Majority Shareholder Conduct Can Have Consequences

The Michigan Court of Appeals recently issued a decision related to willfully unfair and oppressive conduct by majority shareholders against minority shareholders in Berger v Katz.

In that case, the minority shareholder moved from Michigan to California and was no longer involved in the day-to-day operations of the Michigan corporation.  Thereafter, the majority shareholders stopped making distributions and rental payments from business-owned property to the minority shareholder claiming that the company was losing business and no longer profitable.  The majority shareholders also were responsible for issuing a capital call in an attempt to squeeze the minority shareholder out of the company.  However, the company was actually financially doing fairly well and the majority shareholders gave themselves raises during the same period.  Upon review of this case, the Michigan Court of Appeals held that the majority shareholders violated  Section 489 of the Michigan Business Corporation Act by engaging in “willfully unfair and oppressive conduct.”

This important case should make majority shareholders carefully evaluate their corporate situation prior to engaging in an action which may interfere with the interests of other shareholders.

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