Shareholders and LLC members being squeezed out of management, profits, or information.
When majority owners freeze out minorities from management, profits, or information, a demand letter is often the critical first step toward resolution--whether through buyout, governance reforms, or litigation.
Signs of oppression: Salary cuts for minority owners while the majority keeps theirs, exclusion from meetings, no distributions while the majority extracts value through related-party deals, dilution through insider stock issuances.
Legal Framework
Breach of Fiduciary Duty
In closely held corporations and LLCs, controlling owners owe fiduciary duties to minority owners. California courts recognize that majority shareholders cannot use their control to benefit themselves at the expense of minorities.
Involuntary Dissolution
California Corporations Code § 1800: Shareholders holding 33 1/3% or more may petition for involuntary dissolution based on deadlock, fraud, mismanagement, abuse of authority, or when liquidation is reasonably necessary for the protection of shareholder interests.
California Corporations Code § 17707.03 (LLCs): Courts may order dissolution when it's not reasonably practicable to carry on the LLC's business in conformity with the operating agreement.
Patterns & Evidence
Salary reductions or termination of minority owners while the majority increases its compensation.
Exclusion from bank accounts, board meetings, or key contracts.
Related-party transactions siphoning profits to majority-controlled entities.
Dilution via stock issuances or capital calls that disproportionately impact minority owners.
Refusal to provide financial statements, tax returns, or inspection rights.
Documentation Checklist
Operating or shareholder agreement
Investment documents and proof of ownership percentage
Compensation history and changes
Bank statements or ledgers showing related-party payments
Communications showing exclusion from management
Corporate minutes or notices you were denied
Any FDD or investor pitch materials describing roles and distributions
Demand Letter Structure
1. History and Expectations
"In [year], I invested $[amount] for a [X]% interest in [Company], with the understanding that I would participate in management and share proportionally in the company's success. For the first [X] years, this arrangement worked as intended--I served as [role], received competitive compensation of $[amount], and the company distributed profits to all owners."
2. Pattern of Oppressive Conduct
"Beginning in [date], the majority owners began a pattern of conduct that has systematically excluded me from the benefits of ownership:
- [Date]: My salary was reduced from $[X] to $[Y], while [Majority Owner]'s compensation increased to $[Z]
- [Date]: I was removed as signatory on company bank accounts without notice
- [Date]: The company entered into a lease with [Majority's LLC] at above-market rates of $[X]/month
- [Date]: I was excluded from the [date] board meeting where [major decision] was made
- [Date]: Despite profits of $[X], no distributions were made to me while majority owners extracted $[Y] through [mechanism]"
3. Legal Framework (Brief)
"Under California law, controlling shareholders owe fiduciary duties to minority owners. The pattern described above constitutes a breach of those duties and may support claims for breach of fiduciary duty, an accounting, involuntary dissolution under Corporations Code Section 1800, and other remedies."
4. Proposed Resolution
"Before pursuing formal legal remedies, I am prepared to discuss the following resolution options:
Option A - Buyout: Purchase of my [X]% interest at fair market value as determined by an independent appraiser, with closing within 60 days.
Option B - Governance Reform: Restoration of my management role, board seat, and equitable compensation; commitment to regular distributions; and implementation of governance procedures to prevent future abuses.
Option C - Mediation: Engagement of a neutral mediator to facilitate a mutually acceptable resolution.
I am available to meet within the next 14 days to discuss these options."
5. Litigation Alternative
"If we cannot reach a resolution, I will have no choice but to pursue all available legal remedies, which may include derivative claims on behalf of the company, a petition for involuntary dissolution, claims for breach of fiduciary duty, and an accounting. Such litigation would be costly and disruptive for all parties, and I hope we can avoid it through good-faith negotiation."
Calibration matters: Don't overstate claims or threaten criminal action. The goal is to create pressure for negotiation while maintaining credibility.
Variants
Family business: Note the family dynamics, express preference for preserving relationships, and suggest mediators experienced in family enterprises.
Professional practice: Reference partnership agreement provisions, ethical obligations, and licensing implications of the conduct.
What Happens Next
Negotiation: Majority may respond with a buyout or reform plan.
Mediation: Neutral third party helps bridge the gap.
Books & Records: If information is denied, send a formal inspection demand.
Litigation: Derivative suit, dissolution petition, or fiduciary duty claims.
Facing Minority Owner Oppression?
I represent minority shareholders and LLC members in oppression disputes throughout California. Let's discuss your options.