Legal Question in Business Law in California

what actions, if any, does a shareholder have against a director or board of directors of a closely held corporation for passing a motion to increase dues after the annual budget proposing such an increase was vetoed?


Asked on 1/04/10, 11:44 am

1 Answer from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

To start off, I'm confused by the issue being over "dues." I would associate "dues" more with a membership organization such as a non-profit, an HOA or a golf club than an ordinary, for-profit business corporation. It would help to get a useful answer if you re-asked your question and explained what type of entity this is, and who the dues-payers are (what their relationship to the corporation is).

As a general rule, however, there are may be about three possible approaches for a shareholder who is displeased with the actions of the corporation's directors. One way is to avoid the courts and use the stockholder's rights to call a special meeting of shareholders to take whatever corrective action is permitted under the bylaws and is supported by a sufficient majority of shareholders entitled to vote.

If it is necessary to resort to the courts, there would be two types of action possible: a direct suit and a shareholder's derivative suit.

If the injury is to the shareholder directly, such as denying him dividends, voting rights, etc. then the shareholder can sue the corporation in his own name. If the principal harm being done by the directors is to the corporation itself rather than the shareholder bringing the suit, the suit would have to be brought as a derivative action whereby the plaintiff asks the court to order the directors to take necessary action that's being neglected, or to refrain from taking action that is injurious to the corporation.

Please feel free to contact me directly with some details so perhaps I can give you a more specific answer.

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Answered on 1/09/10, 12:21 pm


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