Minority Shareholder Oppression: Understanding Your Rights in Ontario

Being a minority shareholder in a corporation can be a rewarding investment – until things go wrong. When majority shareholders or directors abuse their power, freeze you out of decisions, misuse corporate assets, or act in ways that harm your interests, you may be facing shareholder oppression. Understanding your rights as a minority shareholder in Ontario is crucial for protecting your investment and holding those in control accountable.

Shareholder oppression occurs when those controlling a corporation – typically majority shareholders or directors – act in a manner that is oppressive, unfairly prejudicial, or that unfairly disregards the interests of minority shareholders.

This doesn’t necessarily mean illegal conduct. Oppression can occur even when actions are technically within the law or the corporation’s governing documents, if they fundamentally undermine the reasonable expectations of minority shareholders.

Exclusion from management and decision-making – Freezing out minority shareholders from participation in the business, especially when they had a legitimate expectation of involvement.

Improper payment of salaries or bonuses – Paying excessive compensation to majority shareholders or directors while providing no dividends to minority shareholders.

Appropriation of corporate opportunities – Directors or majority shareholders taking business opportunities that rightfully belong to the corporation for their personal benefit.

Dilution of shares – Issuing new shares in a way that deliberately reduces minority shareholders’ proportional ownership and voting power.

Related party transactions – Entering into contracts with companies owned by majority shareholders on unfavorable terms to the corporation.

Denial of dividends – Refusing to declare dividends while those in control receive excessive salaries or other benefits.

Lack of transparency – Refusing to provide financial information or access to corporate records that shareholders are entitled to see.

Forced buyouts – Attempting to force minority shareholders to sell their shares at undervalued prices.

Misuse of corporate assets – Using company resources for personal benefit of those in control.

Deadlock and freeze-out – Creating situations where minority shareholders cannot influence decisions or benefit from their investment.

In Ontario, minority shareholder rights are primarily protected under the Business Corporations Act (OBCA), which provides what’s known as the “oppression remedy” in Section 248.

The oppression remedy is one of the most powerful tools available to minority shareholders. It allows a shareholder to apply to court if:

• Any act or omission of the corporation or its affiliates,
• The business or affairs of the corporation or its affiliates, or
• The powers of the directors,

are or have been conducted in a manner that is oppressive, unfairly prejudicial, or unfairly disregards the interests of any security holder, creditor, director, or officer.

What makes this remedy powerful:

• Courts have broad discretion to fashion appropriate remedies
• You don’t need to prove the conduct was illegal, only that it was oppressive or unfairly prejudicial
• The remedy is available even when actions comply with the corporation’s articles and by-laws

When determining whether oppression has occurred, Ontario courts examine:

Reasonable expectations – What did you reasonably expect when you became a shareholder? 

These expectations might come from:

• Shareholder agreements
• Past practices and conduct
• Oral representations made when you invested
• The nature and history of the corporation
• The relationship between shareholders

Fair dealing – Has the corporation and those controlling it acted fairly and in good faith toward minority shareholders?

Legitimate interests – Were your legitimate interests as a shareholder considered and respected?

Context – Courts look at the specific circumstances, including whether the corporation is a closely held private company (where expectations are different than in public companies).

Beyond the oppression remedy, minority shareholders have several specific rights under Ontario law.

Shareholders are entitled to certain corporate information:

Financial statements – Annual financial statements must be sent to shareholders at least 21 days before the annual meeting.

Shareholder lists – You can obtain a list of shareholders and their holdings.

Corporate records – Right to inspect articles, by-laws, minutes of shareholder meetings, and certain other corporate records during business hours.

Why this matters: Information rights allow you to monitor the corporation’s affairs and identify potential oppression or mismanagement.

Minority shareholders typically have the right to vote their shares on important matters:

• Election and removal of directors
• Approval of financial statements
• Appointment of auditors
• Fundamental changes (amendments to articles, amalgamations, major asset sales)
• Any other matters brought before shareholders

While you may not have enough votes to control outcomes, your voting rights give you a voice and, importantly, create a record of your position on contested issues.

