When two or three founders start a company together, the relationship usually feels more like a partnership than a corporation. Decisions are made over coffee, equity splits are agreed on a napkin, and formal governance is an afterthought. That informality works — until it doesn’t.
Shareholder disputes are one of the most common and destructive legal problems startups face. A co-founder gets frozen out of decisions. Shares are issued to dilute someone’s stake. The majority decides to pay themselves generous salaries while the minority sees no return. These disputes don’t just damage relationships — they can threaten the company’s survival and make it uninvestable.
Australian law provides a specific remedy for shareholders who find themselves on the wrong end of this kind of conduct. It’s called the oppression remedy, and it sits in sections 232 to 234 of the Corporations Act 2001 (Cth). Understanding how it works — and how to avoid triggering it — is essential knowledge for any founder.
What Counts as Oppression
Section 232 of the Corporations Act allows a court to intervene where the conduct of a company’s affairs, or an act or omission by the company, is either:
- contrary to the interests of the members (shareholders) as a whole, or
- oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members.
These are deliberately broad concepts. The courts don’t require proof of bad faith or illegality — the test is one of commercial unfairness. The question is whether, viewed objectively, the conduct is so unfair that it justifies the court stepping in. As the courts have put it, the test asks whether a reasonable board, with the relevant knowledge and skills, could have made the same decision in good faith.
In the startup context, the most common triggers for oppression claims include:
Exclusion from management. This is particularly relevant in “quasi-partnership” companies — the typical early-stage startup where all founders expect to be involved in running the business. If one founder is progressively shut out of decision-making, board meetings, or access to company information, that conduct can amount to oppression even if the majority has the technical right to make those decisions.
Dilutive share issues. Issuing new shares to reduce a minority shareholder’s proportional interest — without a proper commercial justification or without offering them the opportunity to participate — is a classic oppression scenario. This comes up frequently in startups that issue shares to new investors, employees, or advisors without following the pre-emptive rights procedures in the shareholders’ agreement or constitution.
Excessive director remuneration. Where controlling shareholders pay themselves large salaries, consulting fees, or bonuses while the company pays no dividends and the minority receives no economic benefit, courts have found that conduct to be oppressive. In a startup context, this often manifests as founders who control the board setting their own compensation without reference to market rates or the company’s financial position.
Diversion of business opportunities. If directors or majority shareholders redirect contracts, customers, or commercial opportunities away from the company and toward entities they personally control, that conduct can ground an oppression claim — and may also involve breaches of directors’ duties.
Withholding information. Shareholders have statutory rights to inspect the company’s books and records under the Corporations Act. Denying a minority shareholder access to financial statements, board minutes, or other company information can contribute to a finding of oppression, particularly when combined with other conduct.
Who Can Bring a Claim
Section 234 sets out who has standing to apply for relief. The list includes:
- a current member (shareholder) of the company
- a person who has been removed from the register of members because of a selective reduction
- a former member, if the application relates to the circumstances in which they ceased to be a member
- a person to whom shares have been transmitted by will or by operation of law
- ASIC, if it considers it appropriate in connection with its investigations
For founders, the most relevant category is the first: any current shareholder can bring a claim, regardless of the size of their holding. You don’t need to hold a minimum percentage of shares or demonstrate a particular level of financial loss. The threshold is the unfairness of the conduct itself.
Importantly, a shareholder can bring a claim even if the oppressive conduct was directed at another shareholder or at the company as a whole. The section is designed to be broad enough to capture the full range of ways in which corporate power can be misused.
What the Court Can Do
If oppression is established, section 233 gives the court wide discretion to make whatever orders it considers appropriate to remedy the situation. The available remedies include:
A share buy-out order. This is the most common remedy. The court orders the majority to purchase the minority’s shares (or vice versa) at fair value. Valuation methodology matters enormously here — whether shares are valued on a pro-rata basis, with or without a minority discount, and at what date, can significantly affect the outcome. In startup disputes, where valuations are inherently uncertain and often based on future potential rather than current earnings, this can be intensely contested.
