Buyout of the Minority Shareholder’s Interest

Business disputes often create conflicts that are difficult to resolve. When these conflicts involve situations where the minority shareholder or shareholders have been treated unfairly, they can petition the court to have the business dissolved and the proceeds from the sale of business assets distributed to the shareholders.

When May California Courts Order A Corporation To Dissolve and Protect A Minority Shareholder’s Interest?

In California, a court may order a dissolution to protect a minority shareholder’s interest under specific circumstances. This typically occurs when the minority shareholder is being oppressed or when there is a deadlock in the corporation’s management and other means of resolving the dispute have failed.

If the other shareholder want to stop the dissolution and continue to operate the company, they have the option to buy out the minority shareholder at that point. The buyout is done at fair value, determined by court-appointed appraisers or agreed upon by the parties involved. This remedy is provided for under California Corporations Code § 1600 et seq. and is known as a “judicial dissolution.” The court’s ultimate goal is to ensure that the minority shareholder is not unfairly prejudiced and that the interests of justice are served.

The process can be complex and involves a court hearing, so it is recommended that an attorney with experience in corporate law be consulted.

How Do The Courts Determine The Fair Value Of A Minority Shareholder Interest?

In California, the fair value of a minority interest is typically determined by an expert valuation professional, such as a certified public accountant, using various valuation methods and techniques. The determination of fair value often considers factors such as:

  • company’s financial performance
  • comparable sales of similar companies
  • specific rights and restrictions associated with the minority interest
  • relevant legal and regulatory factors, and
  • market trends

Ultimately, the court’s goal is to determine the value that a willing buyer and a willing seller would agree upon in an arms-length transaction.

Contact Chatow Law For A Free Consultation

We represent clients in shareholder disputes in Los Angeles County, Orange County and San Diego County. Call us at 949-478-8393 for a FREE consultation if you’re in a shareholder dispute and want to learn what options you have available.