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.Free Case Evaluation
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:
DUTY OF LOYALTY
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.
DUTY OF CARE
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:
- 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
Under Illinois law, like many states, shareholders can inspect and copy certain records after making a written request from the company. Shareholders in closely held companies (as well as LLCs and partnerships) have the same rights as public corporations. However, a shareholder must have a proper purpose to inspect these records, and they have the burden of proof to show it.
Disputes may arise about whether shareholders can gain access to these records and the extent of their access. These disputes often arise when there is a scheduled shareholder vote or a dispute between shareholders. If you are running the business, you need to have a good-faith reason for rejecting the request.
Sometimes, a shareholder may go to court to gain access to these records. They seek an equitable order from the court for access, as opposed to monetary damages (although the court can order the defendant to pay the costs that the plaintiff has incurred in enforcing their shareholder rights). The court will compel the inspection if the shareholder can prove that they have wrongfully been denied access to these records.
If a shareholder has to bring a lawsuit to gain access to corporate records, it may be the first step toward a possible shareholder oppression lawsuit. Businesses need to be careful about saying no to a reasonable and legitimate request for a shareholder inspection because it can lead to more significant problems in the future. While a business may have a legitimate reason for denying a formal request for a shareholder inspection, it must tread carefully.
Shareholder Litigation Consume Time And Money
If you are a CEO, a shareholder lawsuit can distract and embarrass you and your business. The accusations enter the public record, and the lawsuit will require both time and money to defend. Shareholders and the media may question how you run your company, affecting your future control and ability to conduct business.
If you are the shareholder, your investment is on the line, and the actions of others can cost you money without your say. The law and your specific shareholder agreement give you the legal right to take action. Take prompt legal action to avoid finding yourself in a deep financial hole with your investment diluted or devalued.
While you will generally want to avoid shareholder lawsuits, they are sometimes an unfortunate necessity. You want King & Jones handling the litigation process in civil court for you.
You Should Always Hire An Experienced Shareholder Litigation Attorney
Whether you are a shareholder or a company, you need an experienced lawyer from King & Jones to handle a shareholder lawsuit. Especially when you are dealing with a closely-held company, shareholder disputes can be fraught with emotion. Each side needs an experienced lawyer to advise them throughout the process.
An attorney can even help you avoid litigation in the first place. In some cases, parties can resolve their dispute without requiring actual litigation. Your lawyer can negotiate a satisfactory solution that keeps you out of court and meets your needs. Otherwise, you can become involved in an expensive process that may take a long time to resolve.
How A Shareholder Litigation Attorney Helps You?
You must hire a shareholder litigation attorney at the first sign of disagreement.
Our lawyers can:
- Learn the facts of your case and what is important to you
- Advise you on an interim strategy for dealing with the other parties
- Present your position to the other party in any informal discussions to resolve the matter
- Potentially help you take your case to mediation or arbitration to devise a solution that meets your needs at a fraction of the cost.
- Draft the complaint to begin litigation or file an answer to the complaint that got filed
- See your case through litigation, arguing your side in front of a judge or jury
- Representing you in any proceeding about the valuation of a business if a buyout is a solution.we have worked with many top valuation experts in this area.
At King & Jones, we focus on helping you obtain the best outcome to your dispute that works for you. We have experience in this complex and specialized area of the law, and we are pragmatic when necessary and aggressive when the situation calls for it. We will be in it for the long haul if the situation requires us to go the distance for you. Our focus is on your needs and the most effective solution for you.