Rights of the Minority Shareholders in Small Corporation! Can you Safely Fire a Minority Shareholder - Employee?
I found a very interesting blog post on the New York Business Divorce Blog, dealing with a problem common everywhere. What happens when a minority shareholder works for the enterprise, and is later fired?
This is a very common issue. For reasons real or imagined, the majority shareholders want the minority shareholder to leave. What now? The minority shareholder rarely has an employment agreement (or at least rarely has a written agreement.) And even if here is a written agreement, I've never seen one where the employee/minority shareholder had a right to keep the job regardless of performance.
When the minority shareholder is fired, there is a usual claim or breach of fiduciary duty and other contractual claims.
The NY Business Divorce Blog notes: The most common allegation of oppression by minority shareholders involves termination of employment by the controlling shareholders.
However, when the employee is an at-will employee, then he/she can be fired without creating a liability to the company absent a violation of any other agreement, such as a buy/sell agreement between shareholders.
It is common for shareholders in a small corporation to eventually have disagreements. Unfortunately, when a business is created there is sometimes little thought given to what happens if someone wants to leave, or the majority wants the minority shareholder to leave. Sometimes the shareholder don't even sign an agreement.
I commend you to the writeup on the NY Business Dissolution Blog concerning this subject. They discuss a case where the company is in litigation with the fired minority shareholder, and the company could not get the claim dismissed on a motion. In the case reported, the majority wanted to pay $125.00 rather than $8,335.00 per share to purchase the minority interest. This is just foolish.
