When relationships between business partners deteriorate inside a closely held corporation, the consequences can threaten the entire company. Disputes over operational control, breaches of fiduciary duty, or the freeze-out of minority owners can escalate quickly. California law provides several remedies designed to resolve these conflicts before they cause lasting damage.
The corporate buyout
A buyout is often the most practical resolution because it ends the dispute without dismantling the business. In a voluntary arrangement, shareholders negotiate a private purchase agreement where one side acquires the other’s shares at an agreed-upon value.
When litigation is already underway, California law provides a statutory path forward. If a minority shareholder files for involuntary dissolution, the majority can use this statute to purchase the plaintiff’s shares for cash at their “fair value.” A court-appointed appraiser establishes the valuation, allowing the business to continue operating under unified leadership.
Involuntary dissolution
When internal conflicts become unmanageable, dissolution may be the only viable option. Under California Corporations Code, shareholders holding at least one-third of outstanding shares can petition for involuntary dissolution. Qualifying grounds include director deadlock that cannot be broken, fraudulent or oppressive conduct by directors, or the misapplication and waste of corporate assets.
If the court grants the petition, a receiver is appointed to wind down the company, satisfy creditor obligations, and distribute remaining assets to shareholders according to their ownership stakes.
Emergency injunctions
When a director or majority shareholder is actively misappropriating funds or transferring assets without authorization, waiting for trial is not a realistic option. Shareholders can pursue two forms of immediate relief. A temporary restraining order (TRO) can be issued on an ex parte basis, without the opposing party present, and typically lasts only a few days. A preliminary injunction requires a noticed hearing but, if granted, remains in place throughout the litigation.
These remedies are not mutually exclusive. A shareholder can seek emergency relief at the outset while simultaneously pursuing a statutory buyout.
Talk to a Pasadena business attorney
Shareholder disputes carry serious financial and legal risk. If your business is facing internal conflict or a governance breakdown, consulting a Pasadena business litigation attorney can help you understand your options and the remedies available under California law.