A shareholder has the right to inspect and copy corporate books and records during regular business hours. See Mass. Gen. Laws Ann. 155 § 22. The shareholder must give five business days notice in writing. The shareholder has the right to see minutes from board meetings, accounting records, and a list of shareholders. Id. 156D § 16.02(b).
The demand must be made in good faith and for a proper purpose. The demand must state the purpose and which records he wants to inspect. The requested records must be “directly connected” with his proper purpose. Id. 156D § 16.02(c). The corporation need not comply with the demand if it in good faith determines that producing the requested records would adversely affect the corporation. Id. 156D § 16.02(c)(4).
Only shareholder(s) who own at least 40% of the total combined voting power of all shares outstanding and are entitled to vote on dissolution may petition for an involuntary dissolution and only if deadlock has occurred. Id. 156D § 130. Involuntary dissolution is not available for abuse of power or waste. Id. 156D § 130, cmt. 2. Shareholders in a close corporation owe each other the same fiduciary duty that partners owe each other. Donahue v. Rodd Electrotype Co., 328 N.E.2d 505, 515 (Mass. 1975). Shareholders must not act out of “avarice, expediency or self-interest in derogation of their duty of loyalty to the other stockholders and to the corporation.” Id.
Shareholders may bring a direct action for breach of fiduciary duty of the shareholders can show fraud against them individually, if it would be difficult to establish breach against the corporation, or if recovery by the corporation would not provide proper relief to the shareholders. Crowley v. Communications for Hosp., Inc., 573 N.E.2d 996, 1004 (Mass. App. Ct. 1991). The test to determine whether a suit is derivative or direct is whether the shareholder “suffered an injury distinct from that suffered by the corporation.” Id.
In a close corporation, if the majority shareholder fails to disclose material facts affecting the minority interests, this is a direct claim rather than a derivative suit. Schaeffer v. Cohen, Rosenthal, Price, Mirkin, Jennings, & Berg, P.C., 541 N.E.2d 997, 1001 (Mass. 1989).
To commence a derivative suit, the shareholder must own shares at the time the act complained of occurred. Mass. Gen. Laws Ann. 156D § 7.41. The shareholder must first make a written demand on the corporation that it take the desired action. Id. 156D § 7.42(1); Yameen v. Eaton Vance Distributors, Inc., 394 F.Supp.2d 350, 356 (D. Mass. 2005). The corporation then has 90 days to take the requested action or reject the demand. Mass. Gen. Laws Ann. Id. 156D § 7.42(1).
In a shareholder derivative action, the complaint must plead “with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors or comparable authority . . . and the reasons for his failure to obtain the action or for not making the effort. Id. 156D § 7.42. The demand must be verified by oath. A derivative suit may not be dismissed or settled without court approval. Id. 156D § 7.45.
We are licensed only in Texas
In order to remain on the cutting edge of business owner rights law, Fryar Law Firm keeps abreast of legal developments in all 50 states. This 50-state survey is presented for educational purposes. However, we do not hold ourselves out as experts on the law of any jurisdiction other than Texas, and we may not practice law in any other state, with the following exceptions:
The lawsuit involves a non-Texas company but may be brought in Texas courts--example, if the client is a Texan or the company operates in Texas.
We are part of a legal team that includes local counsel. Out of state legal teams benefit from our experience when we consult. We may also act as lead counsel, if we have local co-counsel and permission of the court.
We are offering general consultation and are performing our work in Texas. We often consult with out-of-state clients on litigation strategy or assist them in organizing for litigation or settlement or in putting together a legal team. We also assist out-of-state clients in exercising their rights to corporate information.
This post represents our opinion regarding the relevant shareholder oppression and minority ownership rights law. However, not everyone agrees with us, and the law is changing quickly in this area. This page may not be up to date. Be sure to consult with qualified counsel before relying on any information of this page. See Terms and Conditions.