Are you a concerned corporate investor or minority shareholder wondering how to bring a minority shareholder lawsuit in California?  What is a shareholder lawsuit and when is this an important strategy to consider?  Corporate shareholders with voting shares are in a position of ownership in a C-Corporation, S-Corporation, California Professional Corporation (PC), or a Management Services Organization (MSO).

The majority interest in a corporation is the individual or group of shareholders who own enough of the corporate shares in that company to have the controlling interest.  They hold the power to influence or outright decide the majority of the decisions associated with the company, its leadership, distribution of income and selection of leadership.

Minority shareholders may hold a significant percentage of the outstanding shares of the corporation, but neither a majority of the outstanding shares or the associated voting privileges.  When an investor purchases an interest in a corporation, they are usually given shares in the company based upon the value of their investment.  In many cases these shares provide the minority interest with the ability to influence some decisions, or perhaps to name one or two of the Corporate Directors but they cannot make important decisions regarding the payment of salaries to corporate officers and directors, distributions or the direction of the company.

When a shareholder is concerned about the actions of a corporate officer or director, or the direction of the company itself they are entitled to bring a shareholder lawsuit on their own behalf, or a derivative action on behalf of the company itself against the majority interests – those making the decisions.  Many shareholders have no idea how to begin the process of legally holding majority shareholders accountable.

Pro-Tip: “Shareholders, depending on how much of an interest they own, what percentage of the company they own, they have a general right, to see the corporation’s financial disclosures, even if they’re, uh, less than 5% shareholder. And if they’re more than 5% shareholder, they have the right to audit the company’s books and records. And sometimes they’ll be told they have to sign a non-disclosure agreement to do so, but they can literally give notice and appear in two weeks at the company offices and start making copies or investigating what’s going on with the company. Or if that doesn’t happen, we can literally file a motion in court on their behalf and have a judge order immediate access. They’d be given access to the books and records of the company.

There protections from minority shareholders against wrongful actions, by the majority interest or officers and directors.  There are laws in place that protect them. But unless they have some type of shareholder agreement or some type of assurances or representations and warranties, then they just have the right to grievance in court.

For example, we’ve had so many shareholder fights where a company, a group of friends or a group of friends who know friends, maybe 30 people invest in a company and it’ll be doing well, but not great. And the investors, the shareholders won’t be receiving disclosures. Or, they will be receiving them, but they sort of don’t add up. And then they do an investigation and they come to the Watkins Firm and they say, ‘well, let’s get in there seeing the books and records,’ and you get some pushback from the company.

And that’s when all the hairs in your neck stand up and you come back to the Watkins firm and we file a motion. And we discover through our due diligence that the company’s doing very good and that they also formed an offshore corporation of the same name. And they’ve taken all the assets and they’re all driving Rolls-Royces. So this has happened more times than I can say, because it just does happen. Nobody fights over anything unless there’s money involved. If it’s just doing okay, they would tell the truth and say, it’s all great. But if that big money offer comes in the door and they have a way of keeping it for themselves, it’s very tempting for human nature to turn that down.

If you are an investor in a business, a member or a shareholder and you are concerned about how the company is being managed or access to the information you deserve as a shareholder or investor, contact the Watkins Firm and let us take a look at your concerns.  It’s a free consultation, and that discussion has literally been worth millions for some of our clients in the past.” – Dan Watkins, Founding Partner

The Watkins Firm are San Diego based shareholders’ rights attorneys and business litigation lawyers with more than four decades of experience and legal skill in investor-related lawsuits and shareholder’s rights here in California.  If you are a shareholder who is concerned about the direction of the company or are experiencing bullying from majority shareholders such as a “freeze out” (denial of access to the books or important corporate documents) or improper distributions and want to learn more about when and how to bring a shareholder lawsuit we invite you to review our podcast Episode 14 – Shareholder’s Rights as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.