11.9 Oppression of Minority Shareholders

• Library: Employment Law in Virginia (Virginia CLE) (2020 Ed.)

11.9 OPPRESSION OF MINORITY SHAREHOLDERS

11.901 In General. A shareholder of a private corporation is protected against oppressive acts by the majority shareholders. When the shareholder is also an employee, the protection still applies even though the majority shareholder may also be the employee's employer or direct supervisor. Circuit courts are given the discretionary power to liquidate a corporation in a proper case where oppressive conduct is established by the minority shareholders. Dissolution is the exclusive remedy provided by statute.

11.902 Elements. Section 13.1-747 of the Virginia Code protects minority shareholders against "oppressive" acts of a majority shareholder or a controlling shareholder, or both. The word "oppressive" generally means "conduct by corporate managers toward stockholders which departs from the standards of fair dealing and violates the principles of fair play." ⁷⁷⁰ But more specifically, it is a term of art, as explained by the Virginia Supreme Court in White v. Perkins: ⁷⁷¹

The word "oppressive," as used in the statute does not carry an essential inference of imminent disaster; it can contemplate a continuing course of conduct. The word does not necessarily savor of fraud, and the absence of "mismanagement, or misapplication of assets," does not prevent a finding that the conduct of the dominant directors or officers has

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been oppressive. It is not synonymous with "illegal" and "fraudulent." ⁷⁷²

The statute provides a remedy for stockholders, particularly minority stockholders, in addition to any rights provided them under state law and the corporation's charter and bylaws. In Baylor v. Beverly Book Co., ⁷⁷³ the Virginia Supreme Court reversed the trial court's dismissal of an action for minority oppression and held that allegations of "oppression and misapplication or waste of the corporate assets, [are] two grounds which, if shown by a preponderance of the evidence, would have entitled [the plaintiff] to relief under the statute." ⁷⁷⁴

11.903 Burden of Proof. "'[A] director of a private corporation cannot directly or indirectly, in any transaction in which he is under a duty to guard the interests of the corporation, acquire any personal advantage, or make any profit for himself, and if he does so, he may be compelled to account therefor to the corporation.'" ⁷⁷⁵ Accordingly, "when a plaintiff 'demonstrates that a director had an interest in the transaction at issue, the burden shifts to the director to...