Minority shareholders in closely held companies are often at risk when trust and informal agreements replace formal protections. John O’Riordan, partner in commercial litigation at Dillon Eustace, explains how shareholder oppression can arise, the forms it can take, and why careful planning at the outset is essential to avoid costly disputes.
O’Riordan emphasises that disputes often arise not from bad intent but from assumptions made at the formation of the company – assumptions that relationships will remain strong and that everyone will act fairly.
“Shareholder oppression occurs when the majority shareholder in a company uses their power and influence to the detriment of minority shareholders,” says O’Riordan. He notes that it most frequently arises in closely held companies formed between friends or family, where trust and informal understandings about shared control are relied upon, rather than formal agreements. Even where written agreements exist, O’Riordan observes, they are often drafted without sufficient time or consideration, leaving minority shareholders vulnerable.
According to O’Riordan, oppressive conduct can take many forms. Majority shareholders may exploit their voting power to disadvantage minority investors, for example by passing resolutions to appoint sympathetic directors, approving share allotments that dilute minority stakes, or authorising related-party transactions that benefit companies they personally own.
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“They may also block investigations into malpractice if the wrongdoing serves their own interests,” O’Riordan adds. He highlights that even subtle actions, such as diverting opportunities or resources away from the company, can constitute oppressive conduct.
O’Riordan stresses that minority shareholders should remain vigilant and document concerns, even if they are initially reluctant to challenge the majority.
O’Riordan explains that the risk of oppression increases when a shareholder also serves as a director involved in the day-to-day operations of the company. While directors owe extensive duties under the Companies Act 2014, particularly the duty to act in the company’s best interests, these obligations can be compromised when personal interests take precedence.
According to O’Riordan, oppressive behaviour can be subtle at first, including slightly inflated remuneration, questionable expense claims, or diverting work to businesses in which the majority shareholder has an interest. He notes that minority shareholders may hesitate to challenge such conduct to preserve long-standing relationships, which can allow the damage to both the company and personal relationships to grow.
The concept of shareholder oppression gained public attention during the high-profile Web Summit litigation. O’Riordan’s team acted for a shareholder in a series of High Court actions involving allegations of breach of fiduciary duty, minority shareholder oppression, and disputes over profit-sharing. “At its core, it was a familiar story: a successful company founded by friends, whose relationships ultimately deteriorated,” he says.
‘Invest time and resources in a well-drafted, comprehensive shareholder agreement from the outset. It may seem unnecessary at the time, but it can prevent significant future disputes’
— John O’Riordan, Dillon Eustace
O’Riordan notes that the case highlights how even high-growth, successful companies are not immune to internal conflicts if protections are lacking. He explains that the litigation was lengthy and intense, with Judge Michael Twomey encouraging the parties to settle the “very personal” dispute outside court, noting that a three-month hearing and potential appeal would consume irreplaceable time. The parties ultimately settled after nearly four years of pre-trial litigation. O’Riordan emphasises that early intervention and open communication between shareholders can sometimes prevent disputes from escalating to court.
“Every business begins with a relationship of trust, but that trust can break down,” O’Riordan says. He observes that over his two decades in commercial litigation, he has seen minority shareholder oppression occur repeatedly, often where shareholder agreements are poorly drafted or absent. According to O’Riordan, the consequences can include lengthy litigation, financial and reputational damage, and even the collapse of otherwise valuable companies.
O’Riordan advises: “Invest time and resources in a well-drafted, comprehensive shareholder agreement from the outset. It may seem unnecessary at the time, but it can prevent significant future disputes, saving time, money, and heartache.”
He also stresses that minority shareholders should regularly review agreements as the company grows and circumstances change, to ensure protections remain adequate.
“Maintaining clear records of board decisions and shareholder communications can provide vital evidence if disputes arise, helping to protect both individuals and the company itself,” he advises.
