The Texas Supreme Court, on June 20, 2014, issued its highly anticipated opinion in Ritchie v. Rupe, 2014 Tex. LEXIS 500 (Tex. 2014). Ritchie involved a claim by a minority shareholder in a closely held corporation under the Texas receivership statute, seeking to force the majority shareholders to buy-out the minority shareholder’s interest in the corporation. The Texas Supreme Court, in a decision that curtails the rights and remedies of minority shareholders in closely held companies, rejected the minority shareholder’s claim, holding as follows:
• “Oppression” by a majority shareholder under the receivership statute will only be found if the majority shareholder acts with the intent of harming the minority shareholder’s interest and also harms the corporation itself;
• The Texas receivership statute only allows a judge to appoint a rehabilitative receiver, to the exclusion of all other remedies; and
• Texas does not recognize a common law tort for shareholder oppression
Ritchie effectively eliminates legal protections that minority shareholders enjoy in most other jurisdictions. Accordingly, in the wake of Ritchie, a minority shareholder in a closely held Texas corporation must take great care in negotiating and drafting a robust shareholder agreement to govern their rights and remedies in the event that disputes arise.
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