Simon PLC Attorneys & Counselors – June 2025 Memorandum
Michigan Shareholder Oppression, Fiduciary Duties, and “Business Divorce”.
Troy, MI. Small business disputes are a trying and difficult experience for shareholders. What once began with a united vision of building an empire, expanding upon a great idea, or the passion for a particular skill and service can quickly devolve into chaos and animosity. These disputes are often further complicated by the involvement of family, inheritance, complications between friends, and even outright hostile and malicious action. Relief is often required in the form of a “business divorce” and the vindication of rights to make certain that all are treated with the promises set forth when the company was originally formed.
Michigan jurisprudence provides shareholders with relief for oppression of their rights by other shareholders. In addition to common law and statutory fiduciary duties of care, Michigan’s legislature has also enacted MCL 450.1489 which, “provides a statutory avenue by which a minority shareholder can bring a direct action to remedy ‘illegal, fraudulent, or willfully unfair and oppressive’ conduct by those in control of a corporation.” Blankenship v Superior Controls, Inc, 135 F Supp 3d 608, 618 (ED Mich 2015). (Note, that Michigan law also provides these protections and relief to limited liability companies MCL 450.4515).
An individual shareholder may sue on his or her own behalf where the shareholder “has sustained a loss separate and distinct from that of other stockholders generally.” Christner v Anderson, Nietzke & Co, PC, 433 Mich 1, 9 (1989 ). Further, after taking appropriate actions, a minority shareholder may sue to enforce rights in the name of the company for losses suffered by the company. The Team at Simon PLC works on these types of matters every single day and the actions and remedies are summarized herein.
Fiduciary Duties Owed to Shareholders and the Company. In Michigan, directors and officers of corporations owe fiduciary duties and a strict duty of good faith to the corporation they serve, as well as directly to its shareholders. MCL 450.1541a sets forth the duty of care owed by officers and directors and provides that a director or officer must discharge his or her duties “[i]n good faith,” “[w]ith the care an ordinarily prudent person in a like position would exercise under similar circumstances,” and “[i]n a manner he or she reasonably believes to be in the best interests of the corporation.” Michigan courts hold that the majority in control of the corporation must exercise “the utmost good faith in its control and management as to the minority and it is the essence of this trust that it must be so managed as to produce to each shareholder, the best possible return upon his investment.” In the absence of these high standards, the corporation and or the shareholders may be entitled to relief for a breach of the duty of good faith.
The Direct Action – Statutory Duties and Remedies for Oppression of the Minority. MCL 450.1489 “provides a statutory avenue by which a minority shareholder can bring a direct action to remedy ‘illegal, fraudulent, or willfully unfair and oppressive’ conduct by those in control of a corporation.” A shareholder who succeeds in establishing director misconduct may be granted a wide variety of equitable relief. Allowable relief under the minority shareholder statute includes dissolution, liquidation of the assets and business, cancellation or alteration of the articles of incorporation, or bylaws, resolutions. Further relief includes the Court’s direction or prohibition of acts by the officers or other shareholders, repurchase of shares, and critically, an award of damages to the corporation or shareholder.
To state a claim of shareholder oppression under MCL 450.1489, a plaintiff must allege: (1) that he was a shareholder of the corporation; (2) that the defendants were “directors” or “in control of the corporation”; (3) that the defendants engaged in acts; and (4) that the acts of the defendants were “illegal, fraudulent, or willfully unfair and oppressive” to the corporation or to the plaintiff as a shareholder. Franks v Franks, 330 Mich App 69, 99 (2019).
Proving that the alleged acts were “willfully unfair and oppressive” to the plaintiff as a shareholder requires the plaintiff to show that the acts amounted to a “continuing course of conduct or a significant action or series of actions” that substantially interfered with his rights as a shareholder and that the defendants took those actions with the intent to interfere with those rights. Id. citing MCL 450.1489(3).
Notably, the term “willfully unfair and oppressive conduct” does not include “conduct or actions that are permitted by an agreement, the articles of incorporation, the bylaws, or a consistently applied written corporate policy or procedure.” MCL 450.1489(3). Notably, the dilution of a minority owner’s equity interest can be oppressive conduct under MCL 450.1489. Campau v McMath, 185 Mich App 724, 729 (1990).
The Derivative Action – Suing in the name of the Company. The foregoing fiduciary duties are owed to shareholders, however “[i]n general, a suit to enforce corporate rights or to redress or prevent injury to the corporation, whether rising out of contract or tort, must be brought in the name of the corporation and not that of a stockholder, officer or employee.” Michigan Nat’l Bank v Mudgett, 178 Mich App 677, 679 (1989). In order to bring a derivative action in a representative capacity on behalf of the corporation, the shareholder must first satisfy the demand requirements of MCL 450.1493a by making written demand that the corporation take suitable action and then allow for a 90-day period. The traditional understanding of a corporate derivative suit is that it is technically against the directors or those in control of a corporation, to remedy wrongs done to the corporation in their capacity as directors or those in control, and the corporation is a named party in order to fully adjudicate all interests
In conclusion, guiding your potential claims to relief in either a fiduciary, direct, or derivative capacity requires competent counsel and careful compliance with the procedural nuance. Not all misconduct or mismanagement is actionable. Notwithstanding the foregoing, potential claimants should be mindful that the incompetence of a director or shareholder does not always equal bad faith. Under the business-judgment rule, “courts will refrain from interfering in matters of business judgment and discretion unless the directors or officers ‘are guilty of willful abuse of their discretionary powers’ or act in bad faith.” Franks v Franks, 330 Mich App 69, 100; 944 NW2d 388 (2019). “A court should be most reluctant to interfere with the business judgment and discretion of directors in the conduct of corporate affairs.” The Team at Simon PLC has handled many business disputes and break-ups and stands by to provide you with consultation to assess your rights and grievances.
N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.
