South Dakota Shareholder Oppression

An oppressed corporate shareholder in South Dakota has substantial rights.

Co-owning a business with other family members or business partners can be incredibly rewarding but it can also be the source of some of the costliest conflicts. Often, shareholders or co-owners with a minority stake in the company can be treated unfairly by shareholders with a controlling position with the company. We refer to this as “minority shareholder oppression.”

Oppressive conduct can range from exclusion from company information or decision making to minority shareholder “squeeze out” situations where the controlling shareholders essentially force the minority shareholder to sell out for an unfairly low value.

South Dakota has adopted the Model Business Corporations Act, which provides relief for minority shareholders who have been oppressed. Although the term oppression is not defined in South Dakota statutes, South Dakota courts have resolved the issue (similarly to most other states) ruling that oppression refers to conduct that substantially defeats the reasonable expectations of minority shareholders. See Landstrom v. Shaver, 561 N.W.2d 1, 7 (SD. 1997)

Conduct that is burdensome, harsh or wrongful in the context of the relationship, is contrary to a minority shareholder’s reasonable expectations. Reasonable expectations though, are to be analyzed in light of the entire history of the relationship and may include expectations such as participation in management of corporate affairs. Longwell v. Custom Benefit Programs Midwest, Inc., 627 N.W.2d 396, 399 (SD 2001). In this context, there may well be situations where a minority shareholder, by virtue of the circumstances, cannot reasonably expect a voice in management or a position with the company.

An oppressed shareholder has a claim against the controlling shareholders for equitable relief in the courts. Equitable relief means whatever relief the court might deem appropriate in the circumstances and can include anything from a court-ordered buy-out to dissolution of the company. A prevailing minority shareholder may also recover the attorney’s fees incurred in bringing the action. The same general rights apply for members of South Dakota LLCs or partners in a partnership.

With these rights, an oppressed shareholder in South Dakota need not tolerate oppressive behavior by controlling shareholders. If you believe you have a claim for oppression, we welcome your inquiry and always provide a free initial consult at Peters Law Firm, PLC.