Shareholders have the right to:

• Receive notice of shareholder meetings
• Attend and participate in meetings
• Ask questions of directors and management
• Propose matters for consideration (subject to certain requirements)

When the corporation undertakes certain fundamental changes, dissenting shareholders may have the right to have their shares purchased at fair value:

• Amalgamation with another corporation
• Continuance to another jurisdiction
• Sale of all or substantially all of the corporation’s property
• Going private transactions
• Squeeze-out transactions

If the corporation itself has been wronged (for example, by directors breaching their duties), but the corporation refuses to take action, minority shareholders can bring a derivative action on behalf of the corporation.

When this applies:

• Directors or officers have breached their fiduciary duties
• The corporation has suffered harm
• Those in control refuse to sue on the corporation’s behalf

You need court permission to bring a derivative action, but it can be a powerful tool when the corporation itself is controlled by the wrongdoers.

In extreme cases, shareholders can apply to have the corporation wound up (dissolved) if it’s just and equitable to do so, such as when:

• The purpose of the corporation can no longer be achieved
• Deadlock among shareholders makes the corporation unworkable
• Continuing the corporation would be oppressive

How do you know if you’re being oppressed as a minority shareholder? Watch for these warning signs:

• Majority shareholders receive large salaries while minority shareholders get nothing
• Corporate funds are used for personal expenses of those in control
• Related party transactions without proper disclosure or approval
• Unexplained drops in profitability
• Refusal to provide financial information you’re entitled to see

• You’re excluded from meetings or decision-making despite previous involvement
• Meetings are held without proper notice to you
• Your concerns or objections are ignored without consideration
• Directors or majority shareholders act in their personal interest rather than the corporation’s interest
• Fundamental decisions are made without shareholder approval

• Deteriorating relationships with other shareholders
• Being frozen out of communications or information
• Hostility or retaliation when you ask questions or raise concerns

If you successfully prove oppression, Ontario courts have very broad discretion to order remedies. Potential remedies include:

Restraining orders – Preventing the corporation or directors from taking oppressive actions.

Directing action – Ordering the corporation to do or refrain from doing specific acts.

Appointing directors or officers – Installing new management to protect minority interests.

Removing directors or officers – Taking away control from those acting oppressively.

Ordering a buyout – Requiring majority shareholders to purchase your shares at fair value, or allowing you to purchase their shares.

Payment of damages – Compensating you for financial harm suffered.

Ordering distributions or dividends – Requiring the corporation to declare dividends.

Amending corporate documents – Changing articles, by-laws, or unanimous shareholder agreements.

Ordering an investigation – Requiring a formal investigation into the corporation’s affairs.

Winding up the corporation – In extreme cases, dissolving the corporation entirely.

Varying or setting aside transactions – Unwinding improper transactions or contracts.

Courts tailor remedies to the specific circumstances, and often the most common remedy is a court-ordered buyout at fair value, allowing oppressed minority shareholders to exit the investment.

Oppression issues arise most commonly in closely held private corporations where:

• There are few shareholders
• Shareholders may also be directors, officers, or employees
• There’s no ready market for shares
• Relationships are more personal

In these contexts, courts recognize:

Legitimate expectations are broader – You may reasonably expect ongoing involvement in management, employment, or other participation beyond just receiving dividends.

Higher duties among shareholders – Shareholders in closely held corporations often owe each other duties similar to partnership duties, requiring good faith and fair dealing.

Informal arrangements matter – Even without written agreements, informal understandings about how the business would operate can create reasonable expectations that courts will protect.

Family businesses have unique dynamics – Family relationships create both special expectations and special vulnerabilities to oppression.

Being a minority shareholder doesn’t mean being powerless. Ontario law provides significant protections through the oppression remedy and other shareholder rights. However, these protections are only valuable if you understand them, document problems when they arise, and take timely action to enforce your rights.

Our Toronto Shareholder Litigation Lawyers have extensive experience representing minority shareholders in oppression cases. Contact us for a confidential consultation at 416.901.9984 or info@pintoshekib.ca.