Orders regulating the company’s affairs. The court can direct the company to change its conduct — for example, by requiring that certain decisions receive unanimous board approval, that information be provided to all shareholders, or that particular governance procedures be followed.
Restraining or setting aside transactions. If specific acts (such as a share issue or a related-party transaction) are found to be oppressive, the court can set them aside or restrain the company from proceeding with them.
Winding up the company. In extreme cases, the court can order that the company be wound up on just and equitable grounds. This is a remedy of last resort, but it remains available where the relationship between shareholders has broken down so completely that the company cannot continue to operate.
Modifying or repealing the constitution. The court can amend the company’s constitution to remove provisions that have been used oppressively or to insert protections for minority shareholders.
The breadth of these remedies is deliberate. The oppression provisions are designed to be flexible enough to fit the specific circumstances of each dispute, rather than prescribing a one-size-fits-all solution.
A Dispute Is Not Automatically Oppression
It’s worth noting what the oppression remedy is not. A mere disagreement between shareholders — even a serious one — does not amount to oppression. The Victorian Supreme Court made this clear in BBHF Pty Ltd v Sleeping Duck Pty Ltd [2024] VSC 320, where it held that a dispute among company members, without more, does not satisfy the statutory test. The conduct must go beyond ordinary commercial disagreement and cross the threshold into unfairness.
Similarly, decisions that disadvantage a minority shareholder are not automatically oppressive if they are made in good faith and for a proper purpose. A company that issues shares to raise capital on arm’s-length terms, following the procedures in its constitution and shareholders’ agreement, is unlikely to be found to have acted oppressively — even if the effect is to dilute a particular shareholder’s interest.
Practical Steps for Founders
The best way to deal with oppression claims is to avoid the conditions that give rise to them. For startup founders, that means:
Get a shareholders’ agreement in place early. A well-drafted shareholders’ agreement should address the scenarios that most commonly lead to disputes: decision-making procedures, pre-emptive rights on new share issues, restrictions on share transfers, dividend policies, and dispute resolution mechanisms. If these issues are agreed upfront and documented, there is less room for the kind of unilateral conduct that triggers oppression claims.
Maintain proper corporate governance. Hold regular board meetings. Keep minutes. Circulate financial information to all directors and shareholders. Follow the procedures in your constitution and shareholders’ agreement. These practices are not just good governance — they create a contemporaneous record that demonstrates fair dealing if a dispute later arises.
Be careful with founder remuneration. If founders who control the board are setting their own salaries, those decisions should be benchmarked against market rates, documented with reasons, and — ideally — approved by independent or non-executive directors. Unexplained or disproportionate remuneration is one of the clearest indicators of oppressive conduct.
Don’t freeze anyone out. Even if the relationship between founders is deteriorating, excluding a shareholder from information or decision-making creates legal risk. If a founder departure is necessary, deal with it through the mechanisms in your shareholders’ agreement — buyback provisions, vesting schedules, or a negotiated exit — rather than through marginalisation.
Address disputes early. Shareholder disputes tend to escalate. What starts as a disagreement about strategy can become a locked-in conflict over governance, remuneration, and control. If you sense a dispute developing, consider mediation or an independent advisory process before positions harden. Litigation under section 232 is expensive, disruptive, and — because it often involves closely held companies with limited resources — disproportionately damaging to both sides.
When to Seek Legal Advice
If you’re a minority shareholder and you believe the company’s affairs are being conducted in a way that is unfair to you, get legal advice before taking action. Oppression claims have a strong factual component — the strength of your case will depend on the specific conduct, the corporate context, and the evidence available. A lawyer experienced in shareholder disputes can help you assess whether the conduct crosses the threshold from disagreement into oppression and advise on the most effective remedy.
Equally, if you’re a majority shareholder or controlling founder and a minority shareholder is raising concerns, take those concerns seriously. Addressing them early — through negotiation, governance reform, or a structured exit — is almost always cheaper and less destructive than defending an oppression proceeding.
If you’re navigating a shareholder dispute in your startup or need help putting governance structures in place to prevent one, get in touch.
