When majority owners of a closely-held business engage in conduct that constitutes shareholder oppression, it comes in all shapes and sizes. One wrongful act that seems to be occurring more frequently is the creation of a competing company that excludes one or more minority shareholders.
While such conduct may seem rather brazen, there often is an insidious point to such a scheme. If money is now coming into a company that you have no ownership in, your hand may be forced. Do nothing, and you are excluded from all the money that is going to the competing company. Sue and you spend a fortune on lawyers. When the scheme is really well thought out, the majority owners just happen to have a middle road pre-selected for you – a buyout of your shares. Sometimes they will even offer to have a neutral appraiser value your shares, so you know you are getting a fair price. How thoughtful of them.
But what about all the money that is going to the new, competing venture? Invariably, these monies will not be part of any forthcoming settlement buyout offer. But why shouldn’t they be?
In fact, were this matter to go to litigation, I would argue that your company is the true (or equitable) owner of the competing venture and that the entirety of the monies in that new company must be factored into the value of your shares.
If your gut tells you that something is wrong in your business relationship, listen to it and seek legal advice before committing to something that you will later need a lawyer to unwind.