Skilled Chicago Lawyer for Shareholder Disputes
Shareholder lawsuits are complex legal battles that involve accusations of wrongdoing by a company in its operations or treatment of shareholders. Balancing the interests of the company and its minority shareholders can be challenging, especially when power dynamics are at play. These disputes often escalate quickly, becoming high-stakes matters fueled by strong emotions.
At King & Jones, our experienced Chicago shareholder litigation attorneys can provide you with practical and sensible solutions for these disputes. It’s crucial to seek legal representation when dealing with a shareholder dispute, as handling it alone can lead to unfavorable outcomes. We represent both companies and shareholders, utilizing our expertise in heavy-hitting litigation when necessary.
With a long history of representing businesses, ranging from entrepreneurs to large corporations, our law firm has earned a reputation as skilled litigators. We have secured published court decisions, including cases where we represented minority shareholders in squeeze-out actions, as well as cases involving majority shareholders. Whether we negotiate a favorable settlement or take your matter to court, we ensure that our expertise in negotiation and trial advocacy is utilized at every stage of the process.
Shareholder lawsuits can arise in various contexts, some of which we describe below. However, it is essential to discuss any concerns related to shareholder issues with the legal team at King & Jones.
Shareholder Derivative Lawsuits
One of the most common types of shareholder lawsuits is a derivative lawsuit. In this type of lawsuit, shareholders sue directors on behalf of the company. Typically, shareholders claim that the directors have breached their fiduciary duty, causing harm to the company. Each director has specific obligations to the company, and they can be held personally liable for breaching these duties.
Here are the primary breaches of duty that can give rise to a shareholder derivative lawsuit:
- Excessive executive pay packages that shareholders believe are unjustified.
- Allegations of self-dealing, where corporate executives prioritize their interests over the company’s.
- Violations of Securities and Exchange Commission rules regarding corporate oversight or reporting.
- Careless or reckless behavior by board members that breaches their duty of care.
At King & Jones, we handle shareholder derivative cases, and we encourage you to reach out to discuss your potential matter with our team today.
The number of shareholder derivative lawsuits is increasing, especially with a focus on Environmental, Social, and Governance (ESG) issues and a more involved SEC. Board members now have more complex responsibilities, and shareholders are quick to initiate lawsuits whenever they believe they have grounds. Shareholder derivative lawsuits can be filed against both private and public companies.
If the plaintiff wins the shareholder derivative lawsuit, the directors and management may be required to pay damages to the company. In some cases, plaintiffs file derivative lawsuits to force reforms on the company’s management.
Shareholder Oppression Lawsuits
Shareholders often find themselves in a challenging position where they invest their money in a company but have limited involvement in its day-to-day operations. Despite not making business decisions, shareholders still have certain rights based on their investment.
The company’s bylaws and shareholder agreements typically outline the full extent of shareholder rights. These may include the right to participate in shareholder meetings, inspect shareholder records, and vote on shareholder resolutions.
Companies may face accusations of oppression through various means, including:
- Excessive compensation for corporate management, leaving little to no money for shareholder dividends.
- Isolating and denying minority shareholders access to company records and decision-making.
- Holding secret shareholder meetings without informing the shareholders who have voting rights.
- Changing corporate policies to diminish the power of minority shareholders.
- Issuing new stock that dilutes the ownership interest and voting power of minority shareholders.
- Implementing a stock buyback plan that excludes minority shareholders, favoring majority shareholders.
When a shareholder oppression lawsuit arises, the court examines the company’s bylaws and shareholder agreement to determine the extent of the shareholder’s rights. The court then considers the factual circumstances to determine if there has been a violation of the shareholder’s rights.
Shareholder oppression lawsuits can have significant implications for a company’s future, potentially putting the entire business at risk. Courts have broad discretion to order statutory or injunctive relief, with remedies that range from dissolving the corporation to ordering the buyout of minority shareholders. Skilled legal representation is necessary, even if an injunction is unlikely.
Shareholder Inspection Lawsuits
Shareholders may also file a lawsuit to enforce their right to inspect a company’s books and records. Shareholders typically have the right to inspect accounting records, minutes of shareholder meetings, and records of shareholders.
Under Illinois law, shareholders can inspect and copy certain records after submitting a written request to the company. Shareholders of closely held companies, LLCs, and partnerships are granted the same rights as shareholders of public corporations. However, shareholders must have a valid purpose for inspecting these records, and the burden of proof lies with them.
Disputes can arise regarding shareholders’ access to these records and the extent of their rights. Such disputes often occur during scheduled shareholder votes or when conflicts arise among shareholders. Businesses must have valid reasons for rejecting a shareholder’s request, as denying a reasonable and legitimate inspection can lead to more significant problems in the future.
In some cases, shareholders may go to court to gain access to corporate records. They seek equitable orders for access rather than monetary damages, although the court may require the defendant to pay the plaintiff’s enforcement costs. If a shareholder can prove wrongful denial of access, the court will compel the inspection.
Shareholder litigation consumes both time and money. For CEOs, a shareholder lawsuit can be distracting and embarrassing, with accusations becoming part of the public record. The litigation process requires significant resources to defend, and negative publicity can impact future control and business operations. As a shareholder, your investment is also at stake, and others’ actions can potentially cost you money without your consent. Taking prompt legal action is crucial to protect your investment from being diluted or devalued.
It is always advisable to hire an experienced shareholder litigation attorney, whether you are a shareholder or a company. Shareholder disputes, particularly in closely-held companies, often involve strong emotions. An attorney can guide you through the process, helping you find practical resolutions and potentially avoiding actual litigation. At King & Jones, we are dedicated to securing the best outcomes for our clients. With our expertise in this complex area of the law, we approach each case pragmatically or aggressively, depending on the situation. We are committed to serving your needs effectively, whether through negotiation, mediation, arbitration, or litigation.
Call us today at (312) 900-8183 or contact us through our website to schedule your consultation with our experienced Chicago shareholder litigation lawyers.