Minnesota law doesn’t leave a minority owner without options when the people running a closely held company shut that owner out. Minnesota Statutes section 302A.751 lets a court grant equitable relief, order a buyout, or dissolve the company. The statute requires courts to consider lesser relief before dissolution, which matters to owners deciding what to ask for.
Minnesota Courts Can Step In When Owners Are Frozen Out
Subdivision 1 of Minnesota Statutes section 302A.751 lets a court grant equitable relief, or dissolve a corporation and liquidate its assets. A shareholder action can rest on one of six conditions. Other parties have separate grounds, so these are the ones that matter to a shareholder who is frozen out:
- A deadlock the shareholders can’t break
- Fraud or illegal acts toward shareholders
- Conduct that is unfairly prejudicial toward shareholders in a corporation that isn’t publicly held
- Shareholders too divided to elect directors across two regular meetings
- Misuse or waste of corporate assets
- Expiration of the duration period in the articles
Unfairly Prejudicial Conduct Is Judged Against Expectations
The term “unfairly prejudicial” appears in the list of grounds, and subdivision 3a tells a court what to weigh. For closely held corporations, a court considers the duty shareholders owe each other to act honestly, fairly, and reasonably, along with the reasonable expectations the shareholders held from the start and as those expectations developed. Written agreements, including employment and buy-sell agreements, are presumed to reflect those expectations.
Owners dealing with types of contract breaches inside the company should gather the shareholder agreement, buy-sell terms, and any employment contract early. The presumption makes those papers central.
Owners who haven’t set up governance terms yet can have a Minneapolis business formation lawyer build deadlock and buyout provisions into the agreement from the start, because written terms carry presumptive weight under subdivision 3a. Those terms are easier to agree on before a dispute starts.
A Buyout Can Replace Dissolution
In a shareholder action against a corporation that isn’t publicly held, subdivision 2 lets the court order a party’s shares sold to the corporation or to the moving shareholders when that is fair and equitable. The price is fair value as of the filing date, or another date the court finds equitable. If a shareholder agreement, bylaws, or share terms set a price, the court follows them unless they’re unreasonable.
The corporation must give selling shareholders required information within five days of the order, and if the parties don’t agree on value within 40 days, the court sets it under section 302A.473, subdivision 7. Once a bond or other assurance of payment is posted, the selling shareholders lose shareholder, officer, and director rights, except the right to receive the value of their shares and any other awarded amounts.
Owners deciding whether to sell or keep their shares may need guidance from a Minneapolis business and entrepreneurial law attorney on valuation and deal structure. Valuation shapes any buyout order.
Beyond the statute, the business attorney’s role includes spotting contract claims that sit alongside the shareholder claim. A price term in an agreement can matter as much as the statute, since the court follows reasonable agreed terms.
Courts Must Consider Lesser Relief First
Before ordering dissolution, the court must consider whether lesser relief, such as equitable relief, a buyout, or partial liquidation, would adequately resolve the problem. It also weighs the corporation’s financial condition, though profits alone don’t defeat a claim for relief.
If a party acted arbitrarily, vexatiously, or otherwise in bad faith, the court may award reasonable expenses, including attorneys’ fees, to the other parties. Companies already in conflict can turn to a Minneapolis disputes and litigation attorney to weigh lesser relief against dissolution before filing.
Early Record Gathering Supports a Shareholder Claim
Before filing, an owner can pull the articles, bylaws, shareholder agreement, buy-sell terms, employment agreements, and recent financial statements, since the statute weighs written agreements and the corporation’s financial condition. Owners can have a Minneapolis business litigation lawyer compare those records and the conduct at issue against the statutory grounds and explain whether a buyout, equitable relief, or dissolution fits best.
At Waypoint Law PLLC, founder Dan Eaton has practiced since 2009 and focuses on business and entrepreneurial law, investing and syndications, and disputes and litigation. He’s admitted in Minnesota, the United States District Court for the District of Minnesota, and the United States Court of Appeals for the Eighth Circuit.
The record that supports a shareholder claim keeps changing while the company continues to operate. An owner who has been shut out of a company’s decisions can reach out to us, and we’ll compare the agreements and records to see which remedy the statute supports.
