This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
As has been indicated before, exploitation is not confined to officers and directors as such. It may be an operation performed by or on behalf of the majority shareholders and directed against the minority shareholders.
Where the majority stockholders deliberately decide to exploit the minority, various methods are open to them. One frequently employed is to let the corporate business languish until it is overwhelmed with debt and a reorganization is necessary. In this reorganization the minority interests suffer, or perhaps there is a sale under execution at which the majority stockholders buy up the whole enterprise at a fraction of its value. The same method is sometimes successfully employed to "squeeze out" the majority stockholders where these latter are not in close touch with the business operations of the company. Not infrequently inventors have been thus crowded out even though they owned more than 50% of the outstanding stock of the company and therefore supposed themselves safe.
A crude form of exploiting small corporations is to elect the majority stockholders officers of the company and pay out its profits to them in the form of excessive salaries. Another plan is to make a special contract with another company owned by the majority stockholders so that the profits of the first company go into the treasury of the second company.
It is impossible to recount here the many ways in which an unscrupulous majority may take advantage of the minority. The foregoing paragraphs illustrate the general character of the methods used.