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South Dakota Shareholder Law

Brief survey of South Dakota shareholder law.

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South Dakota Shareholder Law Survey

Right to Inspect Books and Records

South Dakota shareholders are entitled to inspect and copy corporate books and records. S.D. Codified Laws § 47-1A-1602 (2010). To do so, the shareholder must give the corporation written notice at least five days before the date the shareholder wishes to do the inspection. Id. § 47-1A-1602.

Records included in this right of inspection are: 1) excerpts of board meetings; 2) minutes of shareholder meetings; 3) records of actions taken by shareholders or directors without a meeting; 4) accounting records; and 5) the record of shareholders. Id. § 47-1A-1602.1.

The shareholder’s demand to inspect must be made “in good faith and for a proper purpose.” Id. Id. § 47-1A-1602.2(1). In addition, the shareholder must describe with “reasonable particularity” the reason for the inspection and what records the shareholder wishes to examine. Id. § 47-1A-1602.2(2). The records requested must be “directly connected” to the shareholder’s stated reason for inspection. Id. § 47-1A-1602(3).

The shareholder’s right to inspect corporate books and records may not be limited by the articles or incorporation or corporate by-laws. Id. § 47-1A-1602.3.

The corporation has the right to charge a reasonable fee for providing copies to the shareholder of the requested records, but the fee may not exceed the actual cost of providing the copies. Id. § 47-1A-1603.

If the corporation denies the shareholder his right to inspect records are a demand has been properly made, the shareholder may petition the circuit court located in the county of the corporation’s principal office. Id. § 47-1A-1604. If the shareholder is forced to petition the court, the court may order the corporation to pay the shareholder’s court costs, reasonable attorney’s fees, and costs to copy the records. Id. § 47-1A-1604.2.

Shareholder Oppression

South Dakota shareholders in a close corporation may apply for judicial dissolution if the shareholder can show that the directors are acting “in a manner that is illegal, oppressive, or fraudulent.” Id. § 47-1A-1430.

South Dakota allows trial courts to grant relief for oppressed shareholders. Landstrom v. Shaver, 561 N.W.2d 1, 7 (S.D. 1997). Conduct that substantially defeats the reasonable expectations held by minority shareholders” constitutes oppression according to South Dakota courts. Id. (citing In re Kemp & Beatley, Inc., 473 N.E.2d 1173, 1179 (N.Y. 1984)). “Reasonable expectations” are more than “mere disappointment in results.” Id. (citing Wiedy’s Furniture Clearance Ctr., 108 A.D. 2d 81, 83 (N.Y. 1985)). However, the shareholder’s reasonable expectations will always be balanced against the corporation’s ability to exercise its “business judgment and run its business efficiently.” Id.

To determine whether a claim is direct or derivative the court looks to whether “the injury to each stockholder is of the same character.” Id. at 12. The shareholder must establish a “special injury” distinct from that suffered by other shareholders. Id. The shareholder bears the burden to prove this special injury. Jepsen v. Peterson, 10 N.W.2d 749, 751 (S.D. 1943).

Shareholder Oppression

The rule in South Dakota is that a shareholder may not bring an action individually to redress injuries belonging to the corporation. To have standing to bring a derivative suit, the shareholder must have been a shareholder at the time the act complained of occurred. S.D. Codified Laws § 47-1A-741 (2010). The shareholder must also “fairly and adequately” represent the interests of the corporation in enforcing its interests. Id. § 47-1A-741.

Before filing the derivative suit, the shareholder must first make a written demand on the corporation to take the desired action. The corporation then has 90 days to take the requested action or reject the demand. Id. § 47-1A-741. The shareholder cannot file suit before the expiration of 90 days or the demand is rejected unless “irreparable injury to the corporation would result.” Id. § 47-1A-741(2).

If the corporation begins an investigation into the shareholder’s allegations, the court may stay the proceedings. Id. § 47-1A-743.

 

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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.

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