and losses will be apportioned; (7) governs, in general or with regard to specific matters, the exercise or division of voting power by and between the shareholders, directors, or other persons, including use of disproportionate voting rights or director proxies; (8) establishes the terms of an agreement for the transfer or use of property or for the provision of services between the corporation and another person, including a shareholder, director, officer, or employee of the corporation; (9) authorizes arbitration or grants authority to a shareholder or other person to resolve any issue about which there is a deadlock among the directors, shareholders, or other persons authorized to manage the corporation; (10) requires winding up and termination of the corporation at the request of one or more shareholders or on the occurrence of a specified event or contingency, in which case the winding up and termination of the corporation will proceed as if all of the shareholders had consented in writing to the winding up and termination as provided by Subchapter K; (11) with regard to one or more social purposes specified in the corporation’s certificate of formation, governs the exercise of corporate powers, the management of the operations and affairs of the corporation, the approval by shareholders or other persons of corporate actions, or the relationship among the shareholders, the directors, and the corporation; or (12) otherwise governs the exercise of corporate powers, the management of the business and affairs of the corporation, or the relationship among the shareholders, the directors, and the corporation as if the corporation were a partnership or in a manner that would otherwise be appropriate only among partners and not contrary to public policy.

(b) A shareholders’ agreement authorized by this section must be: (1) contained in: (A) the certificate of formation or bylaws if approved by all of the shareholders at the time of the agreement; or (B) a written agreement that is: (i) signed by all of the shareholders at the time of the agreement; and (ii) made known to the corporation; and (2) amended only by all of the shareholders at the time of the amendment, unless the agreement provides otherwise.


Continue Reading Shareholder Agreements Are Very Powerful In Texas: Parties Should Carefully Review Those Agreements Before Obtaining Stock In A Corporation