Texas Supreme Court to Address Shareholder Oppression

It is no secret that a majority of Texas corporations are privately held companies controlled by a small number of shareholders. The controlling shareholders in these corporations may have a duty not to oppress the economic interests of the shareholders holding a minority interest. There are currently three cases pending before the Texas Supreme Court that will address the cause of action known as shareholder oppression.

“Texas courts have generally recognized two non-exclusive definitions for shareholder oppression:

1. Majority shareholders’ conduct that substantially defeats the minority’s expectations that, objectively viewed, were both reasonable under the circumstances and central to the minority shareholder’s decision to join the venture; or

2. Burdensome, harsh, or wrongful conduct; a lack of probity and fair dealing in the company’s affairs to the
prejudice of some members; or a visible departure from the standards of fair dealing and a violation of fair play on which each shareholder is entitled to rely.” Ritchie v. Rupe, 339 S.W.3d 275, 288 (Tex. App. – Dallas 2011, pet. granted).