Minority Shareholder Rights & Oppression Claims (302A)

Avoiding Litigation with Smart Governance, Transparent Disclosures, and Early Off-Ramps in Closely Held Minnesota Corporations

In Minnesota closely held corporations, majority owners owe minority shareholders a heightened duty of good faith and fair dealing under Minn. Stat. § 302A.751. When that duty is breached through “unfairly prejudicial” conduct, courts have broad equitable powers: forced buy-outs at fair value (no discounts), appointment of custodians, dissolution, or even governance overhaul.

What “Unfairly Prejudicial” Conduct Looks Like

Minnesota courts apply a fact-intensive, context-driven test (Pedro v. Pedro, 489 N.W.2d 537 (Minn. App. 1992); McCleary v. State, 945 N.W.2d 593 (Minn. 2020)). Common triggers:

Conduct	Red Flags	Case Example
Freeze-Outs	Employment termination can be “unfairly prejudicial” if it frustrates a shareholder-employee’s reasonable expectations.	Gunderson v. Alliance of Computer Professionals, 628 N.W.2d 173 (Minn. App. 2001).
Self-Dealing	Above-market leases, consulting fees, excess comp, or IP licenses to majority-owned entities without independent approval.	E.g., Blohm v. Kelly765 N.W.2d 147 (Minn. App. 2009).
Information Blockades	Ignoring § 302A.461 inspection demands; providing redacted financials.	Albertson v. Timberjay, Inc., No. A17-0293, 2017 WL 3863863 (Minn. Ct. App. Sept. 5, 2017).
Dilution / Squeeze Tactics	Controllers “froze out” the minority owner by firing him, then stripping his officer role and removing him from the board to exclude him from employment and governance.	Pooley v. Mankato Iron & Metal, 513 N.W.2d 834 (Minn. App. 1994).
Compensation Games	COA summarizing that excessive compensation and dividend manipulation can be unfairly prejudicial.	Gerring Properties, Inc. v. Stansberry, No. A20-0032 (Minn. App. Dec. 21, 2020).

Governance That Prevents Claims (Clause-by-Clause Blueprint)

1. Shareholder Control Agreement (Must-Have)

Clause	Purpose	Sample Language
Buy-Sell Triggers	Death, disability, divorce, termination, deadlock	“Upon any Trigger Event, Company shall purchase all Shares at Appraised Value within 90 days.”
Valuation Method	Avoids appraisal fights	“Fair Value = trailing 12-month EBITDA × 5.0, normalized for working capital ± $500k target; no minority or marketability discounts.”
Funding	Prevents default	“Life insurance cross-purchase; promissory note at AFR over 7 years, secured by shares.”
Non-Compete / Transfer Restrictions	Protects enterprise	“ROFR + tag-along rights on any third-party offer.”

2. Board & Officer Protocols

• Quarterly board meetings with 10-day written notice and Zoom option.
• Conflict recusal policy: Any director with >5 % interest in a transaction recuses and signs written waiver.
• D&O questionnaires updated annually; disclosed to all shareholders.

3. Information Rights Beyond Statute

• Monthly flash reports: Revenue, EBITDA-tracker, cash, AR aging (PDF via secure portal).
• Annual audited or reviewed financials (even if not required).
• Data room access: Cap table, option grants, loan agreements, IP assignments.

4. Dividend & Compensation Policy

Adopt by unanimous written consent and attach to minutes:

“Distributions shall equal 40 % of free cash flow after debt service and $250k working-capital reserve, unless 75 % of directors determine reinvestment is required for growth. Officer compensation shall be benchmarked annually to [industry survey] and approved by disinterested directors.”

Valuation: Where 90 % of Fights Start (And How to Pre-empt Them)

Method	Pros	Cons	Best For
Fixed Formula (e.g., 5× EBITDA)	Fast, predictable	Can be gamed	Stable cash-flow businesses
Three-Appraiser Process	Neutral, defensible	Slower, ~$15k cost	High-stakes or complex assets
Shotgun (Texas Shootout)	Forces fair offer	Risk of bluffing	50/50 deadlocks

Mandatory Clause:

“Appraisers shall apply Revenue Ruling 59-60 factors; explicitly state whether minority/marketability discounts apply (default: none for oppression triggers).”

When a Dispute Is Brewing: 5-Step De-Escalation Playbook

Step	Action	Timeline	Documentation
1	Internal cease-fire memo – “All distributions frozen pending valuation.”	24 hrs	Email to all shareholders
2	Neutral valuator engagement letter (jointly retained)	5 days	Signed by both sides
3	Mediation with binding baseball arbitration on price only	30 days	AAA Commercial Rules
4	Documented buy-out offer (90-day close)	Post-mediation	Includes financing term sheet
5	Escalate only if rejected – file § 302A with valuation report attached	Day 91	Plead specific breaches + proposed remedy

Pro Tip: Courts love when you’ve already followed your own buy-sell. Attach the agreement and mediation certificate to your complaint—shifts burden to opponent.

Sample Timeline: From Tension to Resolution in 120 Days

Defensibility Checklist (Attach to Every Board Packet)

• Buy-sell agreement signed by 100 % of shareholders
• Dividend policy approved by disinterested directors
• Annual conflict disclosures on file
• Inspection demands responded to within 5 business days
• Valuation trigger tested annually (mock appraisal)