By David Hobbs
Shareholders have various possible sources of legal rights. Statutory duties of the corporation, officers and directors owed to shareholders are one source. The duty of directors is generally owed to the corporation and, in proper circumstances, may lawfully conflict with and override the interests of shareholders. The bylaws of the corporation are another source. Shareholders may also be party to agreements with the corporation and other shareholders creating contractual duties owed to a shareholder.
Shareholder disputes must be considered in the context of the proper jurisdiction, law, bylaws and shareholder agreements, relevant to the particular dispute in question. This is usually done, on a preliminary basis, in a meeting between lawyer and client, along with a review of the relevant statutory provisions, bylaws and shareholder agreement terms. The preliminary discussions and review will also require a consideration of the historical background to the corporation, its business and the officers, directors and shareholders.
A shareholder may have a right to sue the corporation, a director, officer or shareholder, dependent on the nature of the dispute and identification of who owes the duty in question to the shareholder which has been breached. Disputes may range from being denied information or proper notice to challenging steps taken which constitute a breach of an agreement or fail to meet the reasonable expectations of the shareholder.
Shareholder agreements may contain dispute resolution mechanisms, such as arbitration clauses, which may require consideration.
Statutory provisions provide protection for minority shareholders when their legitimate reasonable expectations have not been met. Reasonable expectations must be considered in the context of the unique circumstances of each corporation and its shareholders. These provisions are referred to as the oppression remedies. Whether or not a shareholder has been oppressed, such that a remedy is available, requires a very careful consideration of the surrounding facts and law. If conduct is held to be oppressive there are many forms of remedial action that may be ordered to redress the situation.
Shareholder rights may require legal proceedings for a myriad of reasons, such as: to have a meeting held, to cause financial information to be produced or to restrain conduct.
If the corporation has a right of action not being pursued, a shareholder may apply for authority to pursue the claim on behalf of the corporation. This is referred to as a derivative action.
A shareholder may seek an order that a corporation’s finances be investigated by a third party. In severe circumstances or dead lock a shareholder may seek a winding up of the corporation if it is just and equitable to do so. Often a shareholder may agree or be forced to buy or sell shares.
Shareholder disputes often involve a need for valuation of the business or shares by a business valuator.
Hobbs Giroday has many years of experience advising and acting for shareholders, officers, directors and corporations in commercial, corporate and shareholder disputes.
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