Legal Updates

A family company managed by only one of its shareholders is not necessarily deemed operating as a ‘partnership’

December 15, 2020

A shareholder in a family company sought, among other things, to dissolve the 'partnership' and to liquidate the company due to an allegation of shareholder oppression.
The Court held that there is no shareholder oppression and there is no justification for liquidation of the company. Shareholder oppression occurs when there is a violation of the legitimate expectations of the parties to jointly manage the company. In a company that is a 'kind of a partnership' (where one of the indications is that all shareholders are also directors) there is a legitimate expectation of the parties for joint management of the company. Therefore, conduct that violates this expectation may serve as a basis for a claim for shareholder oppression and dissolution of the 'partnership'. Here, although it is a family company, it is not a company that was managed as a' kind of partnership" while expecting joint management of the company's business. It is a successful company, with significant volumes of activity which distributes dividends to its shareholders at a significant rate from its annual profits and which is not in a managerial deadlock. The company was centrally managed by one of the brothers who served as CEO and as a sole director while the "oppressed" brother, who was dissatisfied with the decisions made, was at an executive level only and the other shareholders had no managerial position in the company. It is clear that no shareholder oppression took place and there is no justification for forcing the minority position on the majority, as both the company and its shareholders will lose out on a liquidation proceedings.