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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Topics:  Buy-Out Agreements, Closely Held Businesses, Minority Shareholders, Shareholder Litigation, Shareholders

Published In: Civil Procedure Updates, Civil Remedies Updates, General Business Updates, Mergers & Acquisitions Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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