Another important right that shareholders can exercise is the right to sue the company. However, this right is not always available. In particular, certain circumstances allow a shareholder to sue his own company. For example, a shareholder corporation may sue a corporation if one of its directors or officers breaches a fiduciary duty or engages in various other illegal activities such as investor fraud. An owner can commit fraud by saying nothing. If the owner is aware of a financial problem and does not inform investors, the omission constitutes fraud. For example, a business owner who knows the income is not high enough to pay for expenses will mislead investors if they don`t tell them about it. A shareholder is any person, corporation or other institution that holds at least one share of the shares of the corporation. Essentially, a shareholder is the owner of the business. As more and more companies become public, the number of people who qualify as shareholders has increased. As a result, there has been more confusion as to whether a shareholder has rights against a senior executive or the board of directors of a company. The court was cautious in considering the second proposal as a narrow and limited means of compensating shareholders for impairment losses of shares that otherwise cannot be recovered by the company. So what if a shareholder is personally harmed by a loss in the value of the company`s stock? Does the shareholder have a personal cause of action? According to a rigorous analysis by Foss v.
Harbottle, the answer is no. The dispute in question is the subject of a decision last month by Judge Joan Madden of the New York County Supreme Court in a case called Sports Legends, Inc. v. Carberry, 2008 NY Slip Op 30718 (U) (Sup Ct NY County March 10, 2008). The case occurred when one of the two 50% shareholders of a sports memorabilia company organized a lawsuit on behalf of the company against the other shareholder, asserting claims for the recovery of company property allegedly taken from the defendant and not returned. The main issue in the court`s decision, which was not relevant in the present case, was whether the action was time-barred by the limitation period (the court found that to be the case). Second, and the reason I am discussing the case, the court considered whether the shareholder who brought the lawsuit on behalf of the corporation had the authority to do so. Suppose the company dissolves and the shareholders cannot be found. That still doesn`t mean you`re not necessarily lucky. You may have a remedy: You may be able to sue the buyer of the business in state or, in some cases, federal court. The third exception applies to what lawyers call a “de facto merger.” A merger takes place in which two or more companies merge into a single company. In a standard merger, the buyer automatically becomes liable for all debts of the seller.
On the other hand, there is a “de facto merger” or de facto merger when the sale of a company mimics the result of a merger other than the assumption of liabilities. It is true that the general rule is that the buyer of a company is not responsible for the seller`s debts. But under the doctrine of “corporate estate liability,” you might be able to recover. There are generally four (or in some situations six) exceptions to the general rule under this doctrine. A sixth possible exception is called the “product line” exception. The purpose is only to compensate a person who suffers bodily injury caused by a product manufactured by the Seller. A buyer who continues to produce the exact same product as the seller may be held liable to an applicant for a defective product, even if he did not own the company that manufactured the specific product. This fifth exception is the “business continuity” exception. This is an extension of the simple continuation exception, but with a different purpose. The simple continuation exception asks whether there is a continuation of the business; The Business Continuity exception concerns the seller`s business operations. In particular, a court will focus on the following factors: ii.
There is no danger from a variety of procedures. The corporation has no cause of action, so only the shareholder can assert the claim; and i. if both the partner and the company have separate and different means against the defendant. In this scenario, “identical or overlapping facts” are an injustice punishable by prosecution of the company and the shareholder. In the court`s view, this may be the case if a shareholder and a corporation have grounds of action against the chief executive officer for distorting the value of the corporation`s stock; The second exception is when the buyer agrees to be responsible for the seller`s responsibilities. Typically, when a business is sold, the buyer and seller come together and decide how to allocate liabilities as part of the purchase price. In the company`s sales contract, the buyer may agree to be liable for all or part of the seller`s debts. In most cases, just because a business is sold doesn`t mean it`s no longer responsible for its debts. If it still exists after the sale, you can sue it as if it had not been sold. It`s as simple as that. When a company is formed, the owner and all controlling investors enjoy liability protection.
Your personal property cannot be sued to satisfy a lawsuit or pay off business debts. However, this protection is not absolute. Prosecutors have overcome the obstacle of liability protection in fraud cases. This is called “piercing the corporate veil”. Fraudulent actions by the owner or officers of a business can result in personal liability. In general, an LLC owner is not legally responsible for the company`s actions. However, there are certain situations in which an owner can be sued.3 min read An LLC provides protection for the owner`s assets and does not make them liable to the company`s creditors. In addition, an owner cannot usually be sued for shares in the business. Of course, there are situations in which the protection of personal liability has been lost. Bloorston Farms notes that a shareholder may assert a claim for a reduction in the value of the company`s shares when only the shareholder, not the company, has the right to sue the defendant. The first exception is fraud. Judges hate fraud.
If you can prove that the fraud was involved in the sale of the business, you may be able to take legal action. For example, if the buyer was created solely for the purpose of evading its debts, a court could hold the buyer liable. There are exceptions, such as “derivative shares”. But even in these cases, shareholders simply file the spin-off lawsuit “on behalf of” the company. The lawsuit still belongs to the company. The owner of a business has a fiduciary responsibility. This means that investors have placed their trust in the owner to manage and protect the company`s money and assets. If the owner violates this trust by mistreating funds or other business assets and then concealing that violation, investors can invoke fraud. Corporate liability protection does not protect the owner from this type of misconduct. (4) an infringement of a shareholder`s property rights, even if it is argued that Cusenza contributed more capital to Sports Legends, such a contribution would not give it the power to file that share on behalf of the company. The provision at issue in the present case applies on the basis of the same holding, and not on the relative amount of the capital contributions made by those shareholders. See Abelow v.
Grossman, 91 AD2d 553 [1st Dept 1982], appeal dismissed, 58 NY2d 1112 [1983]; Tidy-House Paper Corp. v. Adlman, 4 AD2d 619 [1st Division 1957]. Since Sports Legends does not deny that Carberry and Cusenza each held 50% of the shares of Sports Legends, Cusenza cannot maintain this promotion on behalf of the Company.
