Tag: Breach of Fiduciary Duty

Minority shareholder rights in California include protections from a breach of fiduciary duty by the majority shareholder.

Majority shareholders may be held liable for damages for breach of a fiduciary obligation to minority shareholders, Jones v. H. F. Ahmanson & Co., 1 Cal.3d 93, 81 Cal.Rptr. 592, 460 P.2d 464; Brown v. Halbert, 271 A.C.A. 307, 316, 76 Cal.Rptr. 781; and 3 Witkin, Summary of Calif. Law (1960) Corporations, s 99, p. 2390 (1967 Supp. p. 998). A majority shareholder breaches his fiduciary duties to the minority when he uses his control to distribute a disproportionate share of corporate profits (whether in the form of a dividend of excessive executive compensation), depriving the minority of its fair share of corporate profits. See Jara v. Suprema Meats (2004) 121 C.A.4th 1238, 18 C.R.3d 187; Witkin Summary of California Law, Tenth Edition 2. [§ 181].

In Jara, the court found that a minority shareholder had the right to bring an individual action against the corporation for excessive compensation paid to the two other shareholders, who were also executives and directors of the corporation. The court stated, “The objective of encouraging intracorporate resolution of disputes and protecting managerial freedom becomes meaningless where defendants constitute the entire complement of the board of directors and all the corporate officers.” See Jara, supra, at 1259.