Experienced Chicago Lawyer For Shareholder Disputes
Shareholder lawsuits are one of the more complex types of litigation there is. In these cases, the company stands accused of wrongdoing, either in operating the business or in how it treats shareholders. There is a delicate balance between a company and its shareholders, especially when there are minority shareholders that usually do not have the same power as the majority shareholder. When you add in the potential emotions of a small company, shareholder lawsuits can escalate into very charged, high-stakes matters. Chicago shareholder litigation attorneys at King & Jones can help you take a commonsense and practical approach to these disputes, providing heavy-hitting litigation counsel when necessary. From your standpoint, you need to contact an attorney because you should never try to handle a shareholder dispute alone. We represent both companies and shareholders in these disputes. Our law firm has a long history of representing businesses, from entrepreneurs to large corporations. Our reputation as skilled litigators helps us in and out of the courtroom, and many of our trials have resulted in published court decisions, including cases where we represented minority shareholders in a squeeze-out action, as well as representing majority shareholders in these types of cases. Whether we obtain a favorable settlement or need to take your matter to court, you can rely on our negotiation and trial advocacy experienced during every stage of the process. Shareholder lawsuits can arise in several contexts, some of which we describe below. However, never hesitate to discuss any concerns you have about shareholder issues with the legal team at King & Jones.
Client Success
Confidential Settlement
An immigrant family started an ethnic food production and distribution business in Illinois. Over the next 20 years, the family worked together and grew the business into a national operation. However, when it came time to pass the business along to the next generation, the family encountered a disagreement over ownership rights. King & Jones were retained by the minority shareholders to prove and enforce their stake in the company. King & Jones entered into a creatively structured fee agreement that allowed them to launch a relentless investigation involving the retention of top-notch experts in various fields. The investigation not only proved the minority shareholders’ rights, but also showed those rights had been consistently violated over the life cycle of the venture. Ultimately, King & Jones strategies prevailed, and they were able to resolve the case in favor of their clients without involving the family in protracted litigation.
“This case was extremely difficult at every turn. We were representing a family with limited resources, who had valid claims for very significant sums of money. But, we were able to create a fee structure that allowed us to level the playing field against the more powerful and well-funded majority shareholders. Once they saw they could not out spend, or out strategize us, it was just a matter of how much they owed our clients and when they would pay.”
-Peter King, Founding Partner of King & Jones
Shareholder Derivative Lawsuits
The most common type of shareholder lawsuit is a derivative lawsuit. Here, shareholders are suing the directors on behalf of the company. Most often, shareholders claim that the directors have damaged the company by breaching their fiduciary duty. Each director owes specific duties to the company and may be personally liable if they breach them. Here are the primary potential breaches of duty that can lead to a shareholder derivative lawsuit:
Board members must place the company’s interests ahead of their own, and they must avoid conflicts of interest and not improperly use their corporate position.
The directors must act with reasonable care and diligence in handling corporate matters (this standard is roughly the same as negligence – a director may make mistakes, but they must act reasonably) However, if you file a lawsuit, you should understand that corporate directors have some degree of protection under the business judgment rule. If a director makes a decision in good faith and without any intent to harm the company, they may not be held liable.
Shareholder Derivative Lawsuits Get Filed On Behalf Of The Company
The plaintiffs are not filing the lawsuit on their behalf. This is why the suit is called a derivative action. They will not receive damages if they win the case, but the damages will flow to the company.. The plaintiffs filed the lawsuit because the value of their investment gets harmed by how the corporate directors are acting. Shareholder derivative lawsuits are becoming more common as shareholders want more say in how the company gets run. Here are some frequent reasons why shareholders will file a derivative lawsuit:
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- They are angry about a pay package that they believe overpays corporate executives.
- Shareholders can allege corporate executives have acted in their own interests, as opposed to putting the company first through alleged self-dealing.
- They believe that the company has violated any Securities and Exchange Commission rule about corporate oversight or reporting.
- Board members have acted carelessly or recklessly in how they conduct corporate business, thereby breaching the duty of care.
King & Jones handles shareholder derivative cases, so reach out to our team to discuss your potential matter today.
The Number Of Shareholder Derivative Lawsuits Is Growing
The number of shareholder derivative lawsuits is growing with an increasing focus on Environmental, Social, and Governance (ESG) and a more involved SEC. Board members have a much more complex job, and shareholders are ready to file a lawsuit whenever they believe they have grounds. Regardless of the company’s size, shareholders demand an increasing say in how the company gets run and are much more likely to sue in modern times. Shareholder derivative lawsuits can be filed against both private and public companies. Minority owners will often file a lawsuit against a private company when they believe they are being disregarded and have a lesser say over their investment. If the plaintiff wins the shareholder derivative lawsuit, the directors and management must pay the company’s damages. In some cases, plaintiffs file a derivative lawsuit to force reforms on the directors and their way of managing the company. At King & Jones, we represent shareholders and companies in shareholder derivative actions, using the facts to make your most robust case.
Shareholder Oppression Lawsuits
Shareholders may be in a difficult position because, while they invest their money in the company, they do not always get to participate in the day-to-day management or running of the company. Nonetheless, even if shareholders do not get to make business decisions, they have certain rights by virtue of their investment in the company. The bylaws and shareholder agreements usually state the full extent of shareholder rights. For example, shareholders will usually have the right to:
- Participate in regular meetings of shareholders
- Inspect shareholder records
- Vote on shareholder resolutions
Examples Of Potential Shareholder Oppression
Companies are accused of oppression through various means, including:
- Excessively paying corporate management, leaving little to no money left for dividends to shareholders
- Freezing out minority shareholders and denying them access to the company and its records
- Holding company meetings where the shareholder will have a right to vote but doing it in secret without informing the shareholder
- Changing corporate policies to reduce the power of minority shareholders
- Issuing new stock that dilutes the ownership interest and voting power of the minority shareholder
- Creating a stock buyback plan that leaves out the minority shareholders and only accommodates the majority shareholders
In the event of a shareholder oppression lawsuit, a court will first look at the bylaws and shareholder agreement to determine the extent of the shareholder’s rights. Then, the court will consider the facts of the situation to see if the conduct violated the shareholder’s rights.
Shareholder Oppression Lawsuits Can Affect The Future Of The Company
Shareholder oppression lawsuits can grow into high-stakes matters. They can put the company on the line, depending on the result of the case. A court has broad discretion to order statutory or injunctive relief. Although courts usually avoid an injunction, shareholder oppression lawsuits require skilled representation regardless. Here are some of the remedies that courts may order in a shareholder oppression lawsuit:
- Dissolving the corporation entirely and distributing the assets to the shareholders (although this is a rare and extraordinary remedy that occurs when there is extreme hostility among the shareholders)
- Appointing a custodian to run the company
- Ordering the corporation to buy out the minority shareholders
- Ordering the majority shareholders to give an accounting of corporate funds and how they have been spent (potentially then leading to a shareholder derivative action if the directors or majority shareholders have breached their fiduciary duties)
- Mandating that the minority shareholders receive access to the corporate books
Courts can order a buyout of the minority shareholder at a “fair market value” and can also order them to pay the minority shareholder compensatory damages they have suffered.
Shareholder Inspection Lawsuits
Shareholders may also file a lawsuit to enforce their own right to inspect the books and records of the company. Shareholders usually have a right to inspect:
- The company’s accounting records
- Minutes of the shareholder meetings
- Records of shareholders
