If you are a minority shareholder in a closely-held Texas corporation and want the corporation to buy back your shares, don’t bother looking to the courts to help you if the corporation refuses. The Texas Supreme Court recently held that the state does not recognize minority shareholder oppression claims and that there is no legal basis to order corporations to buy back their stock.
In Ritchie v. Rupe, the Court overturned a lower court order that required defendant Rupe Investment Corp. (“RIC”) to buy back $7.3 million in stock from minority owner Ann Caldwell Rupe (“Rupe”). Rupe claimed that the corporation refused to meet with potential third-party buyers of her stock after she rejected what she considered to be a lowball buy-back offer from RIC.
Supreme Court Justice Jeffrey Boyd, writing for a 6-3 majority, said that the Texas Business Organizations Code does not authorize courts to order a corporation to buy out a minority shareholder’s stock and that there is no common-law cause of action for minority shareholder oppression. Minority shareholders claiming oppression therefore cannot do an end run around the statute and pursue common-law oppression claims and seek remedies beyond those contained in the statute.
The justices also held that RIC’s conduct was not oppressive and that majority shareholders aren’t required to meet with prospective purchasers of the minority’s stock to discuss future business strategies — even if the refusal means the minority will be unable to sell their interests or will be forced to sell at a drastically reduced price. “Absent a contractual or other legal obligation, the officer or director has no duty to conduct the corporation’s business in a manner that suits an individual shareholder’s interests when those interests are not aligned with the interests of the corporation’s shareholders collectively,” Boyd wrote.
The decision is “a radical departure from settled precedents and expectations,” that “negates protections the law and Texas courts of appeals have long afforded to minority shareholders,” wrote Justice Eva Guzman in her dissent. Critics of the ruling say the decision essentially strips all legal protections from minority shareholders whose personal interests diverge from the corporation, and may have a chilling effect on potential venture capitalists who are looking to invest in Texas-based start-ups.
Whether the court’s thinking exemplified in this opinion involving corporations will find its way into the thinking of other Texas appellate courts when considering claims of minority oppression by owners of other forms of business entities, such as limited partnerships and limited liability companies, will be closely monitored by Texas business lawyers.
If you have questions or concerns as to how this decision may affect your closely-held corporation or your interests in such corporations, contact the Dallas business lawyers at the Finley Law Group (972) 581-2880.
This website has been prepared by The Finley Law Group for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.