Shareholders have their reasons for investing in companies. Typically, they hope to make money, believe in the public company’s products, and trust the corporate leadership to perform their duties. Buying ownership in the company also gains legal rights and protection, particularly when leadership appears to ignore their fiduciary duties.
One stockholder or a small group can file a lawsuit on behalf of all the stockholders as long as they fit these qualifications:
- They were a shareholder when the wrongful act took place.
- They continue to be shareholders until the time of judgment.
- They faithfully represent the interests of the corporation.
Below are some common reasons to file a lawsuit against the board.
Enforce inspections rights
As part owners, stockholders get to inspect the books and records. Not only could it be a record of the shareholders’ meetings but also accounting records and other papers related to operations that are contractually available to shareholders. They can file a written request to see them. If the corporation refuses, the shareholder can file a lawsuit demanding inspection rights.
File derivative lawsuit
This legal action involves filing a lawsuit against the directors, officers and others who cause financial injury to the shareholder. The plaintiff shareholder tries to protect their investment and the company from decision-makers who do not act in the company’s best interest. Often there is a breach of duty against the leadership or the company if it fails to take necessary action against the bad actors.
Common examples include:
- Improper use of corporate position
- Conflicts of interest
- Self-dealing that cuts out other shareholders
Shareholder oppression lawsuit
As stated above, all shareholders have inspection rights. Corporate bylaws vary but often include other rights as well, including:
- Participating in shareholder meetings
- Voting on shareholder resolutions
- Inspecting shareholder records
Shareholders denied these rights can file a shareholder lawsuit for oppression. These actions are usually illegal and fraudulent and violate bylaws or corporate policy. Shareholders can take legal action, including dissolving or liquidating corporate assets, changing resolutions made by board members or shareholders, and altering or dismissing articles or bylaws.
Minority shareholders still have power
Just because others have more stock or exercise greater control over the company does not mean they can exploit minority stockholders. They still have rights outlined in agreements, particularly when holding corporate decision-makers accountable for their actions.