Many companies sell stocks or shares that allow shareholders to invest in their business. Minority shareholders typically own less than half of a company’s shares while majority shareholders typically own more than half of a company’s shares. Although shareholders have a limited role in the daily running of a company, corporations and their board of directors must fulfill certain responsibilities to their shareholders.
Unfortunately, relationships with shareholders do not always go smoothly. The Harty Law Group provides comprehensive legal services to businesses who find themselves involved in all types of shareholder litigation.
The following circumstances may result in shareholder litigation:
- Selling of company stock to a competitor in violation of a Shareholder Agreement
- Disputes over corporate decisions
- Disputes over the timing and necessity of large capital purchases
- Majority shareholders terminating the entire Shareholder Agreement against the wishes of minority shareholders
- Corporate fraud or conspiracy
- Refusal of corporations to issue dividends against the wishes of minority shareholders
- Shareholder freeze-outs
- Breaches of fiduciary duty
- Other types of corporate malfeasance
The two most common lawsuits filed by shareholders against the corporations in which they own stock are direct lawsuits and shareholder derivative lawsuits. Shareholders can file a direct lawsuit seeking monetary compensation when the corporation has violated a duty owed to them. These duties typically include a duty of care to protect the interest of shareholders and the duty to follow the corporation’s established by-laws or articles of incorporation.
Many direct lawsuits are filed based on conspiracy, fraud, or a company’s breach of its statutory duties. Direct claims are commonly brought by minority shareholders who have been financially harmed by the unfair treatment of the majority shareholders. Other direct lawsuits result from shareholder disagreements over the actions of the corporate officers relating to purchase decisions, the firing and hiring of corporate employees, and the relocation, sale, or shut down of the business.
Derivative or Shareholder Lawsuits
Shareholders may bring a claim on behalf of the corporation on the basis that corporate management or the board of directors failed to act properly in a company’s best interest. In a derivative lawsuit, the shareholder is filing as a representative of the corporation. Unlike in direct lawsuits where shareholders are entitled to their own damages for harm suffered, monetary damages awarded in derivative lawsuits are returned to the corporation.
Derivative lawsuits are commonly filed when there has been a breach of fiduciary duty as in the case of fraud. When corporate management is engaged in the alleged fraud, it becomes the role of the shareholder to act for the company in filing the lawsuit. For example, a lawsuit filed by minority shareholders against majority shareholders alleging an improper sale would be considered a derivative lawsuit as the minority shareholders are acting on behalf of the corporation.
The improper activity of a shareholder, such as the breach of a Shareholder Agreement, can also result in litigation. Shareholder agreements cover a vast array of rights and responsibilities, including how, when, and to whom a shareholder can sell their stock. Lawsuits may be filed to enforce these binding agreements.
Philadelphia Business Litigation Lawyers at the Harty Law Group Advocate for Businesses Dealing with Shareholder Disputes
At Harty Law Group, our experienced Philadelphia business litigation lawyers handle a wide range of state and federal shareholder disputes in Pennsylvania and New Jersey with successful results. With offices conveniently located in Philadelphia and Haddonfield, New Jersey, we represent clients throughout Pennsylvania and New Jersey. To schedule an initial consultation today, call us at 267-262-5650 or submit an online inquiry form.