Minority shareholder

How BC law treats it

Under the Business Corporations Act, SBC 2002, c 57 (BCBCA), most decisions are made by the directors, who are elected by ordinary resolution, and fundamental changes require a special resolution, usually two thirds of votes cast unless the articles set a higher threshold up to three quarters. A minority shareholder therefore cannot control the board, and a holder of more than one third of the votes can often block a special resolution. Controlling shareholders generally owe no fiduciary duty to the minority. Directors owe their fiduciary duty to the company (BCE Inc v 1976 Debentureholders, 2008 SCC 69). The BCBCA gives the minority several statutory protections. The oppression remedy in s. 227 lets a shareholder apply to court where the company's affairs are conducted, or directors' powers exercised, in a manner oppressive to it, or where an act or resolution is unfairly prejudicial to it. The court has broad powers, including ordering a buyout. The derivative action in ss. 232 and 233 lets a shareholder, with leave of the court, sue on the company's behalf for wrongs done to the company. There is no minimum shareholding to apply. Dissent rights in ss. 237 to 247 allow a shareholder who objects to certain fundamental changes, such as an amalgamation or sale of substantially all assets, to be paid fair value for its shares. Shareholders also have statutory rights to inspect specified company records. BC has no unanimous shareholder agreement regime like CBCA s. 146. A minority investor who wants veto rights, board seats, pre-emptive rights or a put option must negotiate them in a shareholders' agreement or the articles, and directors' powers can be transferred only through the articles (BCBCA s. 137). Oppression claims are subject to the Limitation Act, SBC 2012, c 13, and courts expect applicants to act promptly.

What it means for your business

Minority investors, co-founders and family shareholders are often surprised by how little control their shares carry. A well negotiated shareholders' agreement, with board representation, vetoes and exit rights, is the best protection. When relationships break down, the oppression remedy is the main tool, and a credible claim often leads to a negotiated buyout. Majority owners benefit from understanding these rights too, since unfair treatment of a minority can end in a court ordered purchase at fair value. Example: A 25 percent shareholder of a Coquitlam construction company is removed as a director and stops receiving information while the majority owners pay themselves large bonuses instead of dividends. She applies under BCBCA s. 227, and the court orders the company to buy her shares at fair value.

Risks and common mistakes

Investing as a minority without a shareholders' agreement giving board seats, vetoes or exit rights. Suing the majority shareholder for breach of fiduciary duty, when the main remedy is the oppression remedy. Relying on a CBCA style unanimous shareholder agreement, which the BCBCA does not provide for. Waiting years to challenge unfair conduct, which weakens an oppression claim and can bar it. Missing the strict notice deadlines for exercising dissent rights.