In Minnesota, minority owners in a business have strong legal rights. These rights protect them from unfair treatment by the people who own most of the company. The law usually protects these small-scale owners from unfair treatment. However, there are rare times when a minority owner’s actions can lead to legal trouble.
When blocking a decision causes trouble
The law expects business owners to act in good faith. This means they should act honestly and not try to hurt the company just to help themselves. Most of the time, minority owners have the right to vote against major changes. These changes might include selling the company or taking out a large loan.
Problems can start if a minority owner uses their power to “squeeze” the company. For example, imagine a minority owner refuses to sign a needed paper unless the company gives them a private cash payment. If this action hurts the business and serves no real business purpose, a court might find it unfair. Under Minnesota law, a court can step in if an owner’s conduct unfairly prejudices the others.
Do minority owners have special duties?
Many people think only the majority owners have fiduciary duties. A fiduciary duty is a legal promise to act in the best interest of the group. In Minnesota, the rules for minority owners depend on the extent of their actual power.
If a minority owner acts only as an investor and does not help run the company, they usually do not owe these duties to the other owners. The Minnesota Supreme Court decided this issue in Advanced Communication Design, Inc. v. Follett.
However, if a minority owner helps manage the business or has sufficient power to control a major decision, a court might find they owe a duty of loyalty. If they use that power to compete with the company or share secrets, others could sue them.
Staying safe
Business fights can become very expensive. The best way to avoid a lawsuit is to create a clear written agreement. If you are a minority owner, you need to know when your no vote is a right and when others might see it as a breach of fairness. Speaking with a lawyer early can help keep a small disagreement from turning into a long court battle.