In business, everyone needs capital. Companies seek capital from investors and investors seek to gain a healthy return from those companies in which they invest their capital. When a company sells securities to an investor in exchange for their capital, the company’s directors and officers have fiduciary duties of loyalty, care, and disclosure to their investors. The trust in these fiduciary duties are the bedrock of the capital markets without which it ceases to function.
Warren Law Group is experienced in handling shareholder litigation matters in both state and federal court as well as arbitration. Litigation is brought by shareholders (on behalf of the corporation) against its officers or directors for many reasons. In some cases, shareholders bring suits against directors or officers for their actions that caused economic harm to their fellow shareholders, the corporation itself, other fiduciaries, such as fraud, negligence, and liability claims, frequently accompany such lawsuits. They are also commonly brought on their own.
If an officer or director of a company breaches their fiduciary duties of obedience, loyalty, and/or care, shareholders may seek damages and compensation, and sometimes receive punitive damages from the offending party, through litigation. Many activities can constitute a breach of fiduciary such as theft of business leads, withholding information from shareholders, breaching confidentiality agreements, and many other actions or inactions by a fiduciary.
Perhaps the most common type of shareholder litigation is brought by minority shareholders who are economically harmed by the decisions of their corporation’s officers or directors known as a “derivative action.” For example, a shareholder may disagree with the terms of a deal struck by the directors of a company and feel unfairly compensated or believe that the direction the board is taking the company is detrimental to the shareholder’s financial interests. Most derivative actions arise from a merger, acquisition, or other transaction which materially affects the value of a shareholder’s investment.
All owners, shareholders, and business partners have a right to a full and complete accounting of corporate books and records such as financial statements, meeting minutes, corporate resolutions, and agreements from transactions. If corporate officers neglect or decline to provide such accounting information, shareholders have a right to sue for access to those records and pursue any legal claims they discover in those records. Many investors are denied the ability to understand how their investment money was used which prevents them from knowing how their investment is performing. If a derivative action suit must be brought in the first place, it may indicate underlying malfeasance requiring further legal investigation.