Small businesses like medical practices and law firms typically are organized as corporations, limited liability companies, or limited liability partnerships. In Minnesota they are governed by the state’s Professional Firms Act. A key feature is that the people who work for such entities are often owners as well as employees – partners, corporate shareholders, or LLC members. Sometimes minority owners have their rights “oppressed” by the majority, and when that occurs consultation with experienced counsel can be critically important. There are both statutory and common law requirements regarding the rights of people who hold a minority interest in a professional firm, and when they are violated there may be significant potential remedies.
Honoring the Rights of Shareholders
Professional firms must be run in a transparent fashion, consistent with the fiduciary duty owed to all partners, shareholders, or members. This includes a measure of transparency that requires specific financial disclosures to be made to all owners, and the right for these owners to review specific records reflecting these finances and the identity and interest of individual investors in the corporation or partnership.
Minnesota Law Addresses Shareholder Rights Violations
When owner rights are violated, claims arise under common law and statutes like the Minnesota Business Corporation Act, Minn. Stat. § 302A et. seq., which not only provide damage remedies for violation of these rights, but allow injunctive relief to correct these violations, even including dissolving the company, and payment of prevailing party fees and costs. See Minn. Stat. § 302A.751. Significantly, this can also include the right to continued employment if this is a reasonable expectation for the minority owner and this continued employment represents the principle return on the owner’s investment. See Gunderson v. Alliance of Computer Professionals, Inc., 628 N.W.2d 173, 189-90 (Minn. Ct. App. 2001). Therefore, minority owners need to understand these rights and be prepared to seek legal counsel to enforce them when these rights are being oppressed.
For corporations, Minn. Stat. § 302A.461 allows minority shareholders to request and be permitted to inspect the corporate share register, the date of issuance of any shares, the records of all shareholder and/or Board proceedings over the past three years, all articles, bylaws and amendments, financial statements of the corporation as defined by Minn. Stat. §302A.463, names and business addresses of al directors and principal officers, voting trusts or shareholder control agreements, and other specified financial records. While the obligation to provide these records for inspection is defined by statute, there exists a broader common law fiduciary duty owed to all partners and minority shareholders to “act in an honest, fair, and reasonable manner.” See Berreman v. West Publ’g Co. 615 N.W.2d 362, 369 (Minn. Ct. App. 2000).
Protecting Your Rights As A Minority Shareholder
While the rights described above may be affected and vary slightly depending on the nature of the organization (i.e. whether it is an LLC or a partnership, for instance), the general principle of transparency, good faith, and fulfilling fiduciary obligations cuts across all corporate forms. If your rights as a minority shareholder or partner are being oppressed, or your continued employment as a shareholder or partner is threatened, you need to consult with experienced legal counsel who can enforce these rights.