Changes to Corporate Governance
Vlf Video Educational Series – Changes to Corporate Governance
Charles Vethan: Hi, I’m Charles Vethan. Welcome to the Vethan Law Firm P.C.’s Video Educational Series. Today’s topic focuses on recent changes to corporate governance under Texas Law, specifically the issues we will discuss today focus on what obligations, if any, in majority shareholder or a member in an LLC owes other members or shareholders in that business entity. We will focus on changes in the law and how this affects claims that used to exist in Texas for shareholder oppression and freeze outs. If you have more questions please contact us at www.vethanlaw.com. Joe a lot of our clients, a lot of business clients out there are concerned about a new decision by the Texas Supreme Ritchie versus Rupe that issued in June 2014. That decision materially altered corporate law landscape in Texas, specifically as it applied to major shareholder rights and minority shareholder rights and shareholder oppression.
Joseph Lanza: Charles my problem with the Rupe opinion is that it boils down to a simple rule. As long as the majority shareholder does nothing to harm the corporation, he’s free to harm the minority shareholders at will. Freeze them out, cut them off, move from the board of directors, fire them, refuse access to confidential information, they can do all those things so long as they justify it by showing that it‘s either beneficial to or at least it does not harm the corporation. Although the court recognizes that minority shareholders are uniquely vulnerable to lowest types of abuses, rather than broadening them and is available to them under the law. It greatly restricts its and wipes out the common law cause of the action for shareholder oppression. As Justice Guzman so eloquently puts it in her descent, it reduces the value of minority shareholders’ shares to change on the chain.
Charles: The majority correctly held that corporate documents, company agreements, shareholder agreements are contracts. When you have people who are able to contract and are into an agreement that says, “Person A has 51% ownership in the company.” That person has a controlling interest and there is nothing wrong with that. Texas recognizes the freedom of contract. Many of our small business clients work very hard and diligently to ensure that they have contracts in place that mean what they say and say what they mean. That is what this decision is all about, it protects individuals who negotiate a contract position.