Breach of Fiduciary Duty: Majority Shareholders

[Originally published 2007 and republished, January 12, 2009 at California Corporate Lawyer]

Majority shareholders may be held liable for damages for breach of a fiduciary obligation to minority shareholders, Jones v. H. F. Ahmanson & Co., 1 Cal.3d 93, 81 Cal.Rptr. 592, 460 P.2d 464; Brown v. Halbert, 271 A.C.A. 307, 316, 76 Cal.Rptr. 781; and 3 Witkin, Summary of Calif. Law (1960) Corporations,
s 99, p. 2390 (1967 Supp. p. 998). A majority shareholder breaches his
fiduciary duties to the minority when he uses his control to distribute a
disproportionate share of corporate profits (whether in the form of a
dividend of excessive executive compensation), depriving the minority of
its fair share of corporate profits. See Jara v. Suprema Meats (2004) 121 C.A.4th 1238, 18 C.R.3d 187; Witkin Summary of California Law, Tenth Edition 2. [§ 181].

In Jara,
the court found that a minority shareholder had the right to bring an
individual action against the corporation for excessive compensation
paid to the two other shareholders, who were also executives and
directors of the corporation. The court stated, “The objective of
encouraging intracorporate resolution of disputes and protecting
managerial freedom becomes meaningless where defendants constitute the
entire complement of the board of directors and all the corporate
officers.” See Jara, supra, at 1259.

Note: The
information contained is not legal advice and does not establish an
attorney-client relationship. Our contact information is included and we
always offer a free consultation. For more information about the
MINORITY SHAREHOLDERS, BREACH FIDUCIARY DUTY and/or other areas of
CORPORATE LAW, please visit http://www.AdishianLaw.com/, contact us via
email to askalg@adishianlaw.com or call us at 415.955.0888 or
310.726.0888. Copyright Adishian Law Group, P.C. 2007.

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Christopher M. Adishian, Esq.

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Licensed since 1994

Member at firm Adishian Law Group, P.C.

AWARDS